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This is filed pursuant to Rule 497(c).
File Nos. 333-8818 and 811-9176.
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Alliance Select Prospectus and Application
Investor Series,
Premier Portfolio March 1, 1999
The Premier Portfolio is the initial portfolio of Alliance Select
Investor Series, Inc., an open-end management investment company
structured as a series fund that will offer a selection of investment
alternatives to the sophisticated investor.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation to
the contrary is a criminal offense.
AllianceCapital [LOGO](R)
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TABLE OF CONTENTS
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Page
RISK/RETURN SUMMARY .................................................... 3
FEES AND EXPENSES OF THE FUND .......................................... 5
GLOSSARY ............................................................... 6
DESCRIPTION OF THE FUND ................................................ 6
Investment Objective, Policies and Risk Considerations ................. 6
Description of Investment Practices .................................... 8
Additional Risk Considerations ......................................... 13
MANAGEMENT OF THE FUND ................................................. 15
PURCHASE AND SALE OF SHARES ............................................ 17
How The Fund Values Its Shares ......................................... 17
How To Buy Shares ...................................................... 17
How To Exchange Shares ................................................. 17
How To Sell Shares ..................................................... 17
DIVIDENDS, DISTRIBUTIONS AND TAXES ..................................... 18
DISTRIBUTION ARRANGEMENTS .............................................. 19
GENERAL INFORMATION .................................................... 20
FINANCIAL HIGHLIGHTS ................................................... 21
The Fund's investment adviser is Alliance Capital Management L.P., a global
investment manager providing diversified services to institutions and
individuals through a broad line of investments including more than 100 mutual
funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the Alliance Select
Investor Series, Premier Portfolio. This Summary describes the Fund's objective,
principal investment strategies, principal risks and fees. This Summary includes
a short discussion of some of the principal risks of investing in the Fund.
A more detailed description of the Fund, including the risks associated with
investing in the Fund, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest. The Fund may at
times use certain types of investment derivatives such as options, futures,
forwards and swaps. The use of these techniques involve special risks that are
discussed in this Prospectus.
The value of an investment in the Fund changes with the values of the Fund's
investments. Many factors can affect those values. In this Summary, we describe
the principal risks that may affect the Fund's portfolio as a whole. The Fund
could be subject to additional principal risks because the types of investments
made by the Fund can change over time. This Prospectus has additional
descriptions of investments that appear in bold type in the discussions under
DESCRIPTION OF INVESTMENT PRACTICES or ADDITIONAL RISK CONSIDERATIONS. These
sections also include more information about the Fund, its investments, and
related risks.
Other important things for you to note:
o You may lose money by investing in the Fund.
o An investment in the Fund is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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Premier Portfolio
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OBJECTIVE:
The Fund seeks long-term growth of capital through all market conditions.
PRINCIPAL INVESTMENT STRATEGIES:
The Fund invests primarily in a non-diversified portfolio of equity securities
of large, intensively researched, high-quality companies that are judged likely
to achieve superior earnings growth. To take advantage of investment
opportunities in both rising and falling markets and in an effort to enhance
returns, the Fund may make substantial use of short-selling and other investment
practices, such as options, futures, forwards, and leverage. In contrast to most
equity funds, the Fund focuses on a relatively small number of intensively
researched companies. Alliance selects the Fund's investments from a research
universe of more than 600 companies that have strong management, superior
industry positions, excellent balance sheets, and superior earnings growth
prospects.
Normally, the Fund invests in about 40-50 companies, with the 25 most highly
regarded of these companies usually constituting substantially all of the Fund's
net assets. The Fund will seek to take advantage of what Alliance believes are
opportunities presented by unwarranted fluctuations in the prices of securities,
both to purchase or increase positions on weakness and to sell or reduce
overpriced holdings. The Fund also may invest up to 35% of its total assets in
foreign securities and up to 20% of its total assets in convertible securities.
PRINCIPAL RISKS:
Among the principal risks of investing in the Fund is market risk. Because the
Fund uses derivatives strategies and other leveraging techniques speculatively
to enhance returns, it is subject to greater risk and its returns may be more
volatile than other funds, particularly in periods of market declines. The
Fund is "non-diversified," which means that it invests in a smaller number of
securities than many other equity funds. As a result, changes in the value of
a single security may have a more significant effect, either negative or
positive, on the Fund's net asset value. The Fund's investments in foreign
securities have foreign risk and currency risk. The Fund's investments in
fixed-income securities have interest rate risk.
The Fund is appropriate for the sophisticated investor who understands and is
willing to assume the risks of the Fund's aggressive investment strategies. The
Fund is not a complete investment program and investors should invest only a
portion of their assets in the Fund.
There is no bar chart or performance table for the Fund because it has not
completed a full calendar year of operations.
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FEES AND EXPENSES OF THE FUND
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This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER TRANSACTION EXPENSES (fees paid directly from your investment)
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Maximum Sales Charge
(Load) Imposed on
Purchases (as a
percentage of
offering price) 4.25% None None
Maximum Deferred Sales
Charge (Load) (as a
percentage of original
purchase price or
redemption proceeds,
whichever is lower) None 4.0% 1.0%
during the 1st during the
year, decreasing 1st year,
1.0% annually to 0% thereafter
0% after the
4th year*
Exchange Fee None None None
* Class B Shares automatically convert to Class A Shares after 8 years.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) and
EXAMPLES
The Examples are to help you compare the cost of investing in the Fund with the
cost of investing in other funds. They assume that you invest $10,000 in the
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. They also assume that your investment has a 5% return each
year, that the Fund's operating expenses stay the same and that all dividends
and distributions are reinvested. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ----------------------------------------------------- ----------------------------------------------------------------------
Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) 1.10% 1.10% 1.10% After 1 Yr. $ 667 $ 723 $ 323 $ 423 $ 323
Rule 12b-1 fees .30% 1.00% 1.00% After 3 Yrs. $1,170 $1,186 $ 986 $ 986 $ 986
Other expenses 1.30% 1.29% 1.29% After 5 Yrs. $1,699 $1,674 $1,674 $1,674 $1,674
Total Fund ==== ==== ==== After 10 Yrs. $3,140 $3,343(c) $3,343(c) $3,503 $3,503
operating expenses 2.70% 3.39% 3.39%
==== ==== ====
Waiver and/or expense
reimbursement(b) (.20)% (.19)% (.19)%
Net expenses 2.50% 3.20% 3.20%
==== ==== ====
</TABLE>
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+ Assumes redemption at the end of period.
++ Assumes no redemption at end of period.
(a) The basic management fee is 1.10%, but it may range from .80% to 1.40%
depending on the Fund's performance.
(b) Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses. In
addition, with respect to such waivers and/or reimbursements through July
31, 1999, the Fund may reimburse Alliance for these fee waivers and
expense reimbursements through October 31, 2001. These reimbursements will
not occur if they would cause the Fund's total operating expenses on an
annualized basis to exceed the amounts shown in the table or the Fund's
initial organizational and operating expenses.
(c) Assumes Class B shares convert to Class A after 8 years.
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GLOSSARY
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This Prospectus uses the following terms.
TYPES OF SECURITIES
Convertible securities are fixed-income securities that are convertible into
common stock.
Debt securities are bonds, debentures, notes, bills, loans, other direct debt
instruments, and other fixed, floating and variable rate debt obligations, but
do not include convertible securities.
Equity securities are (i) common stocks, partnership interests, business trust
shares, and other equity ownership interests in business enterprises, and (ii)
securities convertible into, and rights and warrants to subscribe for the
purchase of, such stocks, shares, and interests.
Fixed-income securities are debt securities and dividend-paying preferred
stocks, including floating rate and variable rate instruments.
Non-U.S. company is an entity that (i) is organized under the laws of a country
other than the United States and has its principal office in a country other
than the United States, or (ii) the equity securities of which are traded
principally in securities markets outside the United States.
Rule 144A securities are securities that may be resold pursuant to Rule 144A of
the Securities Act.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
RATING AGENCIES
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Rating Services.
OTHER
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Exchange is the New York Stock Exchange.
Securities Act is the Securities Act of 1933, as amended.
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DESCRIPTION OF THE FUND
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This section of the Prospectus provides a more complete description of the
Fund's investment objective, principal strategies and principal risks. Of
course, there can be no assurance that the Fund will achieve its investment
objective.
Please note:
o Additional discussion of the Fund's investments, including the risks of
the investments that appear in bold type can be found in the discussion
under Description of Investment Practices following this section.
o The description of the Fund's risks may include risks discussed in the
Risk/Return Summary above. Additional information about risks of investing
in the Fund can be found in the discussions under Additional Risk
Considerations.
o Additional descriptions of the Fund's strategies and investments, as well
as other strategies and investments not described below, may be found in
the Fund's Statement of Additional Information or SAI.
o The Fund's investment objective is "fundamental" and cannot be changed
without a shareholder vote and, except as noted, the Fund's investment
policies are not fundamental and thus can be changed without a shareholder
vote.
INVESTMENT OBJECTIVE, POLICIES AND RISK CONSIDERATIONS
The Fund's investment objective is to seek long-term growth of capital through
all market conditions.
How the Fund Pursues Its Objective
Consistent with the investment style of Alliance's Large Cap Growth Group, the
Fund will invest in a "Core Portfolio" of equity securities of large,
intensively researched, high-quality companies that are judged likely to achieve
superior earnings growth. As a matter of fundamental policy, the Fund invests at
least 65% of its total assets in these type of companies. In Alliance's view,
high-quality companies are larger capitalization companies (companies with
market capitalizations generally expected to exceed $5 billion) that possess,
among other things, relatively long operating histories, strong management,
superior industry positions and excellent balance sheets. The Fund will seek to
take advantage of what Alliance believes are opportunities presented by
unwarranted fluctuations in the prices of securities, both to purchase or
increase positions on weakness and to sell or reduce overpriced holdings. To
take advantage of investment opportunities in both rising and declining markets,
the Fund may engage in short selling and may use certain other investment
practices, including options, futures and forward contracts, and leverage.
The Fund's Core Portfolio, which will constitute at least the majority of, and
at times may constitute substantially all of, its total assets, will consist of
the equity securities of the 25 companies that are most highly regarded by
Alliance's Large Cap Growth Group at any point in time. These Core Portfolio
6
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companies will be predominantly U.S. companies. The balance of the Fund's
portfolio will be invested in equity securities of other U.S. and non-U.S.
companies that Alliance considers to have exceptional growth potential.
Normally, about 40 companies will be represented in the Fund's portfolio. The
Fund thus differs from more typical equity mutual funds because it invests most
of its assets in a relatively small number of intensively researched companies.
The Fund may invest up to 35% of its total assets in equity securities of
non-U.S. companies. Equity securities of non-U.S. companies will be selected by
Alliance for investment by the Fund on the basis of the same growth potential
and other characteristics as equity securities of U.S. companies.
Within the Fund's investment framework, Alliance's Large Cap Growth Group, led
by Alfred Harrison, Vice Chairman of Alliance Capital Management Corporation,
the general partner of Alliance, will make day-to-day investment decisions for
the Fund. Alliance depends heavily upon the fundamental analysis and research of
its large internal research staff in making investment decisions for the Fund.
The research staff generally follows a primary research universe of
approximately 600 companies that are considered by Alliance to have strong
management, superior industry positions, excellent balance sheets, and the
ability to demonstrate superior earnings growth. As one of the largest
multi-national investment firms, Alliance has access to considerable information
concerning all of the companies it follows, an in-depth understanding of the
products, services, markets, and competition of these companies, and a good
knowledge of these companies' managements.
Alliance's analysts prepare their own earnings estimates and financial models
for each company followed. While each analyst has responsibility for following
companies in one or more identified sectors and/or industries, the lateral
structure of Alliance's research organization and constant communication among
the analysts result in decision-making based on the relative attractiveness of
stocks among industry sectors. The focus during this process is on the early
recognition of change on the premise that value is created through the dynamics
of changing company, industry, and economic fundamentals. Alliance's research
emphasizes identifying companies whose substantially above average prospective
earnings growth is not fully reflected in current market valuations.
Alliance continually reviews its primary research universe of approximately 600
companies to maintain a list of favored securities, the "Alliance 100,"
considered by Alliance to have the most clearly superior earnings potential and
valuation attraction. Alliance's concentration on a limited universe of
companies allows it to devote its extensive resources to constant intensive
research of these companies. Companies are continually added to and deleted from
the Alliance 100 as fundamentals and valuations change. Alliance's Large Cap
Growth Group, in turn, further refines, on a weekly basis, the selection process
for the Fund, with each portfolio manager in the Group selecting the 25 such
companies which appear to the manager most attractive at current prices. These
individual ratings are then aggregated and ranked to produce a composite list of
the 25 most highly regarded stocks, the "Favored 25".
In the management of the Fund's investment portfolio, Alliance will seek to
utilize market volatility judiciously (assuming no change in company
fundamentals) to adjust the Fund's portfolio positions. The Fund will strive to
capitalize on unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. Under normal
circumstances, the Fund will remain substantially fully invested in equity
securities and will not take significant cash positions for market timing
purposes. Rather, during a market decline, while adding to positions in favored
stocks, the Fund will tend to become somewhat more aggressive, gradually
reducing the number of companies represented in the Fund's portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund will tend to become somewhat more conservative, gradually
increasing the number of companies represented in the Fund's portfolio. Through
this "buying into declines" and "selling into strength," Alliance seeks to gain
positive returns in good markets while providing some measure of protection in
poor markets.
The Fund also may:
o engage in short sales of securities for up to 30% of its total
assets;
o invest up to 20% of its total assets in convertible securities;
o invest up to 5% of its total assets in rights or warrants;
o write covered put and call options and purchase put and call options on
U.S. and foreign securities exchanges and over the counter, including
options on market indices, and write uncovered options for cross hedging
purposes;
o enter into contracts for the purchase and sale for future delivery of
common stocks and purchase and write put and call options on such futures
contracts;
o enter into contracts for the purchase and sale for the future delivery of
foreign currencies or contracts based on financial indices, including any
index of U.S. Government securities or securities issued by foreign
government entities;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o enter into forward commitments for the purchase or sale of securities;
o enter into reverse repurchase agreements and dollar rolls;
o enter into standby commitment agreements;
o enter into currency swaps for hedging purposes;
o make secured loans of its securities of up to 30% of its total assets; and
o enter into repurchase agreements.
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Risk Considerations. Among the principal risks of investing in the Fund are:
o Market Risk This is the risk that the value of the Fund's investments will
fluctuate as the stock or bond markets fluctuate and that prices overall
will decline over short or longer-term periods.
o Credit Risk This is the risk that the issuer of a security will be unable
or unwilling to make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for a particular
security may be reflected in its credit rating.
o Interest Rate Risk This is the risk that changes in interest rates will
affect the value of a Fund's investments in income-producing, fixed-
income (i.e., debt) securities. Increases in interest rates may cause the
value of a Fund's investments to decline.
o Derivative and Leverage Risk The Fund may make substantial use of
derivatives and employ specialized trading techniques such as short sales,
options, futures, forwards, and leverage to increase its exposure to
certain selected securities. Alliance employs these techniques
speculatively to enhance returns and not merely as hedging tools. These
techniques are riskier than many investment strategies and will result in
greater volatility for the Fund, particularly in periods of market
declines.
o Foreign Risk This is the risk of investments in issuers located in foreign
countries. Investments in foreign securities may experience more rapid and
extreme changes in value than investments in securities of U.S. companies.
This is because the securities markets of many foreign countries are
relatively small, with a limited number of companies representing a small
number of industries. Additionally, foreign securities issuers are usually
not subject to the same degree of regulation as U.S. issuers. Reporting,
accounting, and auditing standards of foreign countries differ, in some
cases significantly, from U.S. standards. Also, nationalization,
expropriation or confiscatory taxation, currency blockage, or political
changes or diplomatic developments could adversely affect the Fund's
investments in a foreign country. In the event of nationalization,
expropriation, or other confiscation, the Fund could lose its entire
investment.
o Currency Risk This is the risk that fluctuations in the exchange rates
between the U.S. Dollar and foreign currencies may negatively affect the
value of the Fund's investments.
o Management Risk The Fund is subject to management risk because it is an
actively managed investment Fund. Alliance will apply its investment
techniques and risk analyses in making investment decisions for the Fund,
but there is no guarantee that its techniques will produce the intended
result.
o Focused Portfolio Risk This is the risk associated with investments in a
limited number of companies. The Fund is "non-diversified" meaning
that it invests its assets in a smaller number of companies than
many other Funds. These investments may have more risk because
changes in the value of a single security may have a more significant
effect, either negative or positive, on the Fund's net asset value.
DESCRIPTION OF INVESTMENT PRACTICES
This section describes the investment practices of the Fund and risks associated
with these practices. Unless otherwise noted, the Fund's use of any of these
practices was specified in the previous section.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which generally
provide a stable stream of income with generally higher yields than those of
equity securities of the same or similar issuers. The price of a convertible
security will normally vary with changes in the price of the underlying equity
security, although the higher yield tends to make the price of the convertible
security less volatile than that of the underlying equity security. As with debt
securities, the market values of convertible securities tend to decrease as
interest rates rise and increase as interest rates fall. While convertible
securities generally offer lower interest yields than non-convertible debt
securities of similar quality, they offer investors the potential to benefit
from increases in the market prices of the underlying common stocks.
The Fund will not invest in convertible debt securities rated below Baa by
Moody's and BBB by S&P, or, if not rated, determined by Alliance to be of
equivalent quality. Securities rated Baa by Moody's or BBB by S&P, and
comparable unrated securities as determined by Alliance are considered to have
speculative characteristics. Sustained periods of deteriorating economic
conditions or rising interest rates are more likely to lead to a weakening in
the issuer's capacity to pay interest and repay principal than in the case of
higher-rated securities. The Fund will not retain a convertible debt security
that is downgraded below Baa or BBB, or, if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase by
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 swap counterparty will default on its contractual
delivery obligations. 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
counterparty is rated in the highest rating category of at
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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.
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 the Fund may negotiate settlements beyond two months.
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.
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 realize a gain or incur a 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 entered into if, as a result, the
Fund's aggregate commitments under the transactions would be more than 30% of
its 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.
Forward Foreign Currency Exchange Contracts. The Fund may purchase or sell
forward foreign currency exchange contracts to minimize the risk of 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 a particular currency 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 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 does not enter into 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 securities decline. These 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 anticipated devaluation level.
Illiquid Securities. The Fund will limit its investment in illiquid securities
to no more than 5% of its net assets. Illiquid securities generally include (i)
direct placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps, (ii) over-the-counter options and assets used to
cover over-the-counter options, and (iii) repurchase agreements not terminable
within seven days.
Because of the absence of a trading market for illiquid securities, the Fund may
not be able to realize the price at which they are carried on the Fund's books
upon sale. Alliance will monitor the illiquidity of the Fund's investments in
such securities. Rule 144A securities will not be treated as "illiquid" for
purposes of this limit on investments.
The Fund may not be able to readily sell securities for which there is no ready
market. To the extent that these securities are foreign securities, there is no
law in many of the countries in which the Fund may invest similar to the
Securities Act requiring an issuer to register the sale of securities with a
governmental agency or imposing legal restrictions on resales of securities,
either as to length of time the securities may be held or manner of resale.
There may, however, be contractual restrictions on resale of securities.
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Loans of Portfolio Securities. The Fund may make secured loans of its portfolio
securities to entities with which it can enter into repurchase agreements,
provided that cash and/or liquid high grade debt securities equal to at least
100% of the market value of the securities loaned are deposited and maintained
by the borrower with the Fund. The risk in lending portfolio securities, as with
other extensions of credit, consists of the 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 from the
securities. The Fund may invest any cash collateral in portfolio securities and
earn additional income, or receive an agreed-upon amount of income from a
borrower who has delivered equivalent collateral. The Fund will have the right
to regain record ownership of loaned securities to exercise beneficial rights
such as voting rights, subscription rights, and rights to dividends, interest or
distributions. The Fund may pay reasonable finders', administrative, and
custodial fees in connection with a loan.
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 of the option 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.
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 an 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 is exercised, the underlying security would then be purchased or
sold by the Fund at a disadvantageous price. Entering into a closing transaction
(i.e., by disposing of the option prior to its exercise) could reduce these
risks. The Fund retains the premium received from writing a put or call option
whether or not the option is exercised. The writing of 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 of the types in which it
is permitted to invest 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. 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.
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.
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, the Fund may forfeit the
entire amount of the premium plus related transaction costs.
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 currency 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 or foreign currency 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.
The Fund will purchase options on futures contracts written or purchased that
are 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
10
<PAGE>
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 100% of its total assets.
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 be prevented from,
selling the collateral for its benefit.
Reverse Repurchase Agreements and Dollar Rolls. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive principal
and interest payments on these securities. Generally, the effect of such a
transaction is that the Fund can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by the Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During the
roll period, the Fund forgoes principal and interest paid on the securities. The
Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop") as
well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities the Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, the Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds.
Rights and Warrants. The Fund will invest in rights or warrants only if the
underlying 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,
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 of
these factors.
If the market price of the underlying security is below the exercise price of
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.
Short Sales. The Fund may utilize short selling in order to attempt both to
protect its portfolio against the effects of potential downtrends in the
securities markets and as a means of enhancing its overall performance. In
identifying short selling opportunities, the Large Cap Growth Group will use the
fundamental analysis and investment research strategy described above to
identify a small group of companies that it believes may decline in price as a
result of fundamental or market developments.
A short sale is a transaction in which the Fund sells a security it does not own
but has borrowed in anticipation that the market price of that security will
decline. The Fund may be required to pay a fee to borrow the security and to pay
over to the lender any payments received on the security.
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.
Although the Fund's gain is limited by the price at which it sold the security
short, its potential loss is unlimited.
In order to defer realization of gain or loss for U.S. federal income tax
purposes, the Fund may also make short sales "against the box". In this type of
short sale, at the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the identical security.
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.
11
<PAGE>
At the time of entering into the agreement, the Fund is paid a commitment fee,
regardless of whether the security ultimately is issued, typically equal to
approximately 0.5% of the aggregate purchase price of the security the Fund has
committed to purchase. The Fund will enter into such agreements only for the
purpose of investing in the security underlying the commitment at a yield and
price considered advantageous to the Fund and unavailable on a firm commitment
basis. The Fund will 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.
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 a stock index future and movements in the price of the securities which
are the subject of the hedge. The price of a stock index future may move more
than or less than the price of the securities being hedged. If the price of a
stock index future 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 futures contract. If the price
of the index future moves more than the price of the stock, the Fund will
experience either a loss or gain on the futures contract 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 a stock index future, 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 stock index, or if otherwise deemed
to be appropriate by Alliance. 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
Alliance. It is also possible that, where 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
index futures are based, although there may be deviations arising from
differences between the composition of the Fund and the stocks comprising the
index.
Where a stock index futures contract is 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.
In addition to the possibility that there may be an imperfect correlation, or no
correlation at all, between movements in 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. 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 a
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
futures 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 that 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. As described above, however, 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.
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<PAGE>
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.
General. The successful use of the investment practices described above draws
upon Alliance's special skills and experience 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 for certain 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 positions 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 for 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
portfolio securities or currencies covering an option written by the Fund until
the option expires or it delivers the underlying securities, currency or futures
contract upon exercise. Therefore, no assurance can be given that the Fund will
be able to utilize these instruments effectively.
Portfolio Turnover. The Fund's portfolio turnover rate is included in the
Financial Highlights section. The Fund is actively managed and, in some cases in
response to market conditions, a Fund's portfolio turnover may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other expenses, which
must be borne by the Fund and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital gains, which,
when distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes, 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, or hold its assets in cash. While the
Fund is investing for temporary defensive purposes, it may not meet its
investment objective.
ADDITIONAL RISK CONSIDERATIONS
Effects of Borrowing. The Fund may, when Alliance believes that market
conditions are appropriate, borrow in order to take full advantage of available
investment opportunities. The Fund may, although it has no present intention of
doing so, borrow money from a bank in a privately arranged transaction to
increase the money available to the Fund to invest in securities when the Fund
believes that the return from the securities financed will be greater than the
interest expense paid on the borrowing. Borrowings may involve additional risk
to the Fund because the interest expense may be greater than the income from or
appreciation of the securities carried by the borrowings and the value of the
securities carried may decline below the amount borrowed.
Any investment gains made with the proceeds obtained from borrowings in excess
of interest paid on the borrowings will cause the net income per share and the
net asset value per share of the Fund's common stock to be greater than would
otherwise be the case. On the other hand, if the investment performance of the
additional securities purchased fails to cover their cost (including any
interest paid on the money borrowed) to the Fund, then the net income per share
and net asset value per share of the Fund's common stock will be less than would
otherwise be the case. This is the speculative factor known as "leverage".
Borrowings by the Fund result in leveraging of the Fund's shares of common
stock. Utilization of leverage, which is usually considered speculative,
involves certain risks to the Fund's shareholders. These include a higher
volatility of the net asset value of the Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as the
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from time
to time as does their relationship to each other, depending upon such factors as
supply and demand forces, monetary and tax policies within each country and
investor expectations. Changes in such factors could cause the relationship
between such rates to change so that rates on U.S. Dollar-denominated
obligations may substantially increase relative to the foreign
currency-denominated obligations in which the Fund may be invested. To the
extent that the interest expense on borrowings approaches the net return on the
Fund's investment portfolio, the benefit of leverage to the Fund's shareholders
will be reduced, and if the interest expense on borrowings were to exceed the
net return to shareholders, the Fund's use of leverage would result in a lower
rate of return than if the Fund were not leveraged. Similarly, the
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<PAGE>
effect of leverage in a declining market could be a greater decrease in net
asset value per share than if the Fund were not leveraged. In an extreme case,
if the Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of the Fund's shares.
Foreign Securities. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, the Fund, whose investment portfolio includes foreign
securities, may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in 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 United States. Securities
registration, custody and settlements may in some instances be subject to delays
and legal and administrative uncertainties.
Certain foreign countries 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. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of the Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain countries is controlled under regulations, including in
some cases the need for certain advance government notification or authority,
and if a deterioration occurs in a country's balance of payments, the country
could impose temporary restrictions on foreign capital remittances.
The Fund also could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application of other restrictions on investment. Investing in local markets may
require the Fund to adopt special procedures, that may involve additional costs
to the Fund. These factors may affect the liquidity of the Fund's investments in
any country and Alliance will monitor the effect of any such factor or factors
on the Fund's investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities exchanges in many
foreign countries are generally higher than in the United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and timely disclosure of information. The reporting, accounting,
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, or diplomatic
developments could affect adversely the economy of a foreign country and the
Fund's investments. In the event of expropriation, nationalization or other
confiscation, the Fund could lose its entire investment in the country involved.
In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders, such
as the Fund, than that provided by U.S. laws.
Year 2000. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction, rather
than the full four digits. If these systems are not modified or replaced,
transactions occurring after 1999 could be processed as year "1900," which could
result in processing inaccuracies and computer system failures. This is commonly
known as the Year 2000 problem. Should any of the computer systems employed by
the Fund's major service providers fail to process Year 2000 related information
properly, that could have a significant negative impact on the Fund's operations
and the services that are provided to the Fund's shareholders. In addition, to
the extent that the operations of issuers of securities held by the Fund are
impaired by the Year 2000 problem, or prices of securities held by the Fund
decline as a result of real or perceived problems relating to the Year 2000, the
value of the Fund's shares may be materially affected.
With respect to the Year 2000, the Fund has been advised that Alliance, its
investment adviser, Alliance Fund Distributors, Inc. ("AFD"), its principal
underwriter, and Alliance Fund Services, Inc. ("AFS"), its registrar, transfer
agent and dividend disbursing agent (collectively, "Alliance") began to address
the Year 2000 issue several years ago in connection with the replacement or
upgrading of certain computer systems and applications. During 1997, Alliance
began a formal Year 2000 initiative, which established a structured and
coordinated process to deal with the Year 2000 issue. Alliance reports that it
has completed its assessment of the Year 2000 issues on its domestic and
international computer systems and applications. Currently, management of
Alliance expects that the required modifications for the majority of its
significant systems and applications that will be in use on January 1, 2000,
will be completed and tested
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<PAGE>
in early 1999. Full integration testing of these systems and testing of
interfaces with third-party suppliers will continue through 1999. At this time,
management of Alliance believes that the costs associated with resolving this
issue will not have a material adverse effect on its operations or on its
ability to provide the level of services it currently provides to the Fund.
The Fund and Alliance have been advised by the Fund's custodian that it is also
in the process of reviewing its systems with the same goals. As of the date of
this prospectus, the Fund and Alliance have no reason to believe that the
custodian will be unable to achieve these goals.
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MANAGEMENT OF THE FUND
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INVESTMENT ADVISER AND FUND MANAGER
The Fund's Adviser is Alliance Capital Management, L.P., 1345 Avenue of the
Americas, New York, New York 10105. Alliance is a leading international
investment adviser supervising client accounts with assets as of December 31,
1998 totaling more than $286 billion (of which approximately $118 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 54
registered investment companies managed by Alliance, with more than 118 separate
portfolios, currently have over 3.5 million shareholder accounts. As of December
31, 1998, Alliance was retained as an investment manager for employee benefit
plan assets of 35 of the FORTUNE 100 companies.
The persons primarily responsible for the day-to-day management of the Fund will
be Alfred Harrison, Vice Chairman of ACMC, and Michael J. Reilly, Senior Vice
President of ACMC. Both Messrs. Harrison and Reilly are members of Alliance's
Large Cap Growth Group and have been associated with Alliance since prior to
1993.
Under the Advisory Agreement, Alliance will receive a basic fee at an annualized
rate of 1.10% of the Fund's average daily net assets (the "Basic Fee") and an
adjustment to the Basic Fee based on the investment performance of the Class A
shares of the Fund in relation to the investment record of the Russell 1000(R)
Growth Index (the "Index") for certain prescribed periods as described below.
The fee will be accrued daily and paid monthly, except as described below.
The Russell 1000(R) universe of securities is compiled by Frank Russell Company
and is segmented into two style indices, the Russell 1000(R) Growth Index and
the Russell 1000(R) Value Index, both based on the capitalization-weighted
median book-to-price ratio of each of the securities. At each reconstitution,
the Russell 1000(R) constituents are ranked by their book-to-price ratio. Once
so ranked, the breakpoint for the two styles is determined by the median market
capitalization of the Russell 1000(R). Thus, those securities falling within the
top fifty percent of the cumulative market capitalization (as ranked by
descending book-to-price ratio) become members of the Russell 1000(R) Value
Index and the remaining fifty percent become members of the Russell 1000(R)
Growth Index. The Russell 1000(R) Growth Index is, accordingly, designed to
include those Russell 1000(R) securities with a greater-than-average growth
orientation. In contrast with the securities in the Russell 1000(R) Value Index,
companies in the Growth Index tend to exhibit higher price-to-book and
price-earnings ratios, lower dividend yields and higher forecasted growth
values. The Russell 1000(R) Growth Index reflects changes in market prices, and
assumes reinvestment of investment income.
Beginning with the month of August 1999 and for each succeeding month, the Basic
Fee will be a monthly fee equal to 1/12th of 1.10% (1.10% on an annualized
basis) of the average of the net assets of the Fund. The performance period for
each such month will be from August 1998 through the current calendar month,
until the Advisory Agreement has been in effect for 36 full calendar months,
when it will become a rolling 36-month period ending with the current calendar
month. The Basic Fee for each such month may be increased or decreased at the
rate of 1/12th of .05% per percentage point, depending on the extent, if any, by
which the investment performance of the Class A shares of the Fund exceeds by
more than two percentage points, or is exceeded by more than two percentage
points by, the percentage change in the investment record of the Index for the
applicable performance period. The maximum increase or decrease in the Basic Fee
for any month may not exceed 1/12th of .30%. Accordingly, for each month,
commencing with the month of August 1999, the maximum monthly fee as adjusted
for performance is 1/12th of 1.40% and would be payable if the investment
performance of the Class A shares of the Fund exceeded the percentage change in
the investment record of the Index by eight or more percentage points for the
performance period, and the minimum monthly fee rate as adjusted for performance
is 1/12th of .80% and would be payable if the percentage change in the
investment record of the Index exceeded the investment performance of the Class
A shares of the Fund by eight or more percentage points for the performance
period.
For the period from August 1, 1998 through July 31, 1999, Alliance will receive
a minimum fee (the "Minimum Fee"), payable monthly, equal to .80%, annualized,
of the average of the net assets of the Fund for each day included in such
annual period. The performance period relating to such annual period will be
from August 1, 1998 through July 31, 1999. The fee receivable by Alliance for
such annual period may be increased to 1.40% from the Minimum Fee. The increase,
if any, will be equal to the difference between (i) the Basic Fee as adjusted
for such annual period in accordance with the preceding paragraph and (ii) the
Minimum Fee. The maximum increase for such annual period may not exceed .60%
annualized. Any such increased amount will not be payable to Alliance prior to
August 1999.
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The following table illustrates the full range of permitted increases or
decreases to the Basic Fee.
Percentage Point
Difference* Between
Performance of
Class A Shares and Adjustment Annual Fee
Russell 1000(R) to 1.10% Rate as
Growth Index** Basic Fee Adjusted
------------------- ---------- ----------
+8 +.30% 1.40%
+7 +.25% 1.35%
+6 +.20% 1.30%
+5 +.15% 1.25%
+4 +.10% 1.20%
+3 +.05% 1.15%
+/-2 0 1.10%
-3 -.05% 1.05%
-4 -.10% 1.00%
-5 -.15% .95%
-6 -.20% .90%
-7 -.25% .85%
-8 -.30% .80%
- --------------------------------------------------------------------------------
* Fractions of a percentage point will be rounded to the nearer whole point
(to the higher whole point if exactly one-half).
** Measured over the performance period, which will be a twelve-month period
from August 1, 1998 through July 31, 1999, and thereafter the period from
August 1, 1998 to the most recent month-end until July 31, 2001, at which
time the performance period will become a rolling 36-month period ending
with the most recent calendar month.
The investment performance of the Class A shares during any performance period
will be measured by the percentage difference between (i) the opening net asset
value ("NAV") of a Class A share of the Fund and (ii) the sum of (a) the closing
NAV of a Class A share of the Fund, (b) the value of any dividends and
distributions on such share during the period treated as if reinvested in Class
A shares of the Fund and (c) the value of any capital gains taxes per Class A
share paid or payable by the Fund on undistributed realized long-term capital
gains. The measurement of the performance of the Class A shares will not include
any effects resulting from the issuance, sale, repurchase or redemption of
shares of the Fund. The performance of the Index is measured by the percentage
change in the Index between the beginning and the end of the performance period
with cash distributions on the securities that constitute the Index being
treated as reinvested in the Index.
Because the adjustment to the Basic Fee is based on the comparative performance
of the Class A shares with the record of the Index, the controlling factor is
not whether the performance of the Class A shares is up or down, but whether
that performance is up or down more than or less than that of the Index.
Moreover, the comparative investment performance of the Class A shares is based
solely on the relevant performance period without regard to the cumulative
performance over a longer or shorter period of time. The Class A shares of the
Fund have lower expenses and pay correspondingly higher dividends than Class B
and Class C shares and thus will have better performance than the Class B and
Class C shares.
From time to time, the Directors may determine that another securities index is
a more appropriate benchmark than the Index for purposes of evaluating the
performance of the Fund. In that event, the other index may be substituted for
the Index in prospectively calculating the adjustment to the Basic Fee. The
Fund's performance relative to the Index would still be used in calculating the
adjustment with respect to portions of any performance period prior to the
replacement of the Index.
Performance of a Similarly Managed Fund. Alliance is the investment adviser of a
non-diversified closed-end management investment company, Alliance All-Market
Advantage Fund, Inc. ("All-Market Advantage"), that has substantially the same
investment objective and policies as those of the Fund. Although All-Market
Advantage is a closed-end fund, it has been managed in accordance with
substantially the same investment strategies and techniques as are intended to
be employed with respect to the Fund. As reflected below, All-Market Advantage
has performed favorably when compared with the performance of recognized
performance indices. Alfred Harrison and Michael Reilly are the two persons
primarily responsible for the day-to-day management of the Fund and are also the
persons who have been primarily responsible for the day-to-day management of
All-Market Advantage since its inception in October 1994.
The performance results for All-Market Advantage since its inception, together
with those of the Russell 1000(R) Growth Index (the "Index") and the Standard &
Poor's 500 Composite Stock Price Index (the "S&P 500"), as comparative
benchmarks, are set forth below. For a description of the Index, see page 15.
The S&P 500 is a widely recognized, unmanaged index of market activity based
upon the aggregate performance of a selected Fund of publicly traded common
stocks, including monthly adjustments to reflect the reinvestment of dividends
and other distributions. The S&P 500 reflects the total return of securities
constituting the index, including changes in market prices and accrued
investment income, which is presumed to be reinvested.
The performance data for All-Market Advantage have not been adjusted to reflect
the Fund's higher expenses, which, if reflected, would have the effect of
lowering the performance results shown below. The performance data have not been
adjusted for corporate or individual taxes, if any, payable with respect to
All-Market Advantage. As a closed-end investment company, All-Market Advantage,
unlike an open-end investment company such as the Fund, is not required to
manage its Fund while also being subject to daily increases or decreases in net
assets caused by net sales and net redemptions of shares. The rates of return
shown for All-Market Advantage are not an estimate or guarantee of future
investment performance of the Fund.
To the extent the Fund does not invest in U.S. common stocks or utilizes
investment techniques such as futures or options, the Index and the S&P 500 may
not be substantially comparable to the Fund. The Index and the S&P 500 are
included to illustrate material economic and market factors that existed during
the time periods shown. The Index and the S&P 500 do not reflect the deduction
of any fees. If the Fund were to purchase a Fund of securities substantially
identical to those constituting the Index or the S&P 500, the Fund's performance
relative thereto would be reduced by its expenses, including brokerage
16
<PAGE>
commissions, advisory fees, distribution fees, custodial fees, transfer agency
costs and other administrative expenses, as well as by the effect on Fund
shareholders of sales charges and income taxes.
The performance results presented below are based on percentage changes in net
asset values of All-Market Advantage with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would have
produced the corresponding cumulative return had performance been constant over
the entire period. As of December 31, 1998, the assets in All-Market Advantage
totaled approximately $107 million.
Annualized Rates of Return
Periods Ended December 31, 1998
-------------------------------
All-Market
Advantage/Benchmarks 1 Year 3 Years Inception*
- ---------------------------------------- ------ ------- ----------
Alliance All-Market
Advantage Fund, Inc. ...................... 54.00% 38.81% 34.10%
Russell 1000(R) Growth Index ............... 38.71% 30.62% 30.26%
Standard & Poor's 500
Composite Stock Price Index ............... 28.60% 28.23% 28.42%
Cumulative Rates of Return
Periods Ended December 31, 1998
-------------------------------
All-Market
Advantage/Benchmarks 1 Year 3 Years Inception*
- ---------------------------------------- ------ ------- ----------
Alliance All-Market
Advantage Fund, Inc. ...................... 54.00% 167.44% 240.90%
Russell 1000(R) Growth Index ............... 38.71% 122.85% 200.90%
Standard & Poor's 500
Composite Stock Price Index ............... 28.60% 110.84% 183.56%
- --------------------------------------------------------------------------------
* October 28, 1994, in the case of All-Market Advantage; for the period
beginning October 31, 1994, in the case of the Index and the S&P 500.
Source: Lipper Analytical Services, Inc.
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
How The Fund Values Its Shares
The Fund's net asset value or NAV is calculated at 4:00 p.m. Eastern time each
day the Exchange is open for business. To calculate NAV, the Fund's assets are
valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Fund values its
securities at their current market value determined on the basis of market
quotations, or, if such quotations are not readily available, such other methods
as the Fund's directors believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is accepted by the Fund. Your purchase of Fund
shares may be subject to an initial sales charge. Sales of Fund shares may be
subject to a contingent deferred sales charge or CDSC. See the Distribution
Arrangements section of this Prospectus for details.
How To Buy Shares
You may purchase the Fund's shares through broker-dealers, banks, or other
financial intermediaries. You also may purchase shares directly from the Fund's
principal underwriter, Alliance Fund Distributors, Inc., or AFD.
Minimum investment amounts are:
o Initial $50,000
o Retirement Plans (Initial) $10,000
For investments by registered representatives of broker-dealers, the minimum
initial investment is $10,000. If you are an existing Fund shareholder, you may
purchase shares by electronic funds transfer in amounts not exceeding $500,000
if you have completed the appropriate section of the Shareholder Application.
Call 800-221-5672 to arrange a transfer from your bank account.
The Fund is required to withhold 31% of taxable dividends, capital gains
distributions, and redemptions paid to shareholders who have not provided the
Fund with their certified taxpayer identification number. To avoid this, you
must provide your correct Tax Identification Number (Social Security Number for
most investors) on your account application.
The Fund may refuse any order to purchase shares. In particular, the Fund
reserves the right to restrict purchases of shares (including through exchanges)
when they appear to evidence a pattern of frequent purchases and sales made in
response to short-term considerations.
How To Exchange Shares
You may exchange your Fund shares for shares of the same Class of other Alliance
Mutual Funds (including AFD Exchange Reserves, a money market fund managed by
Alliance). Exchanges of shares are made at the next-determined NAV, without
sales or service charges. You may request an exchange by mail or telephone. You
must call by 4:00 p.m., Eastern time, to receive that day's NAV. The Fund may
change, suspend, or terminate the exchange service on 60 days' written notice.
How To Sell Shares
You may "redeem" your shares (i.e., sell your shares to a Fund) on any day the
Exchange is open, either directly or through your financial intermediary. Your
sales price will be the next-determined NAV, less any applicable CDSC, after the
Fund receives your sales request in proper form. Normally, proceeds will be sent
to you within 7 days. If you recently purchased your shares by check or
electronic funds transfer, your redemption payment may be delayed until the Fund
is reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days).
o Selling Shares Through Your Broker
Your broker must receive your sales request by 4:00 p.m., Eastern time, and
submit it to the Fund by 5:00 p.m., Eastern time, for you to receive that day's
NAV, less any applicable CDSC. Your broker is responsible for submitting all
necessary documentation to the Fund and may charge you for this service.
17
<PAGE>
o Selling Shares Directly to the Fund
By Mail:
--Send a signed letter of instruction or stock power, along with certificates,
to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, N.J. 07906-1520
800-221-5672
--For your protection, a bank, a member firm of a national stock exchange,
or other eligible guarantor institution, must guarantee signatures. Stock
power forms are available from your financial intermediary, AFS, and many
commercial banks. Additional documentation is required for the sale of
shares by corporations, intermediaries, fiduciaries, and surviving joint
owners. If you have any questions about these procedures, contact AFS.
By Telephone:
--You may redeem your shares for which no stock certificates have been
issued by telephone request. Call AFS at 800-221-5672 with instructions on
how you wish to receive your sale proceeds.
--A telephone redemption request must be received by 4:00 p.m., Eastern time,
for you to receive that day's NAV, less any applicable CDSC.
--If you have selected electronic funds transfer in your Shareholder
Application, the redemption proceeds will be sent directly to your bank.
Otherwise, the proceeds will be mailed to you.
--Redemption requests by electronic funds transfer may not exceed
$100,000 per day and redemption requests by check cannot exceed
$50,000 per day.
--Telephone redemption is not available for shares held in nominee or
"street name" accounts, retirement plan accounts, or shares held by
a shareholder who has changed his or her address of record within
the previous 30 calendar days.
- --------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS
AND TAXES
- --------------------------------------------------------------------------------
Dividends and Distributions
The Fund's income dividend and capital gains distribution, if any, declared by
the Fund on its outstanding shares will, at the election of each shareholder, be
paid in cash or in additional shares of the same Class of shares of the Fund. If
paid in additional shares, the shares will have an aggregate NAV as of the close
of business on the day following the declaration date of the dividend or
distribution equal to the cash amount of the dividend or distribution. You may
make an election to receive dividends and distributions in cash or in shares at
the time you purchase shares. Your election can be changed at any time prior to
a record date for a dividend. There is no sales or other charge in connection
with the reinvestment of dividends or capital gains distributions. Cash
dividends may be paid in check, or at your election, electronically via the ACH
network. There is no sales or other charge on the reinvestment of Fund
distributions.
If you receive an income dividend or capital gains distribution in cash you may,
within 120 days following the date of its payment, reinvest the dividend or
distribution in additional shares of the Fund without charge by returning to
Alliance, with appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
the Fund.
The Fund expects that distributions will consist either of net income or
long-term capital gains. For federal income tax purposes, the Fund's dividend
distributions of net income (or short-term taxable gains) will be taxable to you
as ordinary income. Any long-term capital gains distributions may be taxable to
you as long-term capital gains. The Fund's distributions also may be subject to
certain state and local taxes.
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 dividend or distribution will depend
on 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. The final determination of the
amount of the Fund's return of capital distributions for the period will be made
after the end of each calendar year.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
the Fund is liable for foreign income taxes withheld at the source, the Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid
(or to permit shareholders to claim a deduction for such foreign taxes), but
there can be no assurance that the Fund will be able to do so. Furthermore, a
shareholder's ability to claim a foreign tax credit or deduction in respect of
foreign taxes paid by the Fund may be subject to certain limitations imposed by
the Code, as a result of which a shareholder may not be permitted to claim a
full credit or deduction for the amount of such taxes.
Under certain circumstances, if the Fund realizes losses (e.g., from
fluctuations in currency exchange rates) after paying a dividend, all or a
portion of the dividend may subsequently be characterized as a return of
capital. Returns of capital are generally nontaxable, but will reduce a
shareholder's basis in
18
<PAGE>
shares of the Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant), any further returns of capital will be taxable as capital gain.
See the Fund's SAI for a further explanation of these tax issues.
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.
The sale or exchange of Fund shares is a taxable transaction for federal income
tax purposes.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
Share Classes. The Fund offers three classes of shares.
Class A Shares---Initial Sales Charge Alternative
You can purchase Class A shares at NAV plus an initial sales charge, as follows:
Initial Sales Charge
As % of Commission to
Amount Net Amount As % of Dealer/Agent as %
Purchased Invested Offering Price of Offering Price
- ----------- ---------- -------------- -----------------
Up to $100,000 ................ 4.44% 4.25% 4.00%
$100,000 up to $250,000........ 3.36 3.25 3.00
$250,000 up to $500,000........ 2.30 2.25 2.00
$500,000 up to $1,000,000...... 1.78 1.75 1.50
You pay no initial sales charge on purchases of Class A Shares in the amount of
$1,000,000 or more, but may pay a 1% CDSC if you redeem your shares within 1
year. Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges under 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 the Fund's SAI for additional
information about these options.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B Shares at NAV without an initial sales charge. The Fund
will thus receive the full amount of your purchase. Your investment, however,
will be subject to a CDSC if you redeem shares within 4 years of purchase. The
CDSC varies depending of the number of years you hold the shares. The CDSC
amounts are:
Years Since Purchase CDSC
-------------------- ----
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
If you exchange your shares for the Class B shares of another Alliance Mutual
Fund, the CDSC also will apply to those Class B shares. The CDSC period begins
with the date of your original purchase, not the date of exchange for the other
Class B shares.
The Fund's Class B shares purchased for cash automatically convert to Class A
shares eight years after the end of the month of your purchase. If you purchase
shares by exchange for the Class B shares of another Alliance Mutual Fund, the
conversion period runs from the date of your original purchase.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase shares at NAV without an initial sales charge. The Fund will
thus receive the full amount of your purchase. Your investment, however, will be
subject to a 1% CDSC if you redeem your shares within 1 year. If you exchange
your shares for the Class C shares of another Alliance Mutual Fund, the 1% CDSC
also will apply to those Class C shares. The 1-year period for the CDSC begins
with the date of your original purchase, not the date of the exchange for the
other Class C shares.
Class C shares do not convert to any other Class of shares of the Fund.
Asset-based Sales Charge or Rule 12b-1 Fees. The Fund has adopted a plan under
Commission Rule 12b-1 that allows the Fund to pay asset-based sales charges or
distribution and service fees for the distribution and sale of its shares. The
amount of these fees for each Class of the Fund's shares is:
Rule 12b-1 Fee (As A Percentage Of
Aggregate Average Daily Net Assets)
-----------------------------------
Class A .30%
Class B 1.00%
Class C 1.00%
Because these fees are paid out of the Fund's assets on an on-going basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees. Class B and Class C shares are subject to
higher distribution fees than Class A shares (Class B shares are subject to
these higher fees for a period of eight years, after which they convert to Class
A shares). The higher fees mean a higher expense ratio, so Class B and Class C
shares pay correspondingly lower dividends and may have a lower net asset value
than Class A shares.
Choosing a Class of Shares. The decision as to which Class of shares is more
beneficial to you depends on the amount and intended length of your investment.
If you are making a large investment, thus qualifying for a reduced sales
charge, you
19
<PAGE>
might consider purchasing Class A shares. If you are making a smaller
investment, you might consider purchasing Class B shares because 100% of your
purchase is invested immediately. If you are unsure of the length of your
investment, you might consider Class C shares because there is no initial sales
charge and no CDSC as long as the shares are held for one year or more. Dealers
and agents may receive differing compensation for selling Class A, Class B, or
Class C shares. There is no size limit on purchases of Class A shares. The
maximum purchase of Class B shares is $250,000. The maximum purchase of Class C
shares is $1,000,000.
You should consult your financial agent to assist in choosing a Class of Fund
shares.
Application of the CDSC. The CDSC is applied to the lesser of the original cost
of shares being redeemed or NAV at the time of redemption (or, as to Fund shares
acquired through an exchange, the cost of the Alliance Mutual Fund shares
originally purchased for cash). Shares obtained from dividend or distribution
reinvestment are not subject to the CDSC. The Fund may waive the CDSC on
redemptions of shares following the death or disability of a shareholder, to
meet the requirements of certain qualified retirement plans, or under a monthly,
bimonthly, or quarterly systematic withdrawal plan. See the Fund's SAI for
further information about CDSC waivers.
Other. A transaction, service, administrative or other similar fee may be
charged by your broker-dealer, agent, financial intermediary, or other financial
representative with respect to the purchase, sale, or exchange of Class A, Class
B, or Class C shares made through your financial representative. The financial
intermediaries also may impose requirements on the purchase, sale, or exchange
of shares that are different from, or in addition to, those imposed by a Fund,
including requirements as to the minimum initial and subsequent investment
amounts.
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 for
the sale of shares of the Fund. These additional amounts may be utilized, in
whole or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Fund. On some occasions, the 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.
These 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 to urban or resort locations within or
outside the U.S. Such dealer or agent may elect to receive cash incentives
of equivalent amount in lieu of such payments.
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.
- --------------------------------------------------------------------------------
GENERAL INFORMATION
- --------------------------------------------------------------------------------
Under unusual circumstances, the Fund may suspend redemptions or postpone
payment for up to seven days or longer, as permitted by federal securities law.
The Fund reserves the right to close an account that through redemption has
remained below $200 for 90 days. Shareholders will receive 60 days' written
notice to increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty in
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephone requests to
purchase, sell, or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephone requests. The telephone
service may be suspended or terminated at any time without notice.
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. You also may request a shareholder's manual explaining all
available services by calling 800-227-4618.
Employee Benefit Plans. Certain employee benefit plans, including
employer-sponsored tax-qualified 401(k) plans and other defined contribution
retirement plans ("Employee Benefit Plans"), may establish requirements as to
the purchase, sale or exchange of shares, including maximum and minimum initial
investment requirements, that are different from those described in this
Prospectus. Employee Benefit Plans also may not offer all classes of shares of
the Fund. In order to enable participants investing through Employee Benefit
Plans to purchase shares of the Fund, the maximum and minimum investment amounts
may be different for shares purchased through Employee Benefit Plans from those
described in this Prospectus. In addition, the Class A, Class B, and Class C
CDSC may be waived for investments made through Employee Benefit Plans.
20
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand a Fund's
financial performance for the period of the Fund's operations. Certain
information reflects financial results for a single Fund share. The total
return in the table represents the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming investment of all dividends and
distributions). The information has been audited by PricewaterhouseCoopers LLP,
the Fund's independent accountants, whose report, along with the Fund's
financial statements, is included in the SAI, which is available upon request.
21
<PAGE>
<TABLE>
<CAPTION>
Income from Investment Operations Less Dividends and Distributions
-------------------------------------------------------- -------------------------------------------
Net Gains
Net Asset or Losses on Dividends Distributions
Value, Securities Total from from Net in Excess of Distributions
Beginning Net Investment (both realized Investment Investment Net Investment from
Fiscal Year or Period of Period Income (Loss) and unrealized) Operations Income Income Capital Gains
- --------------------- --------- ------------- --------------- ---------- ------ ------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
7/29/98+ to 10/31/98 . $10.00 $(.03)(a) $(.44) $(.47) $0 $0 $0
Class B
7/29/98+ to 10/31/98 . $10.00 $(.04)(a) $(.47) $(.51) $0 $0 $0
Class C
7/29/98+ to 10/31/98 . $10.00 $(.04)(a) $(.46) $(.50) $0 $0 $0
<CAPTION>
Less Distributions Ratios/Supplemental Data
------------------ ---------------------------------------------------------------
Total Net Asset Ratio of Ratio of Net
Dividends Value, Net Assets, Expenses Income (Loss)
and End of Total End of Period to Average to Average Portfolio
Fiscal Year or Period Distributions Period Return(b) (000's omitted) Net Assets(c) Net Assets(c) Turnover Rate
- --------------------- ------------- ------ --------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Class A
7/29/98+ to 10/31/98 . $0 $9.53 (4.70)% $25,835 2.50% (1.19)% 29%
Class B
7/29/98+ to 10/31/98 . $0 $9.49 (5.10)% $38,887 3.20% (1.87)% 29%
Class C
7/29/98+ to 10/31/98 . $0 $9.50 (5.00)% $20,904 3.20% (1.85)% 29%
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations
(a) Based on average shares outstanding
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during period, and
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the caluclation of
total investment. Total investment return calculated for a period of less
than one year is not annualized.
(c) Annualized.
22 & 23
<PAGE>
For more information about the Fund, the following documents are available upon
request:
o Annual/Semi-Annual Reports to Shareholders
The Fund's annual and semi-annual reports to shareholders contain additional
information on the Fund's investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that significantly
affected the Fund's performance during its last fiscal year.
o Statement of Additional Information (SAI)
The Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Fund's SAI is incorporated
by reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the SAI,
by contacting your broker or other financial intermediary, or by contacting
Alliance:
By Mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By Phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
In Person: at the Commission's Public Reference Room
in Washington, D.C.
By Phone: 1-800-SEC-0330
By Mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
You also may find more information about Alliance and the Fund on the Internet
at: www.Alliancecapital.com.
24
================================================================================
Alliance Select Investor
Series - Premier
Portfolio Subscription
Application
================================================================================
To Open Your New Alliance Account...
Please complete the application and mail it to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, New Jersey 07096-1520
For certified or overnight deliveries, send to:
Alliance Fund Services, Inc.
500 Plaza Drive
Secaucus, New Jersey 07094
Section 1 Your Account Registration (Required)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
o Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a
Minor:
o Indicate your name(s) exactly as it appears on your social security
card.
o Transfer on Death:
o Ensure that your state participates
o Trust/Other:
o Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
Section 2 Your Address (Required)
Complete in full.
o Non-Resident Alien:
o Indicate your permanent country of residence.
Section 3 Your Initial Investment (Required)
For each fund in which you are investing: (1) Write the three digit fund number
in the column titled 'Indicate three digit fund number located below'.
(2) Write the dollar amount of your initial purchase in the column titled
'Indicate Dollar Amount'.
(If you are eligible for a reduced sales charge, you must also complete Section
4F). (3) Check off a distribution option for your dividends. (4) Check off a
distribution option for your capital gains. All distributions (dividends and
capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a preprinted, voided check for that
account. If you want your distributions sent to a third party you must complete
Section 4E.
Section 4 Your Shareholder Options (Complete only those options you want)
A. Automatic Investment Plans (AIP) - You can make periodic investments into the
Fund in one of three ways. First, by a periodic withdrawal directly from your
bank account and invested into the Fund. Second, you can direct your
distributions (dividends and capital gains) from one Alliance Fund into the
Fund. Or third, you can automatically exchange monthly shares of one Alliance
Fund for shares of the Fund. In each case, there is a $50,000 minimum for your
initial investment into the Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D.
If more than one dividend direction or monthly exchange is desired, please call
our Literature Center to obtain a Shareholder Account Services Options Form for
completion.
B. Telephone Transactions via EFT - Complete this option if you would like to be
able to transact via telephone between your fund account and your bank account.
C. Systematic Withdrawal Plans (SWP) - Complete this option if you wish to
periodically redeem dollars from your fund account. Payments can be made via
Electronic Funds Transfer (EFT) to your bank account or by check.
D. Bank Information - If you have elected any options that involve transactions
between your bank account and your fund account or have elected cash
distribution options and would like the payments sent to your bank account,
please tape a preprinted, voided check of the account you wish to use to this
section of the application.
E. Third Party Payment Details - If you have chosen cash distributions and/or a
Systematic Withdrawal Plan and would like the payments sent to a person and/or
address other than those provided in section 1 or 2, complete this option.
Medallion Signature Guarantee is required if your account is not maintained by a
broker dealer.
F. Reduced Charges (Class A only) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
Section 5 Shareholder Authorization (Required) All owners must sign. If it is a
custodial, corporate, or trust account, the custodian, an authorized officer, or
the trustee respectively must sign.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
(800) 221-5672
Or Visit Our Website: www.alliancecapital.com
- --------------------------------------------------------------------------------
For Literature Call: (800) 227-4618
- --------------------------------------------------------------------------------
<PAGE>
Alliance Select Investor Series Subscription Application
================================================================================
1. Your Account Registration (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
================================================================================
|_| Individual Account {|_| Male |_| Female } - or - |_| Joint Account - or -
|_| Transfer on Death {|_| Male |_| Female } - or - |_| Gift/Transfer to a Minor
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Owner or Custodian (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_|
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
(MI) (Last Name)
|_| |_| |_| - |_| |_| - |_| |_| |_| |_|
Social Security Number of Owner or Minor (required to open account)
If Joint Tenants Account: * The Account will be registered
"Joint Tenants with right of Survivorship" unless you indicate otherwise below:
|_| In Common |_| By Entirety |_| Community Property
If Uniform Gift/Transfer to Minor Account:
|_| |_| Minor's State of Residence
|_| Trust - or - |_| Corporation - or - |_| Other_______________________________
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trustee if applicable (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trust or Corporation or Other Entity
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name of Trust or Corporation or Other Entity continued
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Trust Dated (MM,DD,YYYY) Tax ID Number (required to open account)
|_| Employer ID Number - OR - |_| Social Security Number
================================================================================
2. Your Address
================================================================================
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Street Number Street Name
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
City State Zip code
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_| |_| |_| - |_| |_| |_| |_|
If Non-U.S., Specify Country Daytime Phone Number
|_| U.S. Citizen |_| Resident Alien |_| Non-Resident Alien
SISPPAPP299-P1 AllianceCapital [LOGO](R)
<PAGE>
================================================================================
3. Your Initial Investment
The minimum investment is $50,000.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
================================================================================
I hereby subscribe for shares of the Alliance Select Investor Series - Premier
Portfolio and elect distribution options as indicated.
- --------------------------------------
Broker/Dealer Use Only: Wire Confirm #
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
- --------------------------------------
Dividend and Capital Gain Distribution Options:
R Reinvest distributions into my fund account.
C Send my distributions in cash to the address I have provided
in Section 2. (Complete Section 4D for direct deposit to your
bank account. Complete Section 4E for payment to a third party)
D Direct my distributions to another Alliance fund. Complete the
appropriate portion of Section 4A to direct your distributions
(dividends and capital gains) to another Alliance Fund (the $250
minimum investment requirement applies to Funds into which
distributions are directed).
--------------------------------------
Make all checks* payable to:
Alliance Funds
--------------------------------------
- -------------------------------------- --------------------------------------
Indicate three digit Fund Indicate Dollar Amount
number located below --------------------------------------
- --------------------------------------
--------------------------------------
|_| |_| |_| $
--------------------------------------
|_| |_| |_| $
--------------------------------------
|_| |_| |_| $
--------------------------------------
|_| |_| |_| $
--------------------------------------
- --------------------------------------
Total Investment $
- -------------------------------------- --------------------------------------
- --------------------------------------
Distributions Options
*Check One*
- --------------------------------------
- ------------- -----------------
Dividends Capital Gains
R C D R C D
- ------------- -----------------
|R| |C| |D| |R| |C| |D|
|R| |C| |D| |R| |C| |D|
|R| |C| |D| |R| |C| |D|
|R| |C| |D| |R| |C| |D|
* Cash and money orders are not accepted
-------------------------------------------------------
Contingent Deferred Asset-Based
Initial Sales Charge Sales Charge Sales Charge
- --------------------------------------------------------------------------------
Select Investor Series A B C
- --------------------------------------------------------------------------------
Premier Portfolio 171 271 371
SISPPAPP299-P2
<PAGE>
================================================================================
4. Your Shareholder Options
================================================================================
A. Automatic Investment Plans (AIP)
Withdraw From My Bank Account Via EFT*
|_| I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account you
wish to use).
1- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
} Frequency:
M = monthly
Q = quarterly
A = annually
* Electronic Funds Transfer. Your bank must be a member of the National
Automated Clearing House Association (NACHA)
|_| Direct My Distributions
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
TO:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
|_| Exchange My Shares Monthly I authorize Alliance to transact monthly
exchanges, within the same class of shares, between my fund accounts as
listed below.
FROM:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
|_| |_| , |_| |_| |_| .00 |_| |_|
Amount Day of Exchange**
TO:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| - |_|
Fund Number Account Number (If existing)
** Shares exchanged will be redeemed at the net asset value on the "Day of
Exchange" (If the "Day of Exchange" is not a fund business day, the exchange
transaction will be processed on the next fund business day). The exchange
privilege is not available if stock certificates have been issued.
B. Purchases and Redemptions Via EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange shares
for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: - Review the information in the Prospectus about telephone
transaction services.
- If you select the telephone purchase or redemption
privilege, you must write "VOID" across the face of a check
from the bank account you wish to use and attach it to
Section 4D of this application.
|_| Purchases and Redemptions via EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to
withdraw money or credit money for such shares via EFT from the bank
account I have selected.
================================================================================
For shares recently purchased by check or electronic funds transfer redemption
proceeds will not be made available until the Fund is reasonably assured the
check or electronic funds transfer has been collected, normally 15 calendar days
after the purchase date.
================================================================================
SISPPAPP299-P3
<PAGE>
================================================================================
4. Your Shareholder Options (CONTINUED)
================================================================================
C. Systematic Withdrawal Plans (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
|_| I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- |_| |_| |_| |_| |_| |_| |_| |_| |_| , |_| |_| |_|.00 |_|
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
} Frequency:
M = monthly
Q = quarterly
A = annually
Please send my SWP proceeds to:
|_| My Address of Record (via check)
|_| My checking account-via EFT (complete section 4D) Your bank must be a member
of the National Automated Clearing House Association (NACHA) in order for
you to receive SWP proceeds directly into your bank account. Otherwise
payment will be made by check
|_| The Payee and address specified in section 4E (via check) (Medallion
Signature Guarantee required)
D. Bank Information This bank account information will be used for:
|_| Distributions (Section 3)
|_| Telephone Transactions (Section 4B)
|_| Automatic Investments (Section 4A)
|_| Withdrawals (Section 4C)
- --------------------------------------------------------------------------------
Please Tape a Pre-printed Voided Check Here*
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
* The above services cannot be established without a pre-printed voided check.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records. If the registration at the bank differs
from that on the Alliance mutual fund, all parties must sign in Section 5.
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Your Bank's ABA Routing Number Your Bank Account Number
|_| Checking Account
|_| Savings Account
SISPPAPP299-P4
<PAGE>
================================================================================
4. Your Shareholder Options (CONTINUED)
================================================================================
E. Third Party Payment Details Your signature(s) in Section 5 must be Medallion
Signature Guaranteed if your account is not maintained by a broker/dealer.
This third party payee information will be used for:
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Distributions (Section 3) Systematic Withdrawals (Section 4C)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Name (First Name) (MI) (Last Name)
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
Street Number Street Name
|_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_| |_|
City State Zip code
F. Reduced Charges (Class A only) If you, your spouse or minor children own
shares in other Alliance funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
|_| A. Right of Accumulation
Please link the tax identification numbers or account numbers listed below
for Right of Accumulation privileges, so that this and future purchases
will receive any discount for which they are eligible.
------------------------ ------------------------ ------------------------
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
|_| B. Statement of Intent
I want to reduce my sales charge by agreeing to invest the following
amount over a 13-month period:
|_| $100,000 |_| $250,000 |_| $500,000 |_| $1,000,000
If the full amount indicated is not purchased within 13 months, I
understand that an additional sales charge must be paid from my account.
- --------------------------------------------------------------------------------
Dealer/Agent Authorization - For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee the
signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
|________________________________| |______________________________________|
Dealer/Agent Firm Authorized Signature
|________________________________| |_| |______________________________________|
Representative First Name MI Last Name
|________________________________| |______________________________________|
Dealer/Agent Firm Number Representative Number
|________________________________| |______________________________________|
Branch Number Branch Telephone Number
|______________________________________________________________________________|
Branch Office Address
|_______________________________________________| |_| |_| |_________________|
City State Zip code
SISPPAPP299-P5
<PAGE>
================================================================================
5. Shareholder Authorization -- This section MUST be completed
================================================================================
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange on
my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must not have changed
within the last 30 days. The maximum telephone redemption amount is $50,000 for
redemptions by check.
|_| I do not elect the telephone exchange service
|_| I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or I am waiting for a number to be
issued to me and that I have not been notified that this account is subject to
backup withholding.
The Internal Revenue Service does not require your consent to any provision of
this document other than the certification required to avoid backup withholding.
- ------------------------------------------------------- --------------------
Signature Date
- ------------------------------------------------------- --------------------
Signature Date
- -------------------------------------------------------
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
SISPPAPP299-P6 AllianceCapital [LOGO](R)
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 333-8818 and 811-9176.
<PAGE>
(LOGO) ALLIANCE SELECT INVESTOR SERIES, INC.
-PREMIER PORTFOLIO
_______________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_______________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
_______________________________________________________________
This Statement of Additional Information is not a
prospectus but supplements and should be read in conjunction with
the Prospectus dated March 1, 1999 for the Premier Portfolio (the
"Fund") of Alliance Select Investor Series, Inc. (the "Company")
(the "Prospectus"). Copies of the 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.....................
Portfolio Transactions.................................
General Information....................................
Financial Statements and Report of Independent
Accountants .........................................
Appendix A: Certain Investment Practices
Appendix B: Certain Employee Benefit Plans
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
____________________________________________________________
DESCRIPTION OF THE FUND
____________________________________________________________
The Premier Portfolio (the "Fund"), a series of the
Alliance Select Investor Series, Inc. (the "Company") is a non-
diversified, open-end investment company. The Fund's investment
objective is "fundamental" within the meaning of the Investment
Company Act of 1940, as amended (the "1940 Act") 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.
Non-Diversified Status. The Fund is a non-diversified
investment company, which means the Fund is not limited in the
proportion of its assets that may be invested in the securities
of a single issuer. However, the Fund intends to conduct its
operations so as to qualify to be taxed as a regulated investment
company for purposes of the Internal Revenue Code of 1986, as
amended (the "Code"), which will relieve the Fund of any
liability for federal income tax to the extent its earnings are
distributed to shareholders. To so qualify, among other
requirements, the Fund will limit its investments so that, at the
close of each quarter of the taxable year, (i) not more than 25%
of the market value of the Fund's total assets will be invested
in the securities of a single issuer (other than the U.S.
Government), and (ii) at least 50% of the market value of the
Fund's total assets will be comprised of cash and cash items,
U.S. Government securities, and other securities with respect to
which the Fund's investment is limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's assets and
10% of the outstanding voting securities of such issuer. Because
the Fund, as a non-diversified investment company, may invest in
a smaller number of individual issuers than a diversified
investment company, an investment in the Fund may, under certain
circumstances, present greater risk to an investor than an
investment in a diversified investment company.
Investment Policies and Practices
The following investment policies and practices
supplement those set forth in the Prospectus.
Short Sales. The Fund will utilize the market technique
of short selling in order to attempt both to protect the Fund's
investment portfolio against the effects of potential downtrends
in the securities markets and as a means of enhancing the Fund's
overall performance. In identifying short selling opportunities,
2
<PAGE>
the Large Cap Growth Group will use the fundamental analysis and
investment research strategy described above to identify a small
group of companies that it believes may decline in price as a
result of fundamental or market developments. The Fund is
permitted to engage in short sales of securities with respect to
up to 30% of its total assets, subject to the requirements of the
1940 Act.
A short sale is a transaction in which the Fund sells a
security it does not own but has borrowed in anticipation that
the market price of that security will decline. When the Fund
makes a short sale of a security that it does not own, it must
borrow from a broker-dealer the security sold short and deliver
the security to the broker-dealer upon conclusion of the short
sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments
received on such borrowed securities. The Fund's obligation to
replace the borrowed security will be secured by collateral
deposited with a broker-dealer qualified as a custodian and will
consist of cash or highly liquid securities similar to those
borrowed. Depending on the arrangements the Fund makes with the
broker-dealer from which it borrowed the security regarding
remittance of any payments received by the Fund on such security,
the Fund may or may not receive any payments (e.g., dividends or
interest) on its collateral deposited with the broker-dealer. In
addition to depositing collateral with a broker-dealer, the Fund
is currently required under the 1940 Act to establish a
segregated account with its custodian and to maintain therein
liquid assets in an amount that, when added to cash or liquid
high grade debt securities deposited with the broker-dealer, will
at all times equal at least 100% of the current market value of
the security sold short.
If the price of the security sold short increases
between the time of the short sale and the time the Fund replaces
the borrowed security, the Fund will incur a loss; conversely, if
the price declines, the Fund will realize a short-term capital
gain. Any gain will be decreased, and any loss increased, by the
transaction costs described above. Although the Fund's gain is
limited to the price at which it sold the security short, its
potential loss is theoretically unlimited.
In some cases, in order to defer realization of gain or
loss for U.S. federal income tax purposes, the Fund may also make
short sales "against the box." In this type of short sale, at
the time of the sale, the Fund owns or has the immediate and
unconditional right to acquire at no additional cost the
identical security. If the Fund has unrealized gain with respect
to a security and enters into a short sale with respect to such
security, the Fund generally will be deemed to have sold the
3
<PAGE>
appreciated security and thus will recognize gain for tax
purposes.
Rights and Warrants. The Fund may invest up to 5% of
its total assets in rights or warrants which entitle the holder
to buy equity securities at a specific price for a specific
period of time, but will do so only if the equity securities
themselves are deemed appropriate by the Adviser for inclusion in
the Fund's portfolio. Rights and warrants may be considered more
speculative than certain other types of investments in that they
do not entitle a holder to dividends or voting rights with
respect to the securities which may be purchased nor do they
represent any rights in the assets of the issuing company. Also,
the value of a right or warrant does not necessarily change with
the value of the underlying securities and a right or warrant
ceases to have value if it is not exercised prior to the
expiration date.
Convertible Securities. The Fund may invest up to 20%
of its total assets in the convertible securities of companies
whose common stocks are eligible for purchase by the Fund under
the investment policies described above. Convertible securities
include bonds, debentures, corporate notes and preferred stocks
that are convertible at a stated exchange rate into common stock.
Prior to their conversion, convertible securities have the same
general characteristics as non-convertible debt securities which
provide a stable stream of income with generally higher yields
than those of equity securities of the same or similar issuers.
As with all debt securities, the market value of convertible
securities tends to decline as interest rates increase and,
conversely, to increase as interest rates decline. While
convertible securities generally offer lower interest yields than
non-convertible debt securities of similar quality, they do
enable the investor to benefit from increases in the market price
of the underlying common stock. When the market price of the
common stock underlying a convertible security increases, the
price of the convertible security increasingly reflects the value
of the underlying common stock and may rise accordingly. As the
market price of the underlying common stock declines, the
convertible security tends to trade increasingly on a yield
basis, and thus may not depreciate to the same extent as the
underlying common stock. Convertible securities rank senior to
common stocks in an issuer's capital structure. They are
consequently of higher quality and entail less risk than the
issuer's common stock, although the extent to which such risk is
reduced depends in large measure upon the degree to which the
convertible security sells above its value as a fixed income
security. The Fund will not invest in convertible debt
securities rated below Baa by Moody's Investors Service, Inc.
("Moody's") and BBB by Standard and Poor's Ratings Services
("S&P") or, if not so rated, determined by Alliance Capital
4
<PAGE>
Management L.P. (the "Adviser") to be of equivalent quality.
Securities rated Baa by Moody's are considered to have
speculative characteristics. Sustained periods of deteriorating
economic conditions or rising interest rates are more likely to
lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities. The
Fund will not retain a convertible debt security which is
downgraded below BBB or Baa, or, if unrated, determined by the
Adviser to have undergone similar credit quality deterioration
subsequent to purchase by the Fund.
Borrowing by the Fund
Under the 1940 Act, the Fund is not permitted to borrow
unless immediately after such borrowing there is asset coverage,
as that term is defined and used in the 1940 Act, of at least
300% for all borrowings of the Fund. In addition, under the 1940
Act, in the event asset coverage falls below 300%, the Fund must
within three days reduce the amount of its borrowings to such an
extent that the asset coverage of its borrowings is at least
300%. Assuming, for example, outstanding borrowings representing
not more than one-third of the Fund's total assets less
liabilities (other than such borrowings), the asset coverage
would be 300%; while outstanding borrowings representing 25% of
the Fund's total assets less liabilities (other than such
borrowings), the asset coverage would be 400%. The Fund will
maintain asset coverage of outstanding borrowings of at least
300% and if necessary will, to the extent possible, reduce the
amounts borrowed by making repayments from time to time in order
to do so. Such repayments could require the Fund to sell
portfolio securities at times considered disadvantageous by the
Adviser. The Fund may not make any cash distributions to its
shareholders if, after the distribution, there would be less than
300% asset coverage. This limitation on the Fund's ability to
make distributions could under certain circumstances impair the
Fund's ability to maintain its qualification for taxation as a
regulated investment company. Without such qualification, the
Fund would be subject to federal income and excise tax and the
amount of distributions to shareholders would be reduced.
The Fund may also borrow for temporary purposes in an
amount not exceeding 5% of the value of the total assets of the
Fund. Such borrowings are not subject to the asset coverage
restrictions set forth in the preceding paragraph.
Borrowings by the Fund result in leveraging of the
Fund's shares of common stock. Utilization of leverage, which is
usually considered speculative, involves certain risks to the
Fund's shareholders. These include a higher volatility of the
net asset value of the Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares.
5
<PAGE>
So long as the Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense
paid on borrowings, the effect of leverage will be to cause the
Fund's shareholders to realize a higher current net investment
income than if the Fund were not leveraged. On the other hand,
interest rate on U.S. Dollar-denominated and foreign currency-
denominated obligations change from time to time as does their
relationship to each other, depending upon such factors as supply
and demand forces, monetary and tax policies within each country
and investor expectations. Changes in such factors could cause
the relationship between such rates to change so that rates on
U.S. Dollar-denominated obligations may substantially increase
relative to the foreign currency-denominated obligations in which
the Fund may be invested. To the extent that the interest
expense on borrowings approaches the net return on the Fund's
investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on
borrowings were to exceed the net return to shareholders, the
Fund's use of leverage would result in a lower rate of return
than if the Fund were not leveraged. Similarly, the effect of
leverage in a declining market could be a greater decrease in net
asset value per share than if the Fund were not leveraged. In an
extreme case, if the Fund's current investment income were not
sufficient to meet the interest expense on borrowings, it could
be necessary for the Fund to liquidate certain of its
investments, thereby reducing the net asset value of the Fund's
share.
Securities Ratings. The ratings of fixed-income
securities by S&P, Moody's, Duff & Phelps Credit Rating Co.
("Duff & Phelps") and Fitch IBCA, Inc. ("Fitch") are a generally
accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in credit risk of securities within each rating
category.
Other Investment Practices
The Fund may, but is not required to, utilize various
investment strategies to hedge its portfolio against currency and
other risks. Such strategies are generally accepted by
professional investment managers and are regularly utilized by
many investment companies and other institutional investors.
These investment strategies entail risks. Although the Adviser
believes that these investment strategies may further the Fund's
investment objective, no assurance can be given that they will
achieve this result. The Fund may write covered put and call
6
<PAGE>
options and purchase put and call options on U.S. and foreign
securities exchanges and over-the-counter, enter into contracts
for the purchase and sale for future delivery of common stocks
and purchase and write put and call options on such futures
contracts. The Fund may, but has no present intention to, enter
into contracts for the purchase and sale for future delivery of
foreign currencies or contracts based on financial indices,
including any index of U.S. Government Securities or securities
issued by foreign government entities, or write puts and call
options on foreign currencies, purchase or sell forward foreign
currency exchange contracts, enter into forward commitments for
the purchase or sale of securities, enter into repurchase
agreements, reverse repurchase agreements, dollar rolls, standby
commitment agreements and currency swaps and make secured loans
of its portfolio securities. Each of these investment strategies
is discussed in Appendix A.
The successful use of the foregoing investment practices
draws upon the Adviser's special skills and experience with
respect to such instruments and usually depends on the Adviser's
ability to forecast price movements or currency exchange rate
movements correctly. Should prices or exchange rates move in an
unexpected manner, the Fund may not achieve the anticipated
benefits of futures contracts, options or forward contracts or
may realize losses and thus be in a worse position than if such
strategies had not been used. In addition, the correlation
between movements in the prices of such instruments and movements
in the prices of the securities or currencies hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of types of
securities and currencies are relatively new and still developing
and there is no public market for forward contracts. It is
impossible to predict the amount of trading interest that may
exist in various types of futures contracts, options and forward
contracts. Therefore, no assurance can be given that the Fund
will be able to utilize these instruments effectively for the
purposes set forth above.
Portfolio Turnover. It is the Fund's policy to sell any
security whenever, in the judgment of the Adviser, its
appreciation possibilities have been substantially realized or
the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the Fund's
annual rate of portfolio turnover will not exceed 150%. A 150%
annual turnover rate would occur if all the securities in the
Fund's portfolio were replaced one and one-half times within a
7
<PAGE>
period of one year. A high portfolio turnover rate will cause
the Fund to realize short-term capital gains or losses on the
sale of certain securities.
Certain Fundamental Investment Policies
The Fund has adopted the following investment
restrictions, which may not be changed without the approval of
the holders of a majority of the Fund's outstanding voting
securities. The approval of a majority of the Fund's outstanding
voting securities means the affirmative vote of (i) 67% or more
of the shares represented at a meeting at which more than 50% of
the outstanding shares are present in person or by proxy, or
(ii) more than 50% of the outstanding shares, whichever is less.
As a matter of fundamental policy, the Fund may not:
1. Purchase more than 10% of the outstanding
voting securities of any one issuer;
2. Invest 25% or more of its total assets in
securities of issuers conducting their principal
business activities in the same industry, except that
this restriction does not apply to U.S. Government
Securities;
3. Make loans except through (a) the purchase of
debt obligations in accordance with its investment
objective and policies; (b) the lending of portfolio
securities; or (c) the use of repurchase agreements;
4. Borrow money or issue senior securities except
the Fund may, in accordance with the provisions of the
1940 Act, (i) borrow from a bank in a privately arranged
transaction or through reverse repurchase agreements or
dollar rolls if after such borrowing there is asset
coverage of at least 300% as defined in the 1940 Act and
(ii) borrow for temporary purposes in an amount not
exceeding 5% of the value of the total assets of the
Fund;
5. Pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted
borrowings;
6. Invest in companies for the purpose of
exercising control; or
7. (a) Purchase or sell real estate, except that
it may purchase and sell securities of companies which
deal in real estate or interests therein and securities
8
<PAGE>
that are secured by real estate, provided such
securities are securities of the type in which the Fund
may invest; (b) purchase or sell commodities or
commodity contracts, including futures contracts (except
foreign currencies, foreign currency options and
futures, options and futures on securities and
securities indices and forward contracts or contracts
for the future acquisition or delivery of securities and
foreign currencies and related options on futures
contracts and other similar contracts); (c) invest in
interests in oil, gas, or other mineral exploration or
development programs; (d) purchase securities on margin,
except for such short-term credits as may be necessary
for the clearance of transactions; and (e) act as an
underwriter of securities, except that the Fund may
acquire restricted securities under circumstances in
which, if such securities were sold, the Fund might be
deemed to be an underwriter for purposes of the U.S.
Securities Act of 1933 (the "1933 Act").
_____________________________________________________________
MANAGEMENT OF THE FUND
_____________________________________________________________
Directors and Officers
The Directors and principal officers of the Company,
their ages and their principal occupations during the past five
years are set forth below. Each of the Directors and officers
are trustees, directors and officers of other registered
investment companies sponsored by the Adviser. Unless otherwise
specified, the address of each such person is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
JOHN D. CARIFA,* 53, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC") with which he has been
associated since prior to 1994.
RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and BP Amoco Corporation (oil
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
9
<PAGE>
and gas). Her address is P.O. Box 4653, Stamford, Connecticut
06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an investment adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1994. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1994. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, Chairman and President, see biography
under "Directors," above.
KATHLEEN CORBET, Senior Vice President, 39, is an
Executive Vice President of ACMC with which she has been
associated since prior to 1994.
ALFRED HARRISON, Senior Vice President, 61, is Vice
Chairman of the Board of ACMC, with which he has been associated
since prior to 1994.
10
<PAGE>
THOMAS BARDONG, Vice President, 53, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
JOHN A. KOLTES, Vice President, 56, is a Senior Vice
President of ACMC, with which he has been associated with since
prior to 1994.
MICHAEL J. REILLY, Vice President, 34, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1994.
EDMUND P. BERGAN, JR., Secretary, 48, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
and Alliance Fund Services, Inc. and Vice President and Assistant
General Counsel of ACMC, with which he has been associated since
prior to 1994.
DOMENICK PUGLIESE, Assistant Secretary, 37, is a Vice
President and Assistant General Counsel of Alliance Fund
Services, Inc. with which he has been associated since May 1995.
Previously, he was Vice President and Counsel of Concord Holding
Corporation since prior to 1994.
ANDREW L. GANGOLF, Assistant Secretary, 44, has been
Vice President and Assistant General Counsel of Alliance Fund
Distributors, Inc. since December 1994. Prior thereto, he was
Vice President and Assistant Secretary of Delaware Management
Co., Inc.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
48, is a Senior Vice President of Alliance Fund Services, Inc.
with which he has been associated since prior to 1994.
VINCENT S. NOTO, Controller, 34, is a Vice President of
Alliance Fund Services, Inc., with which he has been associated
since prior to 1994.
The Company does not pay any fees to, or reimburse
expenses of, its Directors who are considered "interested
persons" of the Company. The aggregate compensation to be paid
by the Company to each of the Directors during the Company's
fiscal year ending October 31, 1999 (estimating future payments
based upon existing arrangements), and the aggregate compensation
paid to each of the Directors during calendar year 1998 by all of
the registered investment companies to which the Adviser provides
investment advisory services (collectively, the "Alliance Fund
Complex"), and the total number of registered investment
companies (and separate investment portfolios within those
companies) in the Alliance Fund Complex with respect to which
each of the Directors serves as a director or trustee, are set
11
<PAGE>
forth below. Neither the Company nor any other registered
investment company in the Alliance Fund Complex provides
compensation in the form of pension or retirement benefits to any
of its directors or trustees. Each of the Directors is a
director or trustee of one or more other registered investment
company in the Alliance Fund Complex.
Total Number
Total Number of Investment
of Investment Portfolios
Companies in Within
the Alliance the Alliance
Total Fund Complex, Fund Complex,
Compensation Including the Including the
From the Company, as Fund, as
Aggregate Alliance Fund to which the to which
Compensation Complex, the Director the Director
Name of From the Including the is a Director is a Director
Director Company* Company or Trustee or Trustee
___________ ____________ _____________ _____________ _____________
John D. Carifa $-0- $-0- 50 114
Ruth Block $4,000 $180,763 37 77
David H. Dievler $4,000 $216,288 43 80
John H. Dobkin $4,000 $185,363 41 91
William H. Foulk, Jr. $4,000 $241,003 45 109
James M. Hester $4,000 $172,913 37 74
Clifford L. Michel $4,000 $187,763 38 90
Donald J. Robinson $4,000 $193,709 41 103
_______________
* estimated
As of February 5, 1999, the Directors and officers of
the Company as a group owned 1.61% of the Class A shares of the
Fund and less than 1% of the shares of any other class of shares
of the Fund.
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of
12
<PAGE>
December 31, 1998 totaling more than $286 billion (of which more
than $118 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundations and endowment funds. The 54
registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
more than 3.6 million shareholder accounts. As of December 31,
1998, the Adviser and its subsidiaries employed approximately
2,000 employees who operate out of domestic offices and the
offices of subsidiaries in Bahrain, Bangalore, Cairo, Chennai,
Hong Kong, Istanbul, Johannesburg, London, Luxembourg, Madrid,
Moscow, Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul,
Singapore, Sydney, Tokyo, Toronto, Vienna and Warsaw. As of
December 31, 1998, the Adviser was retained as an investment
manager for employee benefit plan assets of 35 of the FORTUNE 100
companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA a French insurance holding company
which at March 1, 1998, beneficially owned approximately 59% of
the outstanding voting shares of ECI. As of June 30, 1998, ACMC,
Inc. and Equitable Capital Management Corporation, each a wholly-
owned direct or indirect subsidiary of Equitable, together with
Equitable, owned in the aggregate approximately 57% of the issued
and outstanding units representing assignments of beneficial
ownership of limited partnership interests in the Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
13
<PAGE>
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the Company and pays all compensation of Directors and officers
of the Company who are affiliated persons of the Adviser. The
Adviser or its affiliates also furnishes the Company, without
charge, management supervision and assistance and office
facilities and provides persons satisfactory to the Company's
Board of Directors to serve as the Company's officers.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Company,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission (the "Commission") and with state
regulatory authorities.)
The Company 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 Company by the Adviser, the Company 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 are provided to the Company at cost
and the payments specifically approved by the Company's Board of
Directors. The Company paid to the Adviser a total of $35,000 in
14
<PAGE>
respect of such services during the fiscal period of the Company
ended October 31, 1998.
For the services rendered by the Adviser under the
Advisory Agreement, the Company pays the Adviser, with respect to
the Fund, from August 1, 1998 to July 31, 1999, a minimum fee at
an annual rate of .80 of 1% of the Fund's average daily net
assets, which may be increased at the end of such annual period
to a maximum of 1.40% based on the investment performance of the
Portfolio in relation to the performance of the Russell 1000
Growth Index (the "Index"). Beginning in August 1999, the
Adviser receives a basic fee of 1.10% of the Fund's average daily
net assets (the "Basic Fee"). The Basic Fee is adjusted upward
or downward to a maximum of 30 basis points based on the
investment performance of the Fund in relation to the performance
of the Index. For any period prior to August 1, 1998, the
Adviser receives a flat fee of .80 of 1% of the Fund's average
daily net assets, without any performance adjustment. In this
regard, for the fiscal period ended October 31, 1998, the Adviser
received from the Company advisory fees of $183,788.
The Advisory Agreement became effective on July 13, 1998
having been approved by the unanimous vote, cast in person, of
the Company'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 June 12, 1998, and by the Company's
initial shareholder on June 26, 1998.
The Advisory Agreement will remain in effect until
November 30, 1999 and continue in effect thereafter only so long
as its continuance is specifically approved at least annually by
a vote of a majority of the Fund's outstanding voting securities
or by the Company's Board of Directors, including in either case,
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the 1940 Act.
The Advisory Agreement is terminable without penalty by
a vote of a majority of the Fund's outstanding voting securities
(as defined in the 1940 Act) or by a vote of a majority of the
Company'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.
15
<PAGE>
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to AFD Exchange Reserves, Alliance
All-Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Global Dollar Government Fund, Inc., Alliance Global Environment
Fund, Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Institutional Funds, Inc., Alliance Institutional Reserves, Inc.,
Alliance International Fund, Alliance International Premier
Growth Fund, Inc., Alliance Limited Maturity Government Fund,
Inc., Alliance Money Market Fund, Alliance Mortgage Securities
Income Fund, Inc., Alliance Multi-Market Strategy Trust, Inc.,
Alliance Municipal Income Fund, Inc., Alliance Municipal Income
Fund II, Alliance Municipal Trust, Alliance New Europe Fund,
Inc., Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund, Inc.,
Alliance Real Estate Investment Fund, Inc., Alliance/Regent
Sector Opportunity Fund, Inc., Alliance Technology Fund, Inc.,
Alliance Utility Income Fund, Inc., Alliance Variable Products
Series Fund, Inc., Alliance Worldwide Privatization Fund, Inc.,
The Alliance Fund, Inc., The Alliance Portfolios and The Hudson
River Trust, all 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 All-Market Advantage Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end investment companies.
___________________________________________________________
EXPENSES OF THE FUND
___________________________________________________________
Distribution Services Agreement
The Company has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Company's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with distribution of
its Class A shares, Class B shares and Class C shares in
accordance with a plan of distribution which is included in the
Agreement and which has been duly adopted and approved in
16
<PAGE>
accordance with Rule 12b-1 adopted by the Securities and Exchange
Commission (the "Commission") under the 1940 Act (the "Rule 12b-1
Plan").
In approving the Agreement, the Directors of the Company
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
During the period from July 29, 1998 (commencement of
operations) to October 31, 1998, the Fund paid distribution
services fees for expenditures under the Agreement, with respect
to Class A shares, in amounts aggregating $14,722, which
constituted approximately .30% of the average daily net assets
attributable to Class A shares during such fiscal year, and the
Adviser made payments from its own resources as described above
aggregating $245,947. Of the $260,669 paid by the Fund and the
Adviser with respect to Class A shares under the Agreement,
$2,601 was spent on advertising, $1,466 on the printing and
mailing of prospectuses for persons other than current
shareholders, $30,632 for compensation to broker-dealers and
other financial intermediaries (including $14,043 to the Fund's
Principal Underwriter), $37,130 for compensation to sales
personnel, and $188,840 was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses.
During the period from July 29, 1998 (commencement of
operations) to October 31, 1998, the Fund paid distribution
services fees for expenditures under the Agreement, with respect
to Class B shares, in amounts aggregating $82,068, which
constituted approximately 1.00% of the Fund's average daily net
assets attributable to Class B shares during such fiscal year,
and the Adviser made payments from its own resources as described
above aggregating $771,248. Of the $853,316 paid by the Fund and
the Adviser under the Rule 12b-1 Plan with respect to Class B
shares, $4,529 was spent on advertising, $2,543 on the printing
and mailing of prospectuses for persons other than current
shareholders, $733,060 for compensation to broker-dealers and
other financial intermediaries (including $24,774 to the Fund's
Principal Underwriter), $68,614 for compensation to sales
personnel, $34,974 was spent on the printing of sales literature,
travel, entertainment, due diligence, other promotional expenses
and $9,596 was spent on interest on Class B shares financing.
The additional $771,248 in payments to the Principal Underwriter
will be carried forward and offset against future distribution
service fees payable under the Rule 12b-1 Plan.
17
<PAGE>
During the period from July 29, 1998 (commencement of
operations) to October 31, 1998, the Fund paid distribution
services fees for expenditures under the Agreement, with respect
to Class C shares, in amounts aggregating $45,223, which
constituted 1.00% of the Fund's average daily net assets
attributable to Class C shares during such fiscal year, and the
Adviser made payments from its own resources as described above
aggregating $110,058. Of the $155,281 paid by the Fund and the
Adviser under the Rule 12b-1 Plan with respect to Class C shares
under the Agreement, $2,566 was spent on advertising, $1,465 on
the printing and mailing of prospectuses for persons other than
current shareholders, $88,810 for compensation to broker-dealers
and other financial intermediaries (including $14,086 to the
Fund's Principal Underwriter), $37,252 for compensation to sales
personnel, $19,920 was spent on the printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses and $5,268 was spend on interest on Class C shares
financing. The additional $110,058 in payments to the Principal
Underwriter will be carried forward and offset against future
distribution service fees payable under the Rule 12b-1 Plan.
In addition to the payments to the Adviser 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
Adviser, (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 the Adviser 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 fees are accrued daily and paid
monthly and charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge and at the same time to permit the Principal
Underwriter to compensate broker-dealers in connection with the
sale of such shares. In this regard the purpose and function of
the combined contingent deferred sales charge and respective
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
18
<PAGE>
provides for the financing of the distribution of the relevant
class of the Fund's shares.
With respect to Class A shares of the Fund, distribution
expenses accrued by Alliance Fund Distributors Inc. in one fiscal
year may not be paid from distribution services fees received
from the Fund in subsequent fiscal years. Alliance Fund
Distributors Inc. compensation with respect to Class B and Class
C shares under the Rule 12b-1 Plan is directly tied to the
expenses incurred by Alliance Fund Distributors Inc. Actual
distribution expenses for Class B and Class C shares for any
given year, however, will probably exceed the distribution
services fees payable under the Rule 12b-1 Plan and payments
received from contingent deferred sales charges ("CDSCs"). The
excess will be carried forward by Alliance Fund Distributors,
Inc. and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan and payments subsequently received through
CDSCs, so long as the Rule 12b-1 Plan and the Agreement are in
effect.
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which
effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets
attributable to that class. The rules also limit the aggregate
of all front-end, deferred and asset-based sales charges imposed
with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
Unreimbursed distribution expenses incurred as of the
end of the Fund's most recently completed fiscal period, and
carried over for reimbursement in future years in respect of the
Class B and Class C shares of the Fund, were, respectively,
$771,248 (2.45% of the net assets of Class B Shares) and $110,058
(.63% of the net assets of Class C Shares).
The Agreement will continue in effect for successive
twelve-month periods (computed from each December 1), provided,
however that such continuance is specifically approved at least
annually by the Directors of the Company 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 Company who are not parties to
the Agreement or interested persons, as defined in the 1940 Act,
of any such party (other than as directors of the Fund) and who
have no direct or indirect financial interest in the operation of
the Rule 12b-1 Plan or any agreement related thereto. Most
19
<PAGE>
recently the continuance of the Agreement until November 30, 1999
was approved by a vote, cast in person, of the Directors,
including a majority of the Directors who are not "interested
persons," as defined in the 1940 Act, at their meeting held on
October 15, 1998.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
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.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as the Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of
account holders of each of the Class A shares, Class B shares and
Class C shares of the Fund, plus reimbursement for out-of-pocket
expenses. The transfer agency fee with respect to the Class B
shares and Class C shares is higher than the transfer agency fee
with respect to the Class A shares. For the fiscal period ended
October 31, 1998, the Fund paid AFS $12,959 pursuant to the
Transfer Agency Agreement.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--How to Buy Shares."
20
<PAGE>
General
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), or without
any initial sales charge and, as long as the shares are held for
one year or more, without any contingent deferred sales charge
("Class C shares"). 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.
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 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 or Class C shares. The Fund may refuse any order for the
purchase of shares. The Fund reserves the right to suspend the
sale of its shares to the public in response to conditions in the
securities markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under
"--Class A Shares". On each Fund business day on which a
purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might
materially affect the value of Fund shares, the per share net
asset value is computed in accordance with the Company'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
21
<PAGE>
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 and Class C 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
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 three classes eventually will
tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense
accrual differential among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. (certain selected dealers, agents or financial
representatives may enter into operating agreements permitting
them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
22
<PAGE>
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 amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives will take the form
of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
Class A, Class B and Class C 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,
23
<PAGE>
(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, (iii) Class B shares and Class C shares bear higher
transfer agency costs than those borne by Class A shares,
(iv) each of Class A, Class B and Class C shares has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid and other
matters for which separate class voting is appropriate under
applicable law, provided that, if the Fund submits to a vote of
the Class A shareholders, an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder
with respect to the Class A shares, then such amendment will also
be submitted to the Class B shareholders and the Class A and
Class B shareholders will vote separately by class, and
(v) Class B shares are subject to a conversion feature. Each
class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Company have determined that
currently no conflict of interest exists between or among the
Class A, Class B and Class C shares of the Fund. On an ongoing
basis, the Directors of the Company, pursuant to their fiduciary
duties under the 1940 Act and state law, will seek to ensure that
no such conflict arises.
Alternative Purchase Arrangements
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated
distribution services fee and contingent deferred sales charge on
Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans and certain employee benefit plans) for
more than $250,000 for Class B shares. (See Appendix B for
information concerning the eligibility of certain employee
benefit plans to purchase Class B shares at net asset value
without being subject to a contingent deferred sales charge and
the ineligibility of certain such plans to purchase Class A
24
<PAGE>
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 on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the period July 29, 1998 (commencement of
operations) to October 31, 1998, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund was $936,257. Of that amount, the Principal Underwriter
received $3,156, representing that portion of the sales charges
paid on shares of the Fund sold during the period which was not
25
<PAGE>
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the period July 29, 1998
(commencement of operations) to October 31, 1998 the Principal
Underwriter received contingent deferred sales charges of $0, on
Class A shares, $45,713 on Class B shares, and $7,197, on Class C
shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
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
26
<PAGE>
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
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 as described below under "Class B Shares-Conversion
Feature." The Fund receives the entire net asset value of its
Class A shares sold to investors. The Principal Underwriter's
commission is the sales charge shown above less any applicable
discount or commission "reallowed" to selected dealers and
agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents
for all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives
reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act.
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but may be subject in most such cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
27
<PAGE>
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
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
28
<PAGE>
-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 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 Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the
Fund held by the investor and (b) all shares
of any other Alliance Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with
29
<PAGE>
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 and/or
Class C shares) of the Fund or any other Alliance Mutual Fund.
Class A investors investing pursuant to the Statement of
Intention must invest at least $50,000 with their initial
purchase of shares of the Fund. Each purchase of shares under a
Statement of Intention will be made at the public offering price
or prices applicable at the time of such purchase to a single
transaction of the dollar amount indicated in the Statement of
Intention. At the investor's option, a Statement of Intention
may include purchases of shares of the Fund or any other Alliance
Mutual Fund made not more than 90 days prior to the date that the
investor signs the Statement of Intention; however, the 13-month
period during which the Statement of Intention is in effect will
begin on the date of the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$50,000 (for a total of $100,000), it will only be necessary to
invest a total of $150,000 during the following 13 months in
shares of the Fund or any other Alliance Mutual Fund, to qualify
for the 2.25% sales charge on the total amount being invested
(the sales charge applicable to an investment of $250,000).
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
30
<PAGE>
$50,000. Shares purchased with the first 5% of such amount will
be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher sales charge applicable
to the shares actually purchased if the full amount indicated is
not purchased, and such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed shares, whether paid in cash or reinvested
in additional Fund shares, are not subject to escrow. When the
full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the
dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of
the 13-month period. The difference in the sales charge will be
used to purchase additional shares of the Fund subject to the
rate of the sales charge applicable to the actual amount of the
aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of 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
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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 Company; present or former
directors and trustees of other
investment companies managed by the
Adviser; present or retired full-time
employees of the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and
directors of ACMC, the Principal
Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers, directors
and present full-time employees of
selected dealers or agents; or the
spouse, sibling, direct ancestor or
direct descendant (collectively,
"relatives") of any such person; or any
trust, individual retirement account or
retirement plan account for the benefit
of any such person or relative; or the
estate of any such person or relative, if
such shares are purchased for investment
purposes (such shares may not be resold
except to the Fund);
(iii) the Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their
affiliates; certain employee benefit
plans for employees of the Adviser, the
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Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates;
(iv) registered investment advisers or other
financial intermediaries who charge a
management, consulting or other fee for
their services and who purchase shares
through a broker or agent approved by the
Principal Underwriter and clients of such
registered investment advisers or
financial intermediaries whose accounts
are linked to the master account of such
investment adviser or financial
intermediary on the books of such
approved broker or agent;
(v) persons participating in a fee-based
program, sponsored and maintained by a
registered broker-dealer or other
financial intermediary and approved by
the Principal Underwriter, pursuant to
which such persons pay an asset-based fee
to such broker-dealer or financial
intermediary, or its affiliate or agent,
for services in the nature of investment
advisory or administrative services;
(vi) persons who establish to the Principal
Underwriter's satisfaction that they are
investing, within such time period as may
be designated by the Principal
Underwriter, proceeds of redemption of
shares of such other registered
investment companies as may be designated
from time to time by the Principal
Underwriter; and
(vii) employer-sponsored qualified pension or
profit-sharing plans (including Section
401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7),
retirement plans and individual
retirement accounts (including individual
retirement accounts to which simplified
employee pension ("SEP") contributions
are made), if such plans or accounts are
established or administered under
programs sponsored by administrators or
other persons that have been approved by
the Principal Underwriter.
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<PAGE>
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 10,000
Class B shares at $10 per share (at a cost of $100,000) and in
the second year after purchase, the net asset value per share is
$12 and, during such time, the investor has acquired 1,000
additional Class B shares upon dividend reinvestment. If at such
time the investor makes his or her first redemption of 5,000
Class B shares (proceeds of $60,000), 1,000 Class B shares will
not be subject to the charge because of dividend reinvestment.
With respect to the remaining 4,000 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, $40,000
of the $60,000 redemption proceeds will be charged at a rate of
3.0% (the applicable rate in the second year after purchase, as
set forth below).
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<PAGE>
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
Year Since Purchase % of Dollar Amount Subject to Charge
____________________ ____________________________________
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Company, by the relative of
any such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services -- Systematic Withdrawal Plan" below).
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
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<PAGE>
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares, and
will thus have a higher expense ratio and pay correspondingly
lower dividends than Class A 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
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<PAGE>
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.
_______________________________________________________________
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."
Redemption
Subject only to the limitations described below, the
Company's Articles of Incorporation require that the Fund redeem
the shares tendered to it, as described below, at a redemption
price equal to their net asset value as next computed following
the receipt of shares tendered for redemption in proper form.
Except for any contingent deferred sales charge which may be
applicable to Class A, Class B or Class C shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
37
<PAGE>
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his shares, assuming the shares
constitute capital assets in his hands, will result in long-term
or short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
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
38
<PAGE>
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Telephone Redemption By Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no stock certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption By Check. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no stock certificates have been issued by telephone at (800)
221-5672 before 4:00 p.m. Eastern time on a Fund business day in
an amount not exceeding $50,000. Proceeds of such redemptions
are remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to Alliance Fund
Services, Inc., or by checking the appropriate box on the
Subscription Application found in the Prospectus.
Telephone Redemptions - General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption is not available with respect to shares (i) for which
certificates have been issued, (ii) held in nominee or "street
name" accounts, (iii) held by a shareholder who has changed his
or her address of record within the preceding 30 calendar days or
(iv) held in any retirement plan account. Neither the Fund nor
the Adviser, the Principal Underwriter or Alliance Fund Services,
Inc. will be responsible for the authenticity of telephone
requests for redemptions that the Fund reasonably believes to be
genuine. The Fund will employ reasonable procedures in order to
verify that telephone requests for redemptions are genuine,
39
<PAGE>
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If the Fund did not employ such
procedures, it could be liable for losses arising from
unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
40
<PAGE>
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 and Class C shares
unless otherwise indicated.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least
$50,000 for the initial purchase) are used to purchase shares
through the selected dealer or selected agent designated by the
investor at the public offering price next determined after the
Principal Underwriter receives the proceeds from the investor's
bank. In electronic form, drafts can be made on or about a date
each month selected by the shareholder. Investors wishing to
establish an automatic investment program in connection with
their initial investment should complete the appropriate portion
of the Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. at the
address or telephone numbers shown on the cover of this Statement
of Additional Information to establish an automatic investment
program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
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.
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<PAGE>
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. 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, as applicable. An exchange is effected through the
redemption of the shares tendered for exchange and the purchase
of shares being acquired at their respective net asset values as
next determined following receipt by the Alliance Mutual Fund
whose shares are being exchanged of (i) proper instructions and
all necessary supporting documents as described in such fund's
Prospectus, or (ii) a telephone request for such exchange in
accordance with the procedures set forth in the following
paragraph. Exchanges involving the redemption of shares recently
purchased by check will be permitted only after the Alliance
Mutual Fund whose shares have been tendered for exchange is
reasonably assured that the check has cleared, normally up to 15
calendar days following the purchase date. Exchanges of shares
or Alliance Mutual Funds will generally result in the realization
of a capital gain or loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc., receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
42
<PAGE>
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
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,
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<PAGE>
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-Sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the
plan's request without any sales charge, for Class A shares of
the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
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<PAGE>
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 or Class C Fund account, a Class A,
Class B or Class C account with one or more other Alliance Mutual
Funds may direct that income dividends and/or capital gains paid
on the shareholder's Class A, Class B or Class C Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information. Investors
wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section
of the Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
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first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level.
Therefore, redemptions of shares under the plan may reduce or
even liquidate a shareholder's account and may subject the
shareholder to the Fund's involuntary redemption provisions. See
"Redemption and Repurchase of Shares--General." Purchases of
additional shares concurrently with withdrawals are undesirable
because of sales charges when purchases are made. While an
occasional lump-sum investment may be made by a holder of Class A
shares who is maintaining a systematic withdrawal plan, such
investment should normally be an amount equivalent to three times
the annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any contingent deferred sales charge.
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.
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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 accountants,
PricewaterhouseCoopers 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
_______________________________________________________________
The per share net asset value is computed in accordance
with the Company's Articles of Incorporation and By-Laws at the
next close of regular trading on the Exchange (ordinarily 4:00
p.m. Eastern time) following receipt of a purchase or redemption
order by the Fund on each Fund business day on which such an
order is received and on such other days as the Board of
Directors deems appropriate or necessary in order to comply with
Rule 22c-1 under the 1940 Act. The Fund's per share net asset
value is calculated by dividing the value of the Fund's total
assets, less its liabilities, by the total number of its shares
then outstanding. A Fund business day is any weekday on which
the Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day, then the security
is valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
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are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
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Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's net asset value (and the offering and sale of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares and Class C shares will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the liabilities allocated to that class
from the assets belonging to that class in conformance with the
provisions of a plan adopted by the Fund in accordance with Rule
18f-3 under the 1940 Act.
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_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
The following summary only addresses 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. The summary is based upon the advice of
counsel for the Fund 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 for each taxable year to
qualify to be taxed as a "regulated investment company" under the
Code. To so qualify, the Fund must, among other things,
(i) derive at least 90% of its gross income in each taxable year
from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock,
securities or foreign currency, or certain other income
(including, but not limited to, gains from options, futures and
forward contracts) derived with respect to its business of
investing in stock, securities or currency; and (ii) diversify
its holdings so that, at the end of each quarter of its taxable
year, the following two conditions are met: (a) at least 50% of
the value of the Fund's assets is represented by cash, U.S.
Government securities, securities of other regulated investment
companies and other securities with respect to which the Fund's
investment is limited, in respect of any one issuer, to an amount
not greater than 5% of the Fund's assets and 10% of the
outstanding voting securities of such issuer, and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies)
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.
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If the Fund qualifies as a regulated investment company
for any taxable year and makes timely distributions to its
shareholders of 90% or more of its investment company taxable
income for that year (calculated without regard to its net
capital gain, i.e., the excess of its net long-term capital gain
over its net short-term capital loss), it will not be subject to
federal income tax on the portion of its taxable income for the
year (including any net capital gain) that it distributes to
shareholders.
The Fund 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 the
shareholders equal to at least the sum of (i) 98% of its ordinary
income for that year; (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of that year; and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during that year. For this purpose, income or gain
retained by the Fund that is subject to corporate income tax will
be considered to have been distributed by the Fund by year-end.
For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October,
November or December of a given year but actually paid during the
immediately following January will be treated as if paid by the
Fund on December 31 of that calendar year, and will be taxable to
these shareholders for the year declared, and not for the year in
which the shareholders actually receive the dividend.
The Fund intends to make timely distributions of the
Fund's taxable income (including any net capital gain) so that
the Fund will not be subject to federal income or excise taxes.
However, exchange control or other regulations on the
repatriation of investment income, capital or the proceeds of
securities sales, if any exist or are enacted in the future, may
limit the Fund's ability to make distributions sufficient in
amount to avoid being subject to one or both of such federal
taxes.
Dividends and Distributions. Dividends of the Fund's
net ordinary income and distributions of any net realized short-
term capital gain will be taxable to shareholders as ordinary
income. In the case of corporate shareholders, such dividends
may be eligible for the dividends-received deduction, except that
the amount eligible for the deduction is limited to the amount of
qualifying dividends received by the Fund. A corporation's
dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund at least 46 days during the
90-day period beginning 45 days before the date on which the
corporation becomes entitled to receive the dividend. In
determining the holding period of such shares for this purpose,
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any period during which the corporation's risk of loss is offset
by means of options, short sales or similar transactions is not
counted. Furthermore, the dividends-received deduction will be
disallowed to the extent a corporation's investment in shares of
the Fund is financed with indebtedness.
Distributions of net capital gain will be taxable to
shareholders as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Distributions of net
capital gain 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 such dividend or
distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him as described above.
Dividends are taxable in the manner discussed regardless of
whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
It is the present policy of the Fund to distribute to
shareholders all net investment income and to distribute realized
capital gains, if any, annually. There is no fixed dividend rate
and there can be no assurance that the Fund will pay any
dividends. The amount of any dividend or distribution paid on
shares of the Fund must necessarily depend upon the realization
of income and capital gains from the Fund's investments.
Sales and Redemptions. Any gain or loss arising from a
sale or redemption of Fund shares generally will be capital gain
or loss except in the case of dealers or certain financial
institutions. 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. If a shareholder has held
shares in the Fund for six months or less and during that period
has received a distribution of net capital gain, any loss
recognized by the shareholder on the sale of those shares during
the six-month period will be treated as a long-term capital loss
to the extent of the distribution. In determining the holding
period of such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
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Any loss realized by a shareholder on a sale or exchange
of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Qualified Plans. A dividend or capital gains
distribution with respect to shares of the fund held by a tax-
deferred or qualified plan, such as an individual retirement
account, 403(b)(7) retirement plan or corporate pension or
profit-sharing plan, generally will not be taxable to the plan.
Distributions from such plans will be taxable to individual
participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Backup Withholding. The Fund may be required to
withhold federal income tax at the rate of 31% of all taxable
distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to
make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
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.
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
53
<PAGE>
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. If such
distributions exceed such shareholder's basis, such excess will
be treated as a gain from the sale of shares.
Options, Futures and Forward Contracts. Certain listed
options, regulated futures contracts, and forward foreign
currency contracts are considered "section 1256 contracts" for
federal income tax purposes. Section 1256 contracts held by the
Fund at the end of each taxable year will be "marked to market"
and treated for federal income tax purposes as though sold for
fair market value on the last business day of such taxable year.
Gain or loss realized by the Fund on section 1256 contracts other
than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts
generally will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded over-
the-counter or on certain foreign exchanges, gain or loss
realized by the Fund upon the lapse or sale of such options held
by the Fund will be either long-term or short-term capital gain
or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or
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<PAGE>
closing out of such options that are written by the Fund will be
treated as short-term capital gain or loss. In general, if the
Fund exercises an option, or an option that the Fund has written
is exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in
the calculation of gain or loss upon disposition of the property
underlying the option.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
subtracting the amount paid, if any, for or with respect to the
option (including any amount paid by the Fund upon termination of
an option written by the Fund) from the amount received, if any,
for or with respect to the option (including any amount received
by the Fund upon termination of an option held by the Fund). In
general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
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
55
<PAGE>
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
Other Taxation
Income received by the Fund may also 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. The Fund may also be
subject to state and local taxes. Also, distributions by the
Fund may be subject to additional state, local and foreign taxes
depending on each shareholder's particular circumstances.
_______________________________________________________________
PORTFOLIO TRANSACTIONS
_______________________________________________________________
The management of the Fund has the responsibility for
allocating its brokerage orders and may direct orders to any
broker. It is the Fund's general policy to seek favorable net
prices and prompt reliable execution in connection with the
purchase or sale of all portfolio securities. In the purchase
and sale of over-the-counter securities, it is the Fund's policy
to use the primary market makers except when a better price can
be obtained by using a broker. The Board of Directors has
approved, as in the best interests of the Fund and the
shareholders, a policy of considering, among other factors, sales
of the Fund's shares as a factor in the selection of
broker-dealers to execute portfolio transactions, subject to best
execution. The Adviser is authorized under the Advisory
Agreement to place brokerage business with such brokers and
dealers. The use of brokers who supply supplemental research and
analysis and other services may result in the payment of higher
commissions than those available from other brokers and dealers
who provide only the execution of portfolio transactions. In
addition, the supplemental research and analysis and other
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<PAGE>
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
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
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<PAGE>
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.
During the fiscal period ended October 31, 1998 the Fund
incurred brokerage commissions amounting in the aggregate to
$83,812. During the fiscal period ended October 31, 1998,
brokerage commissions amounting in the aggregate to $0 were paid
to DLJ and brokerage commissions amounting in the aggregate to $0
were paid to brokers utilizing the Pershing Division of DLJ.
During the fiscal period ended October 31, 1998, the brokerage
commissions paid to DLJ constituted 0% of the Fund's aggregate
brokerage commissions and the brokerage commissions paid to
brokers utilizing the Pershing Division of DLJ constituted 0% of
the Fund's aggregate brokerage commissions. During the fiscal
period ended October 31, 1998, of the Fund's aggregate dollar
amount of brokerage transactions involving the payment of
commissions, 0% were effected through DLJ and 0% were effected
through brokers utilizing the Pershing Division of DLJ. During
the fiscal period ended October 31, 1998, transactions in
portfolio securities of the Fund aggregating $71,795,628 with
associated brokerage commissions of approximately $54,767 were
allocated to persons of firms supplying research services to the
Fund or the Adviser.
Some of the Fund's portfolio transactions in equity
securities may 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.
58
<PAGE>
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
Capitalization
The Company is a Maryland corporation organized in 1998.
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 and 3,000,000,000 shares of
Class C 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 any unissued
shares to any number of additional series and classes without
shareholder approval. Any issuance of shares of another class
or series would be governed by the 1940 Act and the law of the
State of Maryland.
A shareholder in the Fund will be entitled to share pro
rata with other holders of the same class of shares in 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 Company is empowered to establish, without
shareholder approval, additional portfolios, which may have
different investment objectives and policies than those of the
Fund, and additional classes of shares within the Fund. If an
additional portfolio or class were established by the Company,
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. 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.
Class A, Class B and Class C shares of the Fund have identical
voting, dividend, liquidation and other rights, except that each
class bears its own transfer agency expenses, each of Class A,
Class B and Class C shares bears its own distribution expenses,
and Class B shares convert to Class A shares after eight years.
Each class of shares of the Fund votes separately with respect to
the Fund's Rule 12b-1 distribution plan and other matters for
which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends and
distributions as determined by the Directors and, in liquidation
of the Fund, are entitled to receive the net assets of the Fund.
59
<PAGE>
Certain additional matters relating to the Company's organization
are discussed in this Statement of Additional Information.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Company, similar to those set forth
in Section 16(c) of the 1940 Act will be available to
shareholders of the Fund. The rights of the holders of shares of
a series may not be modified except by the vote of a majority of
the outstanding shares of such series.
As of the close of business on, February 5, 1999, there
were 11,419,633 shares of common stock outstanding. Of this
amount, 3,729,579 shares were Class A shares, 5,018,801 shares
were Class B shares and 2,671,253 shares were Class C shares. To
the knowledge of the Fund, the following persons owned of record,
or beneficially, 5% or more of the outstanding shares of the Fund
as of February 5, 1999:
No. of
Shares % of % of % of
Name and Address of Class Class A Class B Class C
________________ ________ _______ _______ _______
Merrill Lynch 702,719 18.15%
4800 Deer Lake Dr. 2,181,055 44.12%
Jacksonville, FL 32246 1,266,118 46.15%
Custodian
The Bank of New York, One Wall Street, New York, NY will
act as the Company's custodian for the assets of the Fund but
plays no part in deciding the purchase or sale of portfolio
securities. Subject to the supervision of the Company's
Directors, The Bank of New York may enter into sub-custodial
agreements for the holding of the Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., a wholly-owned
subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the Principal Underwriter
of shares of the Fund, 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
60
<PAGE>
certain civil liabilities, including liabilities under the
Securities Act.
Counsel
Legal matters in connection with the issuance of the
common stock offered hereby are passed upon by Seward & Kissel
LLP, New York, New York. Seward & Kissel LLP has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
Independent Accountants
PricewaterhouseCoopers LLP, New York, New York, have
been appointed as independent accountants for the Fund.
Performance Information
From time to time, the Fund advertises its total return.
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.
Total return information is useful in reviewing the
Fund's performance but such information may not provide a basis
for comparison with bank deposits or other investments which pay
a fixed yield for a stated period of time. An investor's
principal invested in the Fund is not fixed and will fluctuate in
response to prevailing market conditions.
The Fund's total returns for the period July 29, 1998
(commencement of operations) to October 31, were (4.70)%, (5.10)%
and (5.00)% for Class A, Class B and Class C shares,
respectively.
The Fund's total return is computed separately for each
class of shares. 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, the
Fund's average portfolio maturity and its expenses. Quotations
of total return do not include any provision for the effect of
individual income taxes. An investor's principal invested in the
61
<PAGE>
Fund is not fixed and will fluctuate in response to prevailing
market conditions. The Fund may advertise the fluctuation of its
net asset value over certain time periods and compare its
performance to that available from other investments, including
money market funds and certificates of deposit, the later of
which, unlike the Fund, are insured and have fixed rates of
return.
Advertisements quoting performance rankings or ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc., and Morningstar, Inc. (or comparisons between the Fund's
performance and those of various indices) 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
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.
62
<PAGE>
_________________________________________________________________
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT AUDITORS
_________________________________________________________________
63
<PAGE>
ALLIANCE
--------------------------
SELECT INVESTOR
--------------------------
SERIES
--------------------------
PREMIER PORTFOLIO
--------------------------
Annual Report
October 31, 1998
Alliance Capital [LOGO](R)
<PAGE>
PORTFOLIO OF INVESTMENTS Alliance Select Investor Series
October 31, 1998 Premier Portfolio
================================================================================
Company Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS - 89.8%
TECHNOLOGY - 30.4%
COMMUNICATION
EQUIPMENT - 11.3%
EMC Corp.(a) ............................ 29,300 $ 1,886,188
Lucent Technologies, Inc. ............... 13,200 1,058,475
Nokia Corp. (ADR)(a)(b)(c) .............. 72,300 6,728,419
------------
9,673,082
------------
COMPUTER
HARDWARE - 5.8%
Dell Computer Corp.(a) .................. 76,000 4,978,000
------------
COMPUTER
SOFTWARE - 3.9%
HBO & Co. ............................... 36,000 945,000
Microsoft Corp.(a) ...................... 22,800 2,413,950
------------
3,358,950
------------
NETWORKING
SOFTWARE - 6.9%
America Online, Inc.(a) ................. 11,000 1,397,687
Cisco Systems, Inc.(a) .................. 71,450 4,501,350
------------
5,899,037
------------
SEMICONDUCTOR
COMPONENTS - 2.5%
Intel Corp. ............................. 23,300 2,078,069
------------
25,987,138
------------
CONSUMER SERVICES - 21.8%
AIRLINES - 2.2%
Northwest Airlines
Corp.(a) .............................. 28,100 736,747
UAL Corp.(a) ............................ 17,200 1,116,925
------------
1,853,672
------------
BROADCASTING &
CABLE - 5.4%
AirTouch Communications,
Inc.(a) ............................... 54,000 3,024,000
Tele-Communications
Liberty Media Group
Cl. A(a) .............................. 42,500 1,617,656
------------
4,641,656
------------
ENTERTAINMENT &
LEISURE - 1.1%
Time Warner, Inc.(d) .................... 10,300 $ 955,969
------------
PRINTING &
PUBLISHING - 0.4%
Gannett Co., Inc. ....................... 6,300 389,812
------------
RETAIL - GENERAL
MERCHANDISE - 12.7%
Dayton Hudson Corp. ..................... 72,200 3,059,475
Home Depot, Inc. ........................ 83,900 3,649,650
Kohl's Corp.(a) ......................... 29,100 1,391,344
Lowe's Cos., Inc. ....................... 20,000 673,750
Wal-Mart Stores, Inc. ................... 30,200 2,083,800
------------
10,858,019
------------
18,699,128
------------
FINANCE - 15.9%
BANKING - REGIONAL - 3.1%
BankAmerica Corp. ....................... 23,400 1,344,037
U.S. Bancorp ............................ 35,300 1,288,450
------------
2,632,487
------------
BROKERAGE & MONEY
MANAGEMENT - 1.3%
Morgan Stanley, Dean
Witter & Co. .......................... 17,000 1,100,750
------------
INSURANCE - 2.6%
American International
Group, Inc. ........................... 7,800 664,950
Citigroup, Inc. ......................... 20,250 953,016
Progressive Corp. ....................... 3,000 441,750
SunAmerica, Inc. ........................ 3,000 211,500
------------
2,271,216
------------
MORTGAGE
BANKING - 5.8%
Freddie Mac ............................. 48,000 2,760,000
Washington Mutual, Inc. ................. 59,636 2,232,623
------------
4,992,623
------------
6
<PAGE>
Alliance Select Investor Series
Premier Portfolio
================================================================================
Company Shares Value
- --------------------------------------------------------------------------------
MISCELLANEOUS - 3.1%
Associates First Capital
Corp. Cl. A ......................... 23,800 $ 1,677,900
Household International,
Inc ................................. 23,600 862,875
MBNA Corp. ............................ 4,320 98,550
------------
2,639,325
------------
13,636,401
------------
HEALTHCARE - 13.9%
DRUGS - 12.4%
Bristol-Myers Squibb Co. .............. 23,300 2,576,106
Merck & Co., Inc. ..................... 4,100 554,525
Pfizer, Inc. .......................... 35,800 3,841,788
Schering-Plough Corp. ................. 34,100 3,508,038
Warner-Lambert Co. .................... 2,100 164,587
------------
10,645,044
------------
MEDICAL SERVICES - 1.5%
IMS Health, Inc. ...................... 18,800 1,250,200
------------
11,895,244
------------
MULTI-INDUSTRY - 3.7%
Tyco International, Ltd. .............. 50,400 3,121,650
------------
CONSUMER STAPLES - 1.9%
BEVERAGE - 0.6%
Coca-Cola Co. ......................... 7,600 513,950
------------
RETAIL - FOOD &
DRUGS - 1.3%
Kroger Co.(a) ......................... 10,100 560,550
Rite Aid Corp. ........................ 14,000 555,625
------------
1,116,175
------------
1,630,125
------------
UTILITY - 1.3%
TELEPHONE UTILITY - 1.3%
MCI WorldCom, Inc.(a) ................. 20,000 1,105,000
------------
CAPITAL GOODS - 0.9%
MISCELLANEOUS - 0.9%
United Technologies
Corp ................................ 8,450 804,862
------------
Total Common Stocks
(cost $74,253,972) .................. 76,879,548
------------
Contracts(e)
or Principal
Amount
Company (000) Value
- --------------------------------------------------------------------------------
CALL OPTIONS
PURCHASED - 5.7%(a)
AirTouch
Communications, Inc. ..................
expiring Jan '00 @ $30 ................ 221 $ 629,850
expiring Jan '00 @ $35 ................ 100 246,250
Bristol-Myers Squibb Co. ................
expiring Jan '00 @ $60 ................ 35 185,937
General Electric Co. ....................
expiring Jan '00 @ $50 ................ 203 814,538
Home Depot, Inc. ........................
expiring Jan '00 @ $27.50 ............. 120 220,500
MBNA Corp. ..............................
expiring Jan '00
@ $13.375(f) .......................... 239 376,425
Philip Morris Cos., Inc. ................
expiring Jan '00 @ $30 ................ 410 902,000
Tyco International, Ltd. ................
expiring Jan '00 @ $30 ................ 330 1,142,625
Wal-Mart Stores, Inc. ...................
expiring Jan '00 @ $40 ................ 100 320,000
------------
Total Call Options
Purchased
(cost $4,496,284) ..................... 4,838,125
------------
SHORT TERM
INVESTMENT - 6.4%
COMMERCIAL PAPER - 6.4%
General Electric Capital Corp. ..........
5.70%, 11/02/98
(amortized cost
$5,514,127) ........................... $5,515 5,514,127
------------
TOTAL INVESTMENTS - 101.9%
(cost $84,264,383) .................... 87,231,800
------------
7
<PAGE>
PORTFOLIO OF INVESTMENTS Alliance Select Investor Series
(continued) Premier Portfolio
================================================================================
Company Contracts(e) Value
- --------------------------------------------------------------------------------
CALL OPTIONS
WRITTEN - (0.1%)(a)
Nokia Corp. (ADR)
expiring Nov '98 @ $8(b)
(premiums received
$26,099) ........................... 50 $ (47,500)
-------------
TOTAL INVESTMENTS,
NET OF OUTSTANDING
CALL OPTIONS
WRITTEN - 101.8%
(cost $84,238,284) ................. $ 87,184,300
Other assets less
liabilities - (1.8%) ............... (1,558,181)
-------------
NET ASSETS - 100% .................... $ 85,626,119
============
- --------------------------------------------------------------------------------
(a) Non-income producing security.
(b) Country of origin -- Finland.
(c) Security, or a portion thereof, which has been segregated to collateralize
written call options has a total market value of approximately $465,313.
(d) Security trades with preferred stock purchase rights expiring January 20,
2004.
(e) One contract relates to 100 shares unless indicated otherwise.
(f) One contract relates to 150 shares.
Glossary:
ADR - American Depositary Receipt.
See notes to financial statements.
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES Alliance Select Investor Series
October 31, 1998 Premier Portfolio
================================================================================
ASSETS
Investments in securities, at value (cost $84,264,383) .... $ 87,231,800
Receivable for capital stock sold ......................... 1,587,736
Receivable for investment securities sold ................. 634,652
Receivable from Adviser ................................... 37,190
Dividends receivable ...................................... 28,038
Deferred offering costs ................................... 162,388
------------
Total assets .............................................. 89,681,804
------------
LIABILITIES
Due to custodian .......................................... 624,401
Outstanding call options written, at value (premiums
received $26,099) ....................................... 47,500
Payable for investment securities purchased ............... 2,694,305
Payable for capital stock redeemed ........................ 153,755
Distribution fee payable .................................. 50,022
Advisory fee payable ...................................... 42,698
Accrued expenses .......................................... 443,004
------------
Total liabilities ......................................... 4,055,685
------------
NET ASSETS .................................................. $ 85,626,119
============
COMPOSITION OF NET ASSETS
Capital stock, at par ..................................... $ 9,006
Additional paid-in capital ................................ 87,226,222
Net realized loss on investments and written option
transactions ............................................ (4,555,125)
Net unrealized appreciation of investments and options
written ................................................. 2,946,016
------------
$ 85,626,119
============
CALCULATION OF MAXIMUM OFFERING PRICE Class A Shares
Net asset value and redemption price per share
($25,834,877 / 2,711,063 shares of capital stock
issued and outstanding) ................................. $9.53
Sales charge -- 4.25% of public offering price ............ .42
-----
Maximum offering price .................................... $9.95
=====
Class B Shares
Net asset value and offering price per share
($38,887,038 / 4,095,538 shares of capital stock issued
and outstanding) ........................................ $9.49
=====
Class C Shares
Net asset value and offering price per share
($20,904,204 / 2,199,329 shares of capital stock issued
and outstanding) ........................................ $9.50
=====
- --------------------------------------------------------------------------------
See notes to financial statements.
9
<PAGE>
STATEMENT OF OPERATIONS Alliance Select Investor Series
July 29, 1998* to October 31, 1998 Premier Portfolio
================================================================================
INVESTMENT INCOME
Interest ....................................... $ 147,142
Dividends ...................................... 87,437 $ 234,579
-----------
EXPENSES
Advisory fee ................................... 183,788
Distribution fee - Class A ..................... 14,722
Distribution fee - Class B ..................... 82,068
Distribution fee - Class C ..................... 45,223
Amortization of offering expenses .............. 54,112
Audit and legal ................................ 49,577
Custodian ...................................... 43,999
Administrative fee ............................. 35,000
Printing ....................................... 24,498
Registration ................................... 23,999
Transfer agency ................................ 12,959
Directors' fees ................................ 6,600
Miscellaneous .................................. 3,001
-----------
Total expenses ................................. 579,546
Less: expenses waived and reimbursed by
Adviser (See Note B) ......................... (49,535)
-----------
Net expenses ................................... 530,011
-----------
Net investment loss ............................ (295,432)
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND OPTIONS WRITTEN
Net realized loss on investment transactions ... (4,741,040)
Net realized gain on written option
transactions ................................. 185,915
Net unrealized appreciation of investments and
options written .............................. 2,946,016
-----------
Net loss on investments ........................ (1,609,109)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS ....... $(1,904,541)
===========
- --------------------------------------------------------------------------------
* Commencement of operations.
See notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES Alliance Select Investor Series
IN NET ASSETS Premier Portfolio
================================================================================
July 29, 1998(a)
to
October 31, 1998
----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment loss ........................................ $ (295,432)
Net realized loss on investments and written option
transactions ............................................. (4,555,125)
Net unrealized appreciation of investments and options
written .................................................. 2,946,016
------------
Net decrease in net assets from operations ................. (1,904,541)
COMMON STOCK TRANSACTIONS
Net increase ............................................... 87,430,460
------------
Total increase ............................................. 85,525,919
NET ASSETS
Beginning of period ........................................ 100,200
------------
End of period .............................................. $ 85,626,119
============
- --------------------------------------------------------------------------------
(a) Commencement of operations.
See notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS Alliance Select Investor Series
October 31, 1998 Premier Portfolio
================================================================================
NOTE A: Significant Accounting Policies
The Premier Portfolio (the "Fund"), the initial portfolio of Alliance Select
Investor Series, Inc. (the "Company") was incorporated in the state of Maryland
on May 21, 1998 and is registered under the Investment Company Act of 1940 as a
non-diversified, open-end management investment company. The Fund offers Class
A, Class B and Class C shares. Prior to commencement of operations on July 29,
1998, the Fund had no operations other than the sale to Alliance Capital
Management L.P. (the "Adviser") of 10,000 shares of Class A and 10 shares of
each of Class B and Class C for the aggregate amount of $100,000 on Class A
shares and $100 on each of Class B and Class C shares on June 25, 1998. Class A
shares are sold with a front-end sales charge of up to 4.25% for purchases not
exceeding $1,000,000. With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a contingent
deferred sales charge of 1%. Class B shares are currently sold with a contingent
deferred sales charge which declines from 4% to zero depending on the period of
time the shares are held. Class B shares will automatically convert to Class A
shares eight years after the end of the calendar month of purchase. Class C
shares are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights, except that each class
bears different distribution expenses and has exclusive voting rights with
respect to its distribution plan. The financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities in the financial statements and amounts of
income and expenses during the reporting period. Actual results could differ
from those estimates. The following is a summary of significant accounting
policies followed by the Fund.
1. Security Valuation
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are generally
valued at the last reported sales price or, if no sale occurred, at the mean of
the closing bid and asked prices on that day. Readily marketable securities
traded in the over-the-counter market, securities listed on a foreign securities
exchange whose operations are similar to the U.S. over-the-counter market, and
securities listed on a national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the current bid and
asked prices. U.S. government and fixed income securities which mature in 60
days or less are valued at amortized cost, unless this method does not represent
fair value. Securities for which current market quotations are not readily
available are valued at their fair value as determined in good faith by, or in
accordance with procedures adopted by, the Board of Directors. Fixed income
securities may be valued on the basis of prices obtained from a pricing service
when such prices are believed to reflect the fair market value of such
securities. Listed put or call options purchased by the Fund are valued at the
last sale price. If there has been no sale on that day, such securities will be
valued at the closing bid prices on that day.
2. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the mean
of the quoted bid and asked price of such currencies against the U.S. dollar.
Purchases and sales of portfolio securities are translated at the rates of
exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
Net realized foreign exchange gains or losses represent foreign exchange gains
and losses from sales of investments and forward currency exchange contracts,
holding of foreign currencies, currency gains or losses realized between the
trade and settlement dates on foreign security transactions, and the difference
between the amounts of dividends, interest and foreign taxes receivable recorded
on the Fund's books and the U.S. dollar equivalent amounts actually received or
paid. Net currency gains and losses from valuing foreign currency denominated
assets and liabilities at period end exchange rates would be reflected as a
component of net unrealized appreciation (depreciation) of investments and
foreign currency denominated assets and liabilities.
12
<PAGE>
Alliance Select Investor Series
Premier Portfolio
================================================================================
3. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provision for federal income or excise taxes is
required.
4. Organization and Offering Expenses
Organization expenses of $62,500 were charged to the Fund as incurred prior to
commencement of operations and reimbursed by the Adviser. Offering expenses of
$216,500 have been deferred and are being amortized on a straight-line basis
over a one year period.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. Investment gains and losses are determined on the identified
cost basis. The Fund accretes discounts as adjustments to interest income.
6. Income and Expenses
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares of such class, except that the Fund's
Class B and Class C shares bear higher distribution and transfer agent fees than
Class A shares.
7. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income and capital gains distributions are determined in accordance with
federal tax regulations and may differ from those determined in accordance with
generally accepted accounting principles. To the extent these differences are
permanent, such amounts are reclassified with the capital accounts based on
their federal tax basis treatment; temporary differences do not require such
reclassification. During the current fiscal period, permanent differences,
primarily due to net investment loss, resulted in a net decrease in net
investment loss and a corresponding decrease in additional paid in capital.
- --------------------------------------------------------------------------------
NOTE B: Advisory Fee and Other Transactions With Affiliates
Under the terms of an Investment Advisory Agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser") a monthly fee at an annualized rate of
1.10% of the Fund's average daily net assets (the "Basic Fee") and an adjustment
to the Basic Fee based upon the investment performance of the Class A shares of
the Fund in relation to the investment record of the Russell 1000 Growth Index.
For the period from August 1, 1998 through July 31, 1999, the Adviser will
receive a minimum fee payable monthly equal to .80% annualized of the average
net assets of the Fund for each day included in such annual period. The fee paid
to the Adviser for this period may be increased to 1.40%, based on the
investment performance of the Class A shares of the Fund in relation to the
investment record of the Russell 1000 Growth Index. During the period ended
October 31, 1998, the effective advisory fee was at the annualized rate of 1.05%
of the Fund's average daily net assets.
The Fund and the Adviser have entered into an Expense Limitation Agreement (the
"Agreement"), dated June 29, 1998, under which the Adviser has agreed to waive
its fees and, if necessary, reimburse expenses for the period from May 21, 1998
(date of organization of the Fund) to July 31, 1999, exceeding the annual rate
of 2.50% of average daily net assets for Class A shares and 3.20% of average
daily net assets for Class B shares and Class C shares, respectively. Under the
Agreement, any waivers or reimbursements made by the Adviser during this period
are subject to repayment by the Fund in subsequent periods, but no later than
July 31, 2001, provided that repayment does not result in the Fund's aggregate
expenses in those subsequent periods exceeding the foregoing expense
limitations. Further, the aggregate repayment to the Adviser will not exceed the
sum of the Fund's organization costs and initial offering expenses. At October
31, 1998, the total amount of expenses waived and reimbursed by the Adviser that
are subject to repayment amounted to $112,035.
Pursuant to the advisory agreement, the Adviser provides certain legal and
accounting services for the Fund. For the period ended October 31, 1998, such
fees amounted to $35,000.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS Alliance Select Investor Series
(continued) Premier Portfolio
================================================================================
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $6,326 for the period ended October 31, 1998.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $3,156 from the sale of Class A shares and $45,713
and $7,197 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B and Class C shares, respectively, for the period ended
October 31, 1998.
Brokerage commissions paid for the period ended October 31, 1998 on investment
transactions amounted to $83,812, none of which was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corp. ("DLJ") nor to DLJ directly, an affiliate of the Adviser.
- --------------------------------------------------------------------------------
NOTE C: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual rate
of up to .30 of 1% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B and
Class C shares. Such fee is accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has incurred
expenses in excess of the distribution costs reimbursed by the Fund in the
amount of $771,248 and $110,058, for Class B and C shares, respectively. Such
costs may be recovered from the Fund in future periods so long as the Agreement
is in effect. In accordance with the Agreement there is no provision for
recovery of unreimbursed distribution costs incurred by the Distributor, beyond
the current fiscal year for Class A shares. The Agreement also provides that the
Adviser may use its own resources to finance the distribution of the Fund's
shares.
- --------------------------------------------------------------------------------
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments,
and U.S. government securities) aggregated $96,972,082 and $13,482,730,
respectively, for the period ended October 31, 1998. There were no purchases or
sales of U.S. government or government agency obligations for the period ended
October 31, 1998.
At October 31, 1998, the cost of investments for federal income tax purposes was
$84,355,899. Gross unrealized appreciation of investments was $5,208,098 and
gross unrealized depreciation of investments was $2,332,197 resulting in net
unrealized appreciation of $2,875,901 (excluding written call options).
The Fund had a capital loss carryover of $4,455,022 which expires October 31,
2006. To the extent that any net capital loss carryover is used to offset future
capital gains, it is probable that these gains will not be distributed to
shareholders.
1. Options Transactions
For hedging purposes, the Fund purchases and writes (sells) options on market
indices and covered put and call options on U.S. securities that are traded on
U.S. securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk of
loss of the premium and any change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired through
the exercise of call options is increased by premiums paid. The proceeds from
securities sold through the exercise of put options are decreased by the
premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written.
14
<PAGE>
Alliance Select Investor Series
Premier Portfolio
================================================================================
Premiums received from writing options which expire unexercised are recorded by
the Fund on the expiration date as realized gains from option transactions. The
difference between the premium and the amount paid on effecting a closing
purchase transaction, including brokerage commissions, is also treated as a
realized gain, or if the premium is less than the amount paid for the closing
purchase transaction, as a realized loss. If a written call option is exercised,
the premium is added to the proceeds from the sale of the underlying security in
determining whether the Fund has realized a gain or loss. If a written put
option is exercised, the premium reduces the costs basis of the security
purchased by the Fund. In writing covered options, the Fund bears the market
risk of an unfavorable change in the price of the security underlying the
written option. Exercise of an option written by the Fund could result in the
Fund selling or buying a security at a price different from the current market
value.
Transactions in options written for the period ended October 31, 1998 were as
follows:
Number Premiums
of Contracts Received
------------ ----------
Options outstanding at beginning of period....... - 0 - $ - 0 -
Options written.................................. 373 657,316
Options terminated in closing purchase
transactions................................... (323) (631,217)
--- --------
Options outstanding at October 31, 1998.......... 50 $ 26,099
=== ========
- --------------------------------------------------------------------------------
NOTE E: Capital Stock
There are 9,000,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C. Each
consists of 3,000,000,000 authorized shares. Transactions in capital stock were
as follows:
---------- ----------
SHARES AMOUNT
---------- ----------
July 29, 1998(a) July 29, 1998(a)
to to
October 31, 1998 October 31, 1998
---------------- ----------------
Class A
Shares sold .......................... 3,023,758 $ 28,756,722
Shares redeemed ...................... (322,695) (2,854,007)
---------- ------------
Net increase ......................... 2,701,063 $ 25,902,715
========== ============
Class B
Shares sold .......................... 4,396,418 $ 42,449,402
Shares redeemed ...................... (300,890) (2,503,948)
---------- ------------
Net increase ......................... 4,095,528 $ 39,945,454
========== ============
Class C
Shares sold .......................... 2,447,233 $ 23,765,875
Shares redeemed ...................... (247,914) (2,183,584)
---------- ------------
Net increase ......................... 2,199,319 $ 21,582,291
========== ============
- --------------------------------------------------------------------------------
(a) Commencement of operations.
15
<PAGE>
Alliance Select Investor Series
Premier Portfolio
================================================================================
NOTE F: Bank Borrowing
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility")
intended to provide short-term financing if necessary, subject to certain
restrictions, in connection with abnormal redemption activity. Commitment fees
related to the Facility are paid by the participating funds and are included in
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the period ended October 31, 1998.
16
<PAGE>
Alliance Select Investor Series
FINANCIAL HIGHLIGHTS Premier Portfolio
================================================================================
Selected Data For A Share Of Capital Stock Outstanding Throughout The Period
<TABLE>
<CAPTION>
----------- ----------- -----------
CLASS A CLASS B CLASS C
----------- ----------- -----------
July 29, 1998(a) July 29, 1998(a) July 29, 1998(a)
to to to
October 31, 1998 October 31, 1998 October 31, 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net asset value, beginning of period ....... $ 10.00 $ 10.00 $ 10.00
------- ------- -------
Income From Investment Operations
Net investment loss (b) .................... (.03) (.04) (.04)
Net realized and unrealized loss on
investment and written option
transactions ............................. (.44) (.47) (.46)
------- ------- -------
Net decrease in net asset value from
operations ............................... (.47) (.51) (.50)
------- ------- -------
Net asset value, end of period ............. $ 9.53 $ 9.49 $ 9.50
======= ======= =======
Total Return
Total investment return based on net asset
value (c) ................................ (4.70)% (5.10)% (5.00)%
Ratios/Supplemental Data
Net assets, end of period (000's omitted) .. $25,835 $38,887 $20,904
Ratio to average net assets of:
Expenses net of waivers/reimbursements (d) 2.50% 3.20% 3.20%
Expenses before waivers/reimbursements (d) 2.70% 3.39% 3.39%
Net investment loss net of waivers/
reimbursements (d) ..................... (1.19)% (1.87)% (1.85)%
Portfolio turnover rate .................... 29% 29% 29%
</TABLE>
- --------------------------------------------------------------------------------
(a) Commencement of operations.
(b) Based on average shares outstanding.
(c) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment return calculated for a period
of less than one year is not annualized.
(d) Annualized.
17
<PAGE>
REPORT OF INDEPENDENT Alliance Select Investor Series
ACCOUNTANTS Premier Portfolio
================================================================================
To the Board of Directors and Shareholders of Alliance Select Investor Series
Premier Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Select Investor Series
Premier Portfolio (the "Fund") at October 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights for the
period July 29, 1998 (commencement of operations) through October 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audit. We
conducted our audit of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at October 31, 1998 by
correspondence with the custodian and brokers, provides a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 15, 1998
18
<PAGE>
<PAGE>
____________________________________________________________
APPENDIX A:
CERTAIN INVESTMENT PRACTICES
____________________________________________________________
The information in this Appendix concerns investment
practices in which the Fund is authorized to engage, but in which
the Fund is not required to engage and which may not currently be
permitted under applicable laws or regulations or may otherwise
be unavailable in certain countries. The Fund's investment
policies and restrictions authorize it 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
acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
A-1
<PAGE>
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid
assets in a segregated account with its custodian. A put option
written by the Fund is "covered" if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated
account with its custodian, or else holds a put on the same
security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates.
A call option is for cross-hedging purposes if the Fund
does not own the underlying security but seeks to provide a hedge
against a decline in value in another security which the Fund
owns or has the right to acquire. In such circumstances, the
Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Fund's custodian
liquid assets in an amount not less than the market value of the
underlying security, marked to market daily. The Fund would
write a call option for cross-hedging purposes, instead of
writing a covered call option, when the premium to be received
from the cross-hedge transaction would exceed that which would be
received from writing a covered call option, while at the same
time achieving the desired hedge.
In purchasing a call option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security increased by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
If a put option written by the Fund were exercised, the
Fund would be obligated to purchase the underlying security at
A-2
<PAGE>
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 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
A-3
<PAGE>
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 can be no guarantee that
either a closing purchase or a closing sale transaction can be
effected in any particular situation.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other Fund
investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing
transaction if the price of the transaction is less than the
premium received from writing the option or is more than the
premium paid to purchase the option; the Fund will realize a loss
from a closing transaction if the price of the transaction is
more than the premium received from writing the option or is less
than the premium paid to purchase the option. Because increases
in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
A-4
<PAGE>
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 ("Securities 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 Securities Exchange, (v) the facilities of a
Securities Exchange or the Options Clearing Corporation may not
at all times be adequate to handle current trading volume, or
(vi) one or more Securities 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
Securities Exchange (or in that class or series of options) would
cease to exist, although outstanding options on that Securities
Exchange that had been issued by the Options Clearing Corporation
as a result of trades on that Securities Exchange would continue
to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-
write transactions; that is, the Fund may purchase a security and
then write a call option against that security. The exercise
price of the call the Fund determines to write will depend upon
the expected price movement of the underlying security. The
exercise price of a call option may be below ("in-the-money"),
equal to ("at-the-money") or above ("out-of-the- money") the
current value of the underlying security at the time the option
is written. Buy-and-write transactions using in-the-money call
options may be used when it is expected that the price of the
underlying security will remain flat or decline moderately during
the option period. Buy-and-write transactions using at-the-money
call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using
out-of-the-money call options may be used when it is expected
that the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
A-5
<PAGE>
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 and Options on Futures Contracts
The Fund may enter into contracts for the purchase or
sale for future delivery of foreign currencies, or contracts
based on financial indices, including any index of U.S.
Government Securities, securities issued by foreign government
entities, or common stocks ("futures contracts") and may purchase
and write put and call options to buy or sell futures contracts
("options on futures contracts"). A "sale" of a futures contract
means the acquisition of a contractual obligation to deliver the
securities or foreign currencies called for by the contract at a
specified price on a specified date. A "purchase" of a futures
contract means the incurring of a contractual obligation to
acquire the securities or foreign currencies called for by the
contract at a specified price on a specified date. The purchaser
of a futures contract on an index agrees to take or make delivery
of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date
of the contract ("current contract value") and the price at which
the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date. The Fund will not enter into any
futures contracts or options on futures contracts if immediately
thereafter the aggregate of the market value of the outstanding
futures contracts of the Fund and the market value of the
A-6
<PAGE>
currencies and futures contracts subject to outstanding options
written by the Fund would exceed 50% of the market value of the
total assets of the Fund.
The 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
A-7
<PAGE>
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange. The
Fund is not a commodity pool and all transactions in futures
contracts and options on futures contracts engaged in by the Fund
must constitute bona fide hedging or other permissible
transactions in accordance with the rules and regulations
promulgated by the CFTC.
At the same time a futures contract is purchased or
sold, the Fund must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 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.
The Fund's Custodian will place liquid assets in a
separate account of the Fund having a value equal to the
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aggregate amount of the Fund's commitments under futures
contracts.
Stock Index Futures
The Fund may purchase and sell stock index futures as a
hedge against movements in the equity markets. There are several
risks in connection with the use of stock index futures by the
Fund as a hedging device. One risk arises because of the
imperfect correlation between movements in the price of the stock
index futures and movements in the price of the securities which
are the subject of the hedge. The price of the stock index
futures may move more than or less than the price of the
securities being hedged. If the price of the stock index futures
moves less than the price of the securities which are the subject
of the hedge, the hedge will not be fully effective but, if the
price of the securities being hedged has moved in an unfavorable
direction, the Fund would be in a better position than if it had
not hedged at all. If the price of the securities being hedged
has moved in a favorable direction, this advantage will be
partially offset by the loss on the index future. If the price
of the future moves more than the price of the stock, the Fund
will experience either a loss or gain on the future which will
not be completely offset by movements in the price of the
securities which are subject to the hedge. To compensate for the
imperfect correlation of movements in the price of securities
being hedged and movements in the price of the stock index
futures, the Fund may buy or sell stock index futures contracts
in a greater dollar amount than the dollar amount of securities
being hedged if the volatility over a particular time period of
the prices of such securities has been greater than the
volatility over such time period of the index, or if otherwise
deemed to be appropriate by the Adviser. Conversely, the Fund
may buy or sell fewer stock index futures contracts if the
volatility over a particular time period of the prices of the
securities being hedged is less than the volatility over such
time period of the stock index, or it is otherwise deemed to be
appropriate by the Adviser. It is also possible that, where 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
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orderly fashion, it is possible that the market may decline
instead. If the Fund then concludes not to invest in stock or
options at that time because of concern as to possible further
market decline or for other reasons, the Fund will realize a loss
on the futures contract that is not offset by a reduction in the
price of securities purchased.
In addition to the possibility that there may be an
imperfect correlation, or no correlation at all, between
movements in the stock index futures and the portion of the
portfolio being hedged, the price of stock index futures may not
correlate perfectly with movement in the stock index due to
certain market distortions. Rather than meeting additional
margin deposit requirements, investors may close futures
contracts through offsetting transactions which could distort the
normal relationship between the index and futures markets.
Secondly, from the point of view of speculators, the deposit
requirements in the futures market are less onerous than margin
requirements in the securities market. Therefore, increased
participation by speculators in the futures market may also cause
temporary price distortions. Due to the possibility of price
distortion in the futures market, and because of the imperfect
correlation between the movements in the stock index and
movements in the price of stock index futures, a correct forecast
of general market trends by the investment adviser may still not
result in a successful hedging transaction over a short time
frame.
Positions in stock index futures may be closed out only
on an exchange or board of trade which provides a secondary
market for such futures. Although the Fund intends to purchase
or sell futures only on exchanges or boards of trade where there
appear to be active secondary markets, there is no assurance that
a liquid secondary market on any exchange or board of trade will
exist for any particular contract or at any particular time. In
such event, it may not be possible to close a futures investment
position, and in the event of adverse price movements, the Fund
would continue to be required to make daily cash payments of
variation margin. However, in the event futures contracts have
been used to hedge portfolio securities, such securities will not
be sold until the futures contract can be terminated. In such
circumstances, an increase in the price of the securities, if
any, may partially or completely offset losses on the futures
contract. However, as described above, there is no guarantee
that the price of the securities will in fact correlate with the
price movements in the futures contract and thus provide an
offset on a futures contract.
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Options on Foreign Currencies
The Fund may purchase and write put and call options on
foreign currencies for the purpose of protecting against declines
in the U.S. dollar value of foreign currency-denominated
portfolio securities and against increases in the U.S. dollar
cost of such securities to be acquired. For example, a decline
in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such
securities, even if their value in the foreign currency remains
constant. In order to protect against such diminutions in the
value of portfolio securities, the Fund may purchase put options
on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a
fixed amount in dollars and will thereby offset, in whole or in
part, the adverse effect on its portfolio which otherwise would
have resulted. As in the case of other kinds of options,
however, the writing of an option on a foreign currency
constitutes only a partial hedge, up to the amount of the premium
received, and the Fund could be required to purchase or sell
foreign currencies at disadvantageous exchange rates, thereby
incurring losses. The purchase of an option on a foreign
currency may constitute an effective hedge against fluctuations
in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs. Options on
foreign currencies to be written or purchased by the Fund are
traded on U.S. and foreign exchanges or over-the-counter.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Fund may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Fund deriving from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, the Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Fund may write options on foreign currencies for the
same types of hedging purposes. For example, where the Fund
anticipates a decline in the dollar value of foreign currency
denominated securities due to adverse fluctuations in exchange
rates it could, instead of purchasing a put option, write a call
option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution
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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 conversation 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 liquid assets 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, liquid assets in an amount not less than the value of
the underlying foreign currency in U.S. dollars marked to market
daily. There is no specific percentage limitation on the Fund's
investment in options on foreign currencies.
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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
Commission. 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 Commission regulation.
Similarly, options on securities may be traded over-the-counter.
In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be
available. Although the purchaser of an option cannot lose more
than the amount of the premium plus related transaction costs,
this entire amount could be lost. Moreover, the option writer
and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the
Commission, as are other securities traded on such exchanges. As
a result, many of the protections provided to traders, on
organized exchanges will be available with respect to such
transactions. In particular, all foreign currency option
positions entered into on a national securities exchange are
cleared and guaranteed by the Options Clearing Corporation
("OCC"), thereby reducing the risk of counterparty default.
Further, a liquid secondary market in options traded on a
national securities exchange may be more readily available than
in the over-the-counter market, potentially permitting the Fund
to liquidate open positions at a profit prior to exercise or
expiration, or to limit losses in the event of adverse market
movements.
The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, margining
of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects
of other political and economic events. In addition, exchange-
traded options on foreign currencies involve certain risks not
presented by the over-the-counter market. For example, exercise
and settlement of such options must be made exclusively through
the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, the
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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.
Forward Foreign Currency Exchange Contracts
The Fund may purchase or sell forward foreign currency
exchange contracts ("forward contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date, and is individually
negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of the security ("transaction hedge").
The Fund may not engage in transaction hedges with respect to the
currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency.
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
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of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's custodian will place
liquid assets in a segregated account of the Fund having a value
equal to the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to position hedges
and cross-hedges. If the value of the securities placed in a
segregated account declines, additional cash or securities will
be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no
higher than the forward contract price or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated
changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such
contracts.
Forward Commitments
The Fund may enter into forward commitments for the
purchase or sale of securities. Such transactions may include
purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery" basis. In some cases, a forward commitment
may be conditioned upon the occurrence of a subsequent event,
such as approval and consummation of a merger, corporate
reorganization or debt restructuring (i.e., a "when, as and if
issued" trade).
When forward commitment transactions are negotiated, the
price, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
intends to enter into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be cancelled in the event that the
required conditions did not occur and the trade was cancelled.
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The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a segregated account of the Fund,
liquid assets having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it may incur a gain or loss.
In the event the other party to a forward commitment transaction
were to default, the Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices. 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 then current value of the Fund's
total assets.
Repurchase Agreements
The Fund may enter into agreements pertaining to U.S.
Government Securities with member banks of the Federal Reserve
System or "primary dealers" (as designated by the Federal Reserve
Bank of New York) in such securities. There is no percentage
restriction on the Fund's ability to enter into repurchase
agreements. Currently, the Fund intends to enter into repurchase
agreements only with its custodian and such primary dealers. A
repurchase agreement arises when a buyer purchases a security and
simultaneously agrees to resell it to the vendor at an agreed-
upon future date, normally one day or a few days later. The
resale price is greater than the purchase price, reflecting, an
agreed-upon interest rate which is effective for the period of
time the buyer's money is invested in the security and which is
related to the current market rate rather than the coupon rate on
the purchased security. Such agreements permit the Fund to keep
all of its assets at work while retaining "overnight" flexibility
in pursuit of investments of a longer-term nature. The Fund
requires continual maintenance by its custodian for its account
in the Federal Reserve/Treasury Book Entry System of collateral
in an amount equal to, or in excess of, the resale price. In the
event a vendor defaulted on its repurchase obligation, the Fund
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendor's bankruptcy, the Fund might be delayed in, or
prevented from, selling the collateral for its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Fund's
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Adviser monitors the creditworthiness of the dealers with which
the Fund enters into repurchase agreement transactions.
Reverse Repurchase Agreements and Dollar Rolls
The Fund may use reverse repurchase agreements and
dollar rolls as part of its investment strategy. Reverse
repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase
the same assets at a later date at a fixed price. Generally, the
effect of such a transaction is that the Fund can recover all or
most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while it
will be able to keep the interest income associated with those
portfolio securities. Such transactions are only advantageous if
the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of otherwise obtaining the
cash.
The Fund may enter into dollar rolls in which the Fund
sells securities for delivery in the current month and
simultaneously contracts to repurchase substantially similar
(same type and coupon) securities on a specified future date.
During the roll period, the Fund forgoes principal and interest
paid on the securities. The Fund is compensated by the
difference between the current sales price and the lower forward
price for the future purchase (often referred to as the "drop")
as well as by the interest earned on the cash proceeds of the
initial sale.
The Fund will establish a segregated account with its
custodian in which it will maintain liquid assets equal in value
to its obligations in respect of reverse repurchase agreements
and dollar rolls. Reverse repurchase agreements and dollar rolls
involve the risk that the market value of the securities the Fund
is obligated to repurchase under the agreement may decline below
the repurchase price. In the event the buyer of securities under
a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds
of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the
Fund's obligation to repurchase the securities.
Standby Commitment Agreements
The Fund may from time to time enter into standby
commitment agreements. Such agreements commit the Fund, for a
stated period of time, to purchase a stated amount of a security
which may be issued and sold to the Fund at the option of the
issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the
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agreement the Fund is paid a commitment fee, regardless of
whether or not the security ultimately is issued, which is
typically approximately 0.5% of the aggregate purchase price of
the security which the Fund has committed to purchase. The Fund
will enter into such agreements only for the purpose of investing
in the security underlying the commitment at a yield and price
which are considered advantageous to the Fund and which are
unavailable on a firm commitment basis. The Fund will not enter
into a standby commitment with a remaining term in excess of 45
days and will limit its investment in such commitments so that
the aggregate purchase price of the securities subject to the
commitments will not exceed 50% of its assets taken at the time
of acquisition of such commitment. The Fund will at all times
maintain a segregated account with its custodian of liquid assets
in an aggregate amount equal to the purchase price of the
securities underlying the commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
The purchase of a security subject to a standby
commitment agreement and the related commitment fee will be
recorded on the date on which the security can reasonably be
expected to be issued and the value of the security will
thereafter be reflected in the calculation of the Fund's net
asset value. The cost basis of the security will be adjusted by
the amount of the commitment fee. In the event the security is
not issued, the commitment fee will be recorded as income on the
expiration date of the standby commitment.
Currency Swaps
The Fund may enter into currency swaps for hedging
purposes. Currency swaps involve the exchange by the Fund with
another party of a series of payments in specified currencies.
Since currency swaps are individually negotiated, the Fund
expects to achieve an acceptable degree of correlation between
its portfolio investments and its currency swaps positions. A
currency swap may involve the delivery at the end of the exchange
period of a substantial amount of one designated currency in
exchange for the other designated currency. Therefore the entire
principal value of a currency swap is subject to the risk that
the other party to the swap will default on its contractual
delivery obligations. The net amount of the excess, if any, of
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the Fund's obligations over its entitlements with respect to each
currency swap will be accrued on a daily basis and an amount of
liquid assets having an aggregate net asset value at least equal
to the accrued excess will be maintained in a segregated account
by the Fund's custodian. The Fund will not enter into any
currency swap unless the credit quality of the unsecured senior
debt or the claims-paying ability of the other party thereto is
rated in the highest rating category of at least one nationally
recognized rating organization at the time of entering into the
transaction. If there is a default by the other party to such a
transaction, the Fund will have contractual remedies pursuant to
the agreements related to the transactions.
Loans of Portfolio Securities
The Fund may make secured loans of its portfolio
securities to entities with which it can enter into repurchase
agreements, provided that cash and/or liquid high grade debt
securities equal to at least 100% of the market value of the
securities loaned are deposited and maintained by the borrower
with the Fund. See "Repurchase Agreements" above. The risks in
lending portfolio securities, as with other extensions of credit,
consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend
securities to a particular borrower, the Adviser (subject to
review by the Board of Directors) will consider all relevant
facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay
the Fund any income earned thereon and the Fund may invest any
cash collateral in portfolio securities, thereby earning
additional income, or receive an agreed upon amount of income
from a borrower who has delivered equivalent collateral. The
Fund will have the right to regain record ownership of loaned
securities to exercise beneficial rights such as voting rights,
subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan. The
Fund will not lend portfolio securities in excess of 30% of the
value of its total assets, nor will the Fund lend its portfolio
securities to any officer, director, employee or affiliate of the
Fund or the Adviser. The Board of Directors will monitor the
Fund's lending of portfolio securities.
General
The successful use of the foregoing investment practices
draws upon the Adviser's special skills and experience with
respect to such instruments and usually depends on the Adviser's
ability to forecast price movements or currency exchange rate
movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not achieve the anticipated benefits of
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futures contracts, options or forward contracts or may realize
losses and thus be in a worse position than if such strategies
had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies and
forward contracts, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of such
instruments and movements in the prices of the securities and
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of fixed income
securities and currencies are relatively new and still
developing. It is impossible to predict the amount of trading
interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not
exist with respect to an option purchased or written by the Fund
over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the
result that (i) an option purchased by the Fund would have to be
exercised in order for the Fund to realize any profit and (ii)
the Fund may not be able to sell currencies or portfolio
securities covering an option written by the Fund until the
option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given
that the Fund will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, the
Fund's ability to engage in options and futures transactions may
be limited by tax considerations. See "Taxation-United States
Federal Income Taxes-General."
Future Developments
The Fund may, following written notice to its
shareholders, take advantage of other investment practices which
are not at present contemplated for use by the Fund or which
currently are not available but which may be developed, to the
extent such investment practices are both consistent with the
Fund's investment objective and legally permissible for the Fund.
Such investment practices, if they arise, may involve risks which
exceed those involved in the activities described above.
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APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
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Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
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by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to a contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth above
under "Purchase of Shares" and "Redemption and Repurchase of
Shares."
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