This is filed pursuant to Rule 497(a).
File Nos. 333-8818 and 811-9176.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JUNE 16, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT RELATING TO THESE
SECURITIES FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN
OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
ALLIANCE SELECT INVESTOR SERIES, BIOTECHNOLOGY PORTFOLIO
The Biotechnology Portfolio is a portfolio of Alliance Select Investor Series,
Inc., an open-end management investment company structured as a series fund
that offers a selection of investment alternatives to the sophisticated
investor.
Prospectus
[ ], 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this Prospectus. Any representation
to the contrary is a criminal offense.
ALLIANCE CAPITAL [LOGO]
INVESTMENT PRODUCTS OFFERED
> ARE NOT FDIC INSURED
> MAY LOSE VALUE
> ARE NOT BANK GUARANTEED
2
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 and Principal Policies and
Risks 6
Description of Additional Investment Practices 8
Additional Risk Considerations 12
MANAGEMENT OF THE FUND 13
INVESTMENT ADVISER AND FUND MANAGER 13
PURCHASE AND SALE OF SHARES 15
How The Fund Values Its Shares 15
How To Buy Shares 15
Initial Offering 15
How To Exchange Shares 15
How To Sell Shares 15
DIVIDENDS, DISTRIBUTIONS AND TAXES 16
DISTRIBUTION ARRANGEMENTS 17
GENERAL INFORMATION 18
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 Biotechnology
Portfolio (the "Fund") of Alliance Select Investor Series, Inc. You will find
additional information about the Fund, including a detailed description of the
risks of an investment in the Fund, after this Summary.
The Risk/Return Summary describes the Fund's objectives, principal investment
strategies, principal risks and fees. 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.
3
BIOTECHNOLOGY PORTFOLIO
OBJECTIVE:
THE FUND'S INVESTMENT OBJECTIVE IS CAPITAL APPRECIATION.
PRINCIPAL INVESTMENT STRATEGIES:
Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in a non-diversified portfolio of equity securities of
biotechnology companies. Biotechnology companies include companies that are
engaged primarily in research, development and production of biotechnological
products, services, and processes. In addition, the Fund may invest up to 35%
of the value of its total assets in the equity securities of pharmaceutical
companies. Up to 40% of the Fund's total assets may be invested in securities
of non-U.S. companies and other foreign securities, but no more than 25% may be
invested in securities of issuers in any single foreign country.
In making investments for the Fund, Alliance seeks to identify companies that
are expected to benefit significantly from advances in biotechnologies,
including, in particular, genomics. Because biotechnology is a relatively new
industry and many biotechnology companies, particularly those involved in
genomics, are small, the Fund may make significant investments in small and
mid-capitalization companies, in addition to its investments in large
capitalization companies.
PRINCIPAL RISKS:
Among the principal risks of investing in the Fund is market risk, which is the
risk of losses from adverse changes in the stock and bond markets. Because it
invests predominantly in biotechnology securities, the Fund has industry/sector
risk. Biotechnology companies are subject to extensive government regulatory
requirements, including the need for regulatory approval for new drugs and
medical products, as well as patent protection considerations and product
liability concerns which may cause their securities to be more volatile than
the overall stock and bond markets. In addition, many biotechnology companies,
particularly companies involved in genomics, have little or no operating
history, unproven products and no established market for these products.
Investments in these companies are subject to greater risks. The Fund's
investments in foreign securities have foreign risk, which is the risk of
investing in issuers located in foreign countries, and currency risk, which is
the risk of losses from adverse changes in currency exchange rates. Because the
Fund may invest in small and mid-capitalization companies, the Fund has
capitalization risk. These investments may be more volatile than investments in
large-capitalization companies. The Fund is non-diversified, which means that
it invests more of its assets in a smaller number of issuers than many other
funds. Factors affecting those issuers can have a more significant effect on
the Fund's net asset value. As with all investments, you may lose money by
investing in the Fund.
BAR CHART AND PERFORMANCE TABLE:
There is no bar chart or performance table for the Fund because it has not
completed a full calendar year of operations.
4
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FEES AND EXPENSES OF THE FUND
-------------------------------------------------------------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund.
SHAREHOLDER FEES (fees paid directly from your investment)
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
(CDSC) (Load)
(as a percentage of original
purchase price or redemption
proceeds, whichever is lower) None 4.0%* 1.0%**
Exchange Fee None None None
* Class B Shares automatically convert to Class A Shares after 8 years. The
CDSC decreases over time. For Class B shares, the CDSC DECREASES 1.00% ANNUALLY
TO 0% AFTER THE 4TH YEAR.
** For Class C shares, the CDSC IS 0% after the first year.
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets)
OPERATING EXPENSES
----------------------------------------
CLASS A CLASS B CLASS C
------- ------- -------
Management fees (a) 1.25% 1.25% 1.25%
Distribution (12b-1) fees .30% 1.00% 1.00%
Other expenses .86% .86% .86%
---- ---- ----
Total Fund operating expenses (b) 2.41% 3.11% 3.11%
---- ---- ----
---- ---- ----
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.
EXAMPLES
---------------------------------------------------
CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
--------- --------- --------- --------- ---------
After 1 Yr. $ 659 $ 714 $314 $414 $314
After 3 Yrs. $1,145 $1,160 $960 $960 $960
(A) THE MANAGEMENT FEE IS 1.25% BUT IT MAY VARY FROM 0.75% TO 1.75% DEPENDING
ON THE FUND'S PERFORMANCE COMPARED TO THE NASDAQ BIOTECHNOLOGY INDEX.
(B) ALLIANCE HAS CONTRACTUALLY AGREED TO WAIVE ITS MANAGEMENT FEES AND/OR TO
BEAR EXPENSES OF THE FUND THROUGH JULY 31, 2001 TO THE EXTENT NECESSARY TO
PREVENT TOTAL FUND OPERATING EXPENSES, ON AN ANNUALIZED BASIS, FROM EXCEEDING
3.25% FOR CLASS A SHARES AND 3.95% FOR CLASSES B AND C SHARES. THE FEES WAIVED
AND EXPENSES BORNE BY ALLIANCE DURING THIS PERIOD MAY BE REIMBURSED BY THE FUND
DURING THE THREE YEARS AFTER COMMENCEMENT OF OPERATIONS. NO REIMBURSEMENT
PAYMENT WILL BE MADE THAT WOULD CAUSE THE FUND'S TOTAL ANNUALIZED OPERATING
EXPENSES TO EXCEED THE NET EXPENSES REFLECTED IN THE TABLE OR CAUSE THE TOTAL
OF THE PAYMENTS TO EXCEED THE FUND'S TOTAL INITIAL ORGANIZATIONAL AND OFFERING
EXPENSES.
+ ASSUMES REDEMPTION AT THE END OF PERIOD.
++ ASSUMES NO REDEMPTION AT END OF PERIOD.
5
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GLOSSARY
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This Prospectus uses the following terms.
TYPES OF COMPANIES
BIOTECHNOLOGY COMPANIES are companies that derive at least 50% of their
earnings from research, development, production, sale and/or distribution of
products, services and processes involving biotechnology, including genomics,
and/or companies that devote 50% of their assets to these activities and
companies that benefit significantly or are expected to benefit significantly
from scientific and technological advances in biotechnology.
NON-U.S. COMPANIES are entities (i) that are organized under the laws of a
country other than the United States and have their 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.
GENOMICS, a segment of the biotechnology industry, involves the research in,
and development, production, sale and/or distribution of, products that are
based upon nucleic acids, such as DNA.
PHARMACEUTICAL COMPANIES are companies that derive at least 50% of their
earnings from research, development, production, sale and/or distribution of
chemical-based products that are used for the diagnosis or treatment of human
diseases; and/or companies that devote at least 50% of their assets to these
activities.
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.
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.
-------------------------------------------------------------------------------
DESCRIPTION OF THE FUND
-------------------------------------------------------------------------------
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 ADDITIONAL INVESTMENT PRACTICES following this section.
o 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 stockholder vote and, except as noted, the Fund's investment policies
are not fundamental and thus can be changed without a stockholder vote. Where
an investment policy or restriction has a percentage limitation, such
limitation is applied at the time of investment. Changes in the market value of
securities in the Fund's portfolio after they are purchased by the Fund will
not cause the Fund to be in violation of such limitation.
INVESTMENT OBJECTIVE AND PRINCIPAL POLICIES AND RISKS
INVESTMENT OBJECTIVE
The Fund's investment objective is capital appreciation.
PRINCIPAL POLICIES
Under normal circumstances, the Fund invests at least 65% of the value of its
total assets in the equity securities of biotechnology companies. In addition,
the Fund may invest up to 35% of the value of its total assets in the equity
securities of pharmaceutical companies.
The Fund seeks to take advantage of capital appreciation opportunities
identified by Alliance in the biotechnology industry by
6
investing in companies that are expected to profit from biotechnological
products, services and processes, including, in particular, genomics. These
biotechnological products, services and processes involve the use of biological
compounds, which includes natural human proteins, analogs of human proteins,
antibodies and other biological compounds that bind to human proteins, and
nucleic acid-based products, such as gene therapy.
Biotechnology companies focus on biotechnological and biomedical products,
services and processes in areas such as human health care (e.g., cancer,
infectious diseases, diagnostics and therapeutics); agricultural and veterinary
applications (e.g., improved seed varieties and animal growth hormones);
chemicals (e.g., enzymes and toxic waste treatments; medical/surgical
developments (e.g., implants, imaging and therapeutics); industrial equipment
and applications; and cosmetics/personal care. Biotechnology companies also
include companies that manufacture biotechnological and biomedical products,
devices and instruments. While many biotechnology companies have long operating
histories, large market capitalizations and significant earnings and revenue
streams, many newer biotechnology companies have little or no operating
history, unproven products and no established market for their products. These
companies also have small market capitalizations and little, if any, earnings.
Biotechnology companies include companies involved with genomics. By and large,
genomics companies are at a very early stage of corporate development with
little or no earnings or product revenues. They generally have small market
capitalizations and their stock prices can be very volatile. In Alliance's
view, genomics can be separated into three segments, all of which the Fund
intends to invest in although not necessarily to the same extent. The three are:
(a) Genome Tool Companies. These are companies that specialize in making the
tools used to analyze deoxyribonucleic acid ("DNA"). This includes machines
such as DNA sequencers, devices used to separate and purify DNA from its
natural cellular environment, DNA chip and microfluidics technologies, and
other related equipment.
(b) Genome Information Companies. The business of these companies is
discovering and selling genomic information to pharmaceutical companies. The
information is generally either raw DNA sequence data or information that
associates certain genes with specific diseases. These companies generally rely
on upfront payments and possible royalties on sales of future drugs developed
based upon their genetic databases.
(c) Genome Product Companies. Companies in this group are similar to genome
information companies in that they also sell access to their genomic databases
directly to pharmaceutical companies, but they also add value to some of their
gene discoveries through their own product development.
The Fund may also invest up to 35% of its total assets in the equity securities
of pharmaceutical companies. Activities of pharmaceutical companies in which
the Fund may invest do not necessarily involve biotechnology. Pharmaceutical
companies generally have larger market capitalizations than biotechnology
companies, with longer operating histories, and substantial earnings and
product revenue.
The Fund may invest up to 40% of its total assets in securities of non-U.S.
companies and other foreign securities, but no more than 25% of the Fund's
total assets may be invested in securities of issuers in any single foreign
country. The Fund also may invest up to 15% of its total assets in illiquid
securities.
Alliance depends heavily upon the fundamental analysis and research of its
large internal research staff in making investment decisions for the Fund. As
one of the largest multi-national investment firms, Alliance has substantial
experience in investing in the biotechnology, pharmaceutical and health
sciences sectors, with more than $16 billion in investments in these sectors.
Alliance has built a team of seven research analysts, located in New York,
London and India, that provides it with on-the-ground, fundamental research in
this dynamic growth area.
In managing the Fund, Alliance's investment strategy will emphasize stock
selection based on bottom-up fundamental research. Alliance thoroughly
researches and analyses each issuer and its potential for earnings growth. Each
issuer is then evaluated based on its financial condition, including earnings
estimates and growth potential, management and industry position in view of
overall economic and market conditions. Through its research-driven investment
process, the team will seek to identify and concentrate investments in
companies that offer superior earnings growth potential.
Each analyst has an in-depth understanding of the products, services, markets
and competition of these companies and a strong knowledge of company
management. While each analyst has responsibility for following companies in at
least one specific subsector, the lateral structure of Alliance's research
organization and constant communication results in decision-making based on the
relative attractiveness of the stocks across the entire health care industry
spectrum. The focus of this industry research-driven process is the early
recognition of change through the dynamics of changing company and industry
fundamentals as well as regional and economic influences.
The Fund also may:
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;
o invest up to 20% of its total assets in CONVERTIBLE SECURITIES;
o invest up to 10% of its total assets in RIGHTS AND WARRANTS;
o invest up to 5% of its total assets in debt securities of biotechnology
and pharmaceutical companies;
o purchase and sell FUTURES CONTRACTS, including STOCK INDEX FUTURES
CONTRACTS;
o make SECURED LOANS OF PORTFOLIO SECURITIES of up to 20% of its total
assets;
7
o enter into REPURCHASE AGREEMENTS;
o enter into FORWARD COMMITMENTS for the purchase or sale of securities;
o purchase or sell FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS; and
o engage in SHORT SALES of securities (including indexes), for hedging
purposes only, for up to 10% of its total assets.
PRINCIPAL RISKS
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 markets fluctuate and that prices overall will decline
over short or longer-term periods.
o INDUSTRY/SECTOR RISK This is the risk of investments in a particular
industry sector. Market or economic factors affecting that industry sector or
group of related industries could have a major effect on the value of the
Fund's investments. Biotechnology stocks, especially those of smaller,
less-seasoned companies, tend to be more volatile than the overall market. The
biotechnology industry is subject to extensive government regulation. The
industry will be affected by government regulatory requirements, the need for
regulatory approval for new drugs and medical products, patent protection
considerations, product liability concerns, and similar significant matters. As
these factors impact the biotechnology industry, the value of your shares may
fluctuate significantly over relatively short periods of time. Because the
biotechnology industry is relatively new, investors may be quick to react to
developments that affect the industry. In the past, biotechnology securities
have exhibited considerable volatility in reaction to research and other
developments. In comparison with more developed industries, there may be a thin
trading market in biotechnology securities, and adverse developments in the
biotechnology industry may be more likely to result in decreases in the value
of biotechnology stocks. Biotechnology companies, especially those primarily
involved with genomics, are often small, start-up ventures whose products are
only in the research stage. Only a limited number of biotechnology companies
have reached the point of approval of products by the Federal Drug
Administration and subsequent commercial production and distribution of such
products. Therefore, the success of investments in the biotechnology industry
is often based upon speculation and expectations about future products,
research progress, and new product filings with regulatory authorities. Such
investments are speculative and may drop sharply in value in response to
regulatory, research and other setbacks.
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 CAPITALIZATION RISK This is the risk of investments in small to
mid-capitalization companies. Investments in small to mid-capitalization
companies may be more volatile than large capitalization companies. In
addition, the Fund's investments in smaller capitalization stocks may have
additional risks because these companies often have limited product lines,
markets, or financial resources.
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.
PORTFOLIO TURNOVER. The Fund is actively managed and, in some cases in response
to market conditions, the 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 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.
DESCRIPTION OF ADDITIONAL INVESTMENT PRACTICES
This section describes the investment practices of the Fund and risks
associated with these practices.
CONVERTIBLE SECURITIES. Prior to conversion, convertible securities have the
same general characteristics as nonconvertible 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-convert-
8
ible debt securities of similar quality, they offer investors the potential to
benefit from increases in the market prices of the underlying common stocks.
Convertible securities that are rated Baa or lower by Moody's and BBB or lower
by S&P or, if unrated, determined by Alliance to be of equivalent quality, may
share some or all of the risks of non-convertible debt securities with those
ratings.
FORWARD COMMITMENTS. Forward commitments for the purchase or sale of securities
may include purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery" basis. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt restructuring (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.
The use of forward commitments enables the Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, the Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling
prices. In periods of falling interest rates and rising bond prices, the Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis to obtain the benefit of
currently higher cash yields. If, however, Alliance were to forecast
incorrectly the direction of interest rate movements, the Fund might be
required to complete such when-issued or forward transactions at prices
inferior to the then current market values. When-issued securities and forward
commitments may be sold prior to the settlement date, but the Fund enters into
when-issued and forward commitments only with the intention of actually
receiving securities or delivering them, as the case may be. If the Fund chose
to dispose of the right to acquire a when-issued security prior to its
acquisition or dispose of its right to deliver or receive against a forward
commitment, it may 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 it anticipates.
ILLIQUID SECURITIES. The Fund will limit its investment in illiquid securities
to no more than 15% of its net assets. Illiquid securities generally include
(i) direct placements or other securities that are subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g., when trading in the security is suspended or, in the case of
unlisted securities, when market makers do not exist or will not entertain bids
or offers), including many 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
9
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 if
Alliance determines, in accordance with procedures adopted by the Board of
Directors, that such securities are liquid.
The Fund may not be able to readily sell securities for which there is no ready
market. Such securities are unlike securities that are traded in the open
market and can be expected to be sold immediately if the market is adequate.
The sale price of illiquid securities may be lower or higher than Alliance's
most recent estimate of their fair value. Generally, less public information is
available about the issuers of such securities than about companies whose
securities are traded on an exchange. 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.
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 all or
a portion of 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 options
could result in increases in the Fund's portfolio turnover rate, especially
during periods when market prices of the underlying securities appreciate (in
the case of calls) or depreciate (in the case of puts).
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.
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
10
contract on an index agrees to take or make delivery of an amount of cash equal
to the difference between a specified dollar multiple of the value of the index
on the expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the Fund will be traded on
U.S. or foreign exchanges or over-the counter. These investment techniques will
be used only to hedge against anticipated future changes in market conditions
and interest or exchange rates which otherwise might either adversely affect
the value of the Fund's portfolio securities or adversely affect the prices of
securities which the Fund intends to purchase at a later date.
The Fund will not enter into any futures contracts or options on futures
contracts if immediately thereafter the market values of the outstanding
futures contracts of the Fund and the currencies and futures contracts subject
to outstanding options written by the Fund would exceed 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. Alliance monitors the creditworthiness
of the vendors with which the Fund enters into repurchase agreements.
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.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements commit the Fund,
for a stated period of time, to purchase a stated amount of a security that may
be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether the security ultimately is issued, typically equal to approximately
0.5% of the aggregate purchase price of the security the Fund has committed to
purchase. The Fund will enter into such agreements only for the purpose of
investing in the security underlying the commitment at a yield and price
considered advantageous to the Fund and unavailable on a firm commitment basis.
The Fund will 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 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
11
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 stock 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.
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.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Fund involves the special risk considerations described
below. These risks may be heightened when investing in emerging markets.
FIXED-INCOME SECURITIES. The value of the Fund's shares will fluctuate with the
value of its investments. The value of the Fund's investments in fixed-income
securities will change as the general level of interest rates fluctuates.
During periods of falling interest rates, the values of fixed-income securities
gener-
12
ally rise. Conversely, during periods of rising interest rates, the values of
fixed-income securities generally decline.
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. 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.
U.S. AND FOREIGN TAXES. The Fund's investment in foreign securities may be
subject to taxes withheld at the source on dividend or interest payments.
Foreign taxes paid by the Fund may be creditable or deductible by U.S.
shareholders for U.S. income tax purposes. No assurance can be given that
applicable tax laws and interpretations will not change in the future.
Moreover, non-U.S. investors may not be able to credit or deduct such foreign
taxes.
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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 March 31, 2000
totaling more than $394 billion (of which more than $189 billion represented
the assets of investment companies). As of March 31, 2000, Alliance managed
retirement assets for many of the largest public and private employee benefit
plans (including 28 of the nation's FORTUNE 100 companies), for public employee
retirement funds in 33 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 53 registered
investment companies managed by Alliance, comprising 121 separate portfolios,
currently have more than 5.8 million shareholder accounts.
The persons responsible for the management of the Fund are Matthew Murray and
Norman Fidel. Mr. Murray, who will have primary day-to-day management
responsibility, is a Vice President of Alliance Capital Management Corporation,
the general partner of the investment adviser ("ACMC"), with which he has been
associated since 1999. Prior thereto, he was a biotechnology analyst at Lehman
Brothers since 1996, at UBS Securities since 1995 and at Alex Brown & Sons
since prior to 1994. Mr. Fidel is a Senior Vice President of ACMC, with which
he has been associated since prior to 1995.
Alliance provides investment advisory services and order placement facilities
for the Fund. For these advisory services, the Fund pays Alliance a fee at an
annualized rate of 1.25% of the Fund's average daily net assets (the "Basic
Fee") starting on
13
August 1, 2000. The Basic Fee is adjusted based on the investment performance
of the Fund's Class A shares in relation to the performance of the NASDAQ
Biotechnology Index (the "Index"), as described below. The fee will be accrued
daily and paid monthly, except as described below.
The Index measures all NASDAQ stocks in the biotechnology sector. It is a
capitalization-weighted index and includes over 200 companies.
For any period prior to August 1, 2000, Alliance will receive a fee of .75%,
payable monthly, of the Fund's average net assets without any performance
adjustment. For the period from August 1, 2000, through July 31, 2001, Alliance
will receive a minimum fee, payable monthly, equal to .75%, annualized, of the
average daily net assets of the Fund. This fee may be increased to 1.75%,
annualized, based on the performance of the Class A shares in relation to the
performance of the Index during that same period. The fee will equal 1.25%
annualized if the performance of the Class A shares equals the performance of
the Index and will be increased or decreased as described in the paragraph
below. The maximum increase to 1.75%, annualized, will be payable if the
investment performance of the Class A shares of the Fund exceeded the
performance of the Index by eight or more percentage points for the performance
period and the minimum fee of .75% will be payable if the performance of the
Index exceeded the performance of the Class A shares by eight or more
percentage points for this period. Any such increased amount over the minimum
fee will not be payable to Alliance prior to July 31, 2001.
Beginning in August, 2001 and for each month thereafter, the Basic Fee will be
equal to 1.25%, annualized, of the average daily net assets of the Fund. The
Basic Fee may be increased to as much as 1.75%, annualized, or decreased to as
little as .75% annualized, based on the performance of the Class A shares in
relation to the performance of the Index for the performance period. The
performance period will be from August 1, 2000 through the current calendar
month. After the Advisory Agreement has been in effect for 36 full calendar
months, the performance period becomes a rolling 36-month period. The Basic Fee
will be increased (or decreased) at the monthly rate of 1/12th of .0625%
depending on the extent, if any, by which the investment performance of the
Class A shares of the Fund exceeds by (or is exceeded by) at least one
percentage point (rounded to the higher whole point if exactly one-half) the
performance of the Index for the performance period. The maximum increase or
decrease in the Basic Fee for any month may not exceed 1/12th of .0625%.
Therefore, starting with August, 2001, the maximum monthly fee is 1.75%,
annualized, which would be payable if the investment performance of the Class A
shares of the Fund exceeded the performance of the Index by eight or more
percentage points for the performance period. The minimum monthly fee is .75%,
annualized, and would be payable if the performance of the Index exceeded the
investment performance of the Class A shares by eight or more percentage points
for the performance period.
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
NASDAQ BIOTECHNOLOGY TO 1.25% RATE AS
INDEX** BASIC FEE ADJUSTED
-------------------- ---------- ----------
+8 +.50% 1.75%
+7 +.4375% 1.6875%
+6 +.375% 1.625%
+5 +.3125% 1.5625%
+4 +.25% 1.50%
+3 +.1875% 1.4375%
+2 +.125% 1.375%
+1 +.0625% 1.3125%
0 0 1.25%
-1 -.0625% 1.1875%
-2 -.125% 1.125%
-3 -.1875% 1.0625%
-4 -.25% 1.00%
-5 -.3125% .9375%
-6 -.375% .875%
-7 -.4375% .8125%
-8 -.50% .75%
* 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, 2000 THROUGH JULY 31, 2001, AND THEREAFTER THE PERIOD FROM
AUGUST 1, 2000 TO THE MOST RECENT MONTH-END UNTIL JULY 31, 2003, 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.
14
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PURCHASE AND SALE OF SHARES
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HOW THE FUND VALUES ITS SHARES
The Fund's net asset value or NAV is calculated at 4:00 p.m., Eastern time,
each day the Exchange is open for business. To calculate NAV, the Fund's assets
are valued and totaled, liabilities are subtracted, and the balance, called net
assets, is divided by the number of shares outstanding. The Fund values its
securities at their current market value determined on the basis of market
quotations, or, if such quotations are not readily available, such other
methods as the Fund's directors believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at the next NAV
calculated after your order is received in proper form by the Fund. 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. The minimum
initial investment amount is $10,000, except that the minimum initial
investment amount applicable to individual retirement accounts (IRAs) is $2,000.
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.
INITIAL OFFERING
It is expected that shares of the fund will be offered during an initial
offering period which is currently scheduled to end on July 24, 2000. The Fund
will begin its continuous offering of shares on July 31, 2000. During the
Fund's initial offering period, Class A shares will be offered to the public at
their asset value of $10.00 per share plus a sales charge. The maximum offering
price of the Class A shares during the initial offering period is $10.44 per
share. During the initial offering, AFD will reallow to dealers the entire
amount of the initial sales charge on Class A shares. Class B and Class C
shares will be offered to the public during the initial offering period at
their net asset value of $10.00 per share.
During the initial offering period, the Fund will not accept subscriptions for
Fund shares other than through authorized dealers and agents, and any
subscription monies sent directly to the Fund will be promptly returned. In
addition, under Commission Regulations (e.g., Rule 15c-4 under the Securities
Exchange Act of 1934), authorized dealers and agents will not be permitted to
accept subscription monies from their customers in advance of the purchase date
unless appropriate arrangements are made for the temporary investment or
deposit of such monies. Shares subscribed for during the Fund's initial
offering period will be sold to subscribers on the purchase date, which is
expected to occur not later than July 28, 2000.
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 the Fund) on any day
the Exchange is open, either directly or through your financial intermediary.
Your sales price will be the next-determined NAV, less any applicable CDSC,
after the Fund receives your 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.
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
15
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 income dividend and capital gains distributions, if any, declared by the
Fund on its outstanding shares will, at the election of each shareholder, be
paid in cash or in additional shares of the same Class of shares of the Fund.
If paid in additional shares, the shares will have an aggregate 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 on the
reinvestment of dividends or capital gains distributions. Cash dividends may be
paid in check, or at your election, electronically via the ACH network.
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.
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.
Investment income received by the Fund from sources within foreign countries
may be subject to foreign income taxes withheld at the source. To the extent
that the Fund is liable for foreign income taxes withheld at the source, the
Fund intends, if possible, to operate so as to meet the requirements of the
Code to "pass through" to the Fund's shareholders credits or deductions for
foreign income taxes paid, but there can be no assurance that the Fund will be
able to do so. Furthermore, a shareholder's ability to claim a foreign tax
credit or deduction for foreign taxes paid by the Fund may be subject to
certain limitations imposed by the Code, as a result of which a shareholder may
not be permitted to claim all or a portion of a credit or deduction for the
amount of such taxes.
Under certain circumstances, if the Fund realizes losses (e.g., from
fluctuations in currency exchange rates) after paying a dividend, all or a
portion of the dividend may subsequently be characterized as a return of
capital. Returns of capital are generally nontaxable, but will reduce a
shareholder's basis in shares of the Fund. If that basis is reduced to zero
(which could happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of capital will be
taxable as capital gain.
If you buy shares just before the Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for federal income
tax purposes.
Each year shortly after December 31, the Fund will send you tax information
stating the amount and type of all its distributions for the year. Consult your
tax adviser about the federal, state, and local tax consequences in your
particular circumstances.
16
-------------------------------------------------------------------------------
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:
COMMISSION
INITIAL SALES CHARGE TO DEALER/
AGENT AS
AS % OF AS % OF % OF
NET AMOUNT OFFERING OFFERING
AMOUNT PURCHASED INVESTED PRICE 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 one
year. Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced
or eliminated sales charges 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 one 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 one 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 CHARGES 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 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, bi-monthly, or quarterly systematic withdrawal plan. See the
Fund's SAI for further information about CDSC waivers.
17
OTHER. A transaction, service, administrative or other similar fee may be
charged by your broker-dealer, agent, financial intermediary, or other
financial representative with respect to the purchase, sale, or exchange of
Class A, Class B, or Class C shares made through your financial representative.
The financial intermediaries also may impose requirements on the purchase,
sale, or exchange of shares that are different from, or in addition to, those
imposed by a Fund, including requirements as to the minimum initial and
subsequent investment amounts.
-------------------------------------------------------------------------------
GENERAL INFORMATION
-------------------------------------------------------------------------------
Under unusual circumstances, 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.
18
This page intentionally blank
19
For more information about the Fund, the following documents are available upon
request:
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 SAI or make shareholder inquiries of the
Fund by contacting your broker or other financial intermediary or by contacting
Alliance:
BY MAIL: C/O ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
o Call the SEC at 1-202-942-8090 for information on the operation of the
Public Reference Room.
o Reports and other information about the Fund are available on the EDGAR
Database on the Commissions Internet site at http://www.sec.gov.
o Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at [email protected], or by writing the Commissions
Public Reference Section, Washington, DC 20549-0102.
You also may find more information about Alliance and the Fund on the Internet
at: www.Alliancecapital.com.
SEC File Number 811-9176
SISBIOPPRO600RED
20
<PAGE>
This is filed pursuant to Rule 497(a).
File Nos. 333-8818 and 811-9176.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY STATEMENT OF ADDITIONAL INFORMATION
DATED JUNE 16, 2000
The information in this Statement of Additional Information is
not complete and may be changed. We may not sell these
securities until the registration statement relating to these
securities filed with the Securities and Exchange Commission is
effective. This Statement of Additional Information is not a
Prospectus.
(LOGO) ALLIANCE SELECT INVESTOR SERIES, INC.
-BIOTECHNOLOGY 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
[____________], 2000
________________________________________________________________
This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the
Prospectus, dated [___________], 2000, for the Biotechnology
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....................................
Appendix A: Certain Investment Practices.............. A-1
Appendix B: Certain Employee Benefit Plans............ B-1
<PAGE>
(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
________________________________________________________________
DESCRIPTION OF THE FUND
________________________________________________________________
Alliance Select Investor Series, Inc. (the "Company") is
an open-end management investment company whose shares are
offered in separate series referred to herein as "Funds." Each
Fund is a separate pool of assets constituting, in effect, a
separate fund with its own investment objective and policies. A
shareholder in a Fund will be entitled to his or her pro-rata
share of all dividends and distributions arising from that Fund's
assets and, upon redeeming shares of that Fund, the shareholder
will receive the then current net asset value of the applicable
class of shares of that Fund. The Company is empowered to
establish, without shareholder approval, additional Funds which
may have different investment objectives.
The Company currently has three Funds: the
Biotechnology Portfolio (the "Fund"), which is described in this
Statement of Additional Information, the Technology Portfolio and
the Premier Portfolio, which are described in a separate
Statements of Additional Information, copies of which 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.
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
2
<PAGE>
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
more of its assets 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.
Rights and Warrants. The Fund may invest up to 10% of
its total assets in rights and 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
its investment policies. 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
3
<PAGE>
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.
Foreign Securities. Foreign issuers are subject to
accounting and financial standards and requirements that differ,
in some cases significantly, from those applicable to U.S.
issuers. In particular, the assets and profits appearing on the
financial statements of a foreign issuer may not reflect its
financial position or results of operations in the way they would
be reflected had the financial statement been prepared in
accordance with U.S. generally accepted accounting principles.
In addition, for an issuer that keeps accounting records in local
currency, inflation accounting rules in some of the countries in
which the Fund will invest require, for both tax and accounting
purposes, that certain assets and liabilities be restated on the
issuer's balance sheet in order to express items in terms of
currency of constant purchasing power. Inflation accounting may
indirectly generate losses or profits. Consequently, financial
data may be materially affected by restatements for inflation and
may not accurately reflect the real condition of those issuers
and securities markets. Substantially less information is
publicly available about certain non-U.S. issuers than is
available about U.S. issuers.
Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
in countries in which the Fund will invest and could adversely
affect the Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Fund. Certain countries in which the Fund will invest
require governmental approval prior to investments by foreign
4
<PAGE>
persons, limit the amount of investment by foreign persons in a
particular issuer, limit the investment by foreign persons only
to a specific class of securities of an issuer that may have less
advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on
foreign investors.
Certain countries other than those on which the Fund
will focus it investments may require governmental approval for
the repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances.
Income from certain investments held by the Fund could
be reduced by foreign income taxes, including withholding taxes.
It is impossible to determine the effective rate of foreign tax
in advance. The Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the
Fund or to entities in which the Fund has invested. The Adviser
generally will consider the cost of any taxes in determining
whether to acquire any particular investments, but can provide no
assurance that the tax treatment of investments held by the Fund
will not be subject to change.
For many foreign securities, there are U.S. dollar-
denominated American Depository Receipts (ADRs) which are traded
in the United States on exchanges or over-the-counter, are issued
by domestic banks or trust companies and which market quotations
are readily available. ADRs do not lessen the foreign exchange
risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRs rather than directly in stock of
foreign issuers, the Fund can avoid currency risks which might
occur during the settlement period for either purchases or sales.
The Fund may purchase foreign securities directly, as well as
through ADRs.
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
5
<PAGE>
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.
Other Investment Practices
The Fund may, but is not required to, utilize various
investment strategies. 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 options and purchase put and call options on
U.S. and foreign securities exchanges and over-the-counter
including options on market indices and purchase and sell,
futures contracts. The Fund may enter into contracts for the
purchase and sale of stock index futures, purchase or sell
forward foreign currency exchange contracts, enter into forward
commitments for the purchase or sale of securities, enter into
repurchase agreements, standby commitment agreements 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
6
<PAGE>
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 at all or to utilize
them effectively for the purposes set forth above.
Short Sales. The Fund will utilize the market technique
of short selling in order to attempt to protect the Fund's
investment portfolio against the effects of potential downtrends
in the securities markets. The Fund is permitted to engage in
short sales of securities with respect to up to 10% 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 may 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
7
<PAGE>
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, the Fund may also make certain short
sales "against the box" which enable it to defer realization of
gain or loss for U.S. federal income tax purposes until the
subsequent closing of the short sale. 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 which does not satisfy the requirements for deferral,
the Fund will be deemed to have sold the appreciated security at
the time of entering into the short sale and thus will then
recognize gain for tax purposes.
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 100%. A 100%
annual turnover rate would occur if all the securities in the
Fund's portfolio were replaced once in a period of one year. A
high portfolio rate will cause the Fund to realize short-term
capital gains or losses on the sale of 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.
8
<PAGE>
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. Except with respect to biotechnology companies
and pharmaceutical companies, 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 (a) from a bank in a privately
arranged transaction, or (b) through reverse repurchase
agreements or dollar rolls if, in each case, 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
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
9
<PAGE>
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,1 55, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC") with which he has been
associated since prior to 1995.
RUTH BLOCK, 69, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and BP Amoco Corporation (oil
and gas). Her address is P.O. Box 4623, Stamford, Connecticut
06903.
DAVID H. DIEVLER, 70, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 58, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1995.
____________________
1. An "interested person" of the Fund as defined in the 1940
Act.
10
<PAGE>
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 67, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1995. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 76, is President of the Harry Frank
Guggenheim Foundation with which he has been associated since
prior to 1995. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 60, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1995. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 65, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
JOHN D. CARIFA, Chairman and President, see biography
under "Directors," above.
KATHLEEN CORBET, Senior Vice President, 40, is an
Executive Vice President of ACMC with which she has been
associated since prior to 1995.
CHRISTOPHER M. TOUB, Senior Vice President, 40, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1995.
THOMAS BARDONG, Vice President, 55, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1995.
11
<PAGE>
EDMUND P. BERGAN, JR., Secretary, 50, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1995.
DOMENICK PUGLIESE, Assistant Secretary, 39, is a Vice
President and Assistant General Counsel of AFD,with which he has
been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Holding Corporation since prior
to 1995.
ANDREW L. GANGOLF, Assistant Secretary, 45, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since prior to 1995.
MARK D. GERSTEN, Treasurer and Chief Financial Officer,
49, is a Senior Vice President of AFS and a Vice President of
AFD, with which he has been associated since prior to 1995.
VINCENT S. NOTO, Controller, 35, is a Vice President of
AFS, with which he has been associated since prior to 1995.]
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 June 30, 2000 (estimating future payments
based upon existing arrangements), and the aggregate compensation
paid to each of the Directors during calendar year 1999 by all of
the registered investment companies to which the Adviser provides
investment advisory services (collectively, the "Alliance Fund
Complex"), and the total number of registered investment
companies (and separate investment portfolios within those
companies) in the Alliance Fund Complex with respect to which
each of the Directors serves as a director or trustee, are set
forth below. Neither the 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.
12
<PAGE>
Total Number
Total Number of Investment
of Investment Portfolios
Companies in Within the
the Alliance Alliance
Total Fund Complex, Fund Complex,
Compensation Including the Including
From the Company, as the Fund, as
Aggregate Alliance Fund to which the to which the
Compensation Complex, the Director the Director
Name of From the Including is a Director is a Director
Director Company* the Company or Trustee or Trustee
_________ ____________ _____________ _____________ _____________
[John D. Carifa $-0- $-0- 50 103
Ruth Block $1,339 154,263 38 80
David H. Dievler $1,339 210,188 45 87
John H. Dobkin $1,339 206,463 42 84
William H. Foulk, Jr. $1,339 246,413 45 98
James M. Hester $1,339 164,138 39 81
Clifford L. Michel $1,339 183,388 39 83
Donald J. Robinson $1,339 154,313 41 92]
_______________
* estimated
As of [____________], 2000, the Directors and officers
of the Company as a group owned less than [1]% of the shares of
the Fund.
Adviser
The Fund's investment adviser, Alliance Capital
Management L.P., 1345 Avenue of the Americas, New York, New York
10105, is a leading international investment adviser managing
client accounts with assets as of March 31, 2000 totaling more
than $394 billion (of which more than $189 billion represented
the assets of investment companies). As of March 31, 2000, the
Adviser managed retirement assets for many of the largest public
and private employee benefit plans (including 28 of the nation's
FORTUNE 100 companies), for public employee retirement funds in
33 states, for investment companies, and for foundations,
endowments, banks and insurance companies worldwide. The 53
registered investment companies managed by the Adviser,
comprising 121 separate investment portfolios, currently have
approximately 5.8 million shareholder accounts.
ACMC is the general partner of the Adviser and a wholly
owned subsidiary of The Equitable Life Assurance Society of the
13
<PAGE>
United States ("Equitable"). Equitable, one of the largest life
insurance companies in the United States, is the beneficial owner
of an approximately 55.4% partnership interest in the Adviser.
Alliance Capital Management Holding L.P. ("Alliance Holding")
owns an approximately 41.9% partnership interest in the Adviser.2
Equity interests in Alliance Holding are traded on the New York
Stock Exchange in the form of units. Approximately 98% of such
interests are owned by the public and management or employees of
the Adviser and approximately 2% are owned by Equitable.
Equitable is a wholly owned subsidiary of AXA Financial, Inc.
("AXA Financial"), a Delaware corporation whose shares are traded
on the New York Stock Exchange. AXA Financial serves as the
holding company for the Adviser, Equitable and Donaldson, Lufkin
& Jenrette, Inc., an integrated investment and merchant bank. As
of June 30, 1999, AXA, a French insurance holding company, owned
approximately 58.2% of the issued and outstanding shares of
common stock of AXA Financial.
Under the Advisory Agreement, the Adviser provides
investment advisory services and order placement facilities for
the 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
____________________
2. Until October 29, 1999, Alliance Holding served as the
investment adviser to the Fund. On that date, Alliance
Holding reorganized by transferring its business to the
Adviser. Prior thereto, the Adviser had no material business
operations. One result of the organization was that the
Advisory Agreement, then between the Fund and Alliance
Holding, was transferred to the Adviser by means of a
technical assignment, and ownership of Alliance Fund
Distributors, Inc. and Alliance Fund Services, Inc., the
Fund's principal underwriter and transfer agent,
respectively, also was transferred to the Adviser.
14
<PAGE>
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.
For the services rendered by the Adviser under the
Advisory Agreement, the Company pays the Adviser, with respect to
the Fund, from August 1, 2000 to July 31, 2001, a minimum fee at
an annual rate of .75% of the Fund's average daily net assets,
which may be increased at the end of such annual period to a
maximum of 1.75% based on the investment performance of the
Portfolio in relation to the performance of the NASDAQ
Biotechnology Index (the "Index"). Beginning in August 2001, the
Adviser receives a basic fee of 1.25% of the Fund's average daily
net assets (the "Basic Fee"). The Basic Fee is adjusted upward
or downward to a maximum of 50 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, 2000, the
Adviser receives a flat fee of .75% of the Fund's average daily
net assets, without any performance adjustment.
The Advisory Agreement became effective on
[____________], 2000 with respect to the Fund 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 meetings called for that purpose and
held on June 7, 2000.
The Advisory Agreement will remain in effect until
July 7, 2001 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.
15
<PAGE>
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.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The
Adviser may, from time to time, make recommendations which result
in the purchase or sale of a particular security by its other
clients simultaneously with the Fund. If transactions on behalf
of more than one client during the same period increase the
demand for securities being purchased or the supply of securities
being sold, there may be an adverse effect on price or quantity.
It is the policy of the Adviser to allocate advisory
recommendations and the placing of orders in a manner which is
deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the clients of the
Adviser (including the Fund) are purchasing or selling the same
security on a given day from the same broker-dealer, such
transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to AFD Exchange Reserves, Alliance
Disciplined Value Fund, Inc. Alliance All-Asia Investment Fund,
Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund, Inc.,
Alliance Capital Reserves, Alliance Disciplined Value Fund, Inc.,
Alliance Global Dollar Government Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance Global Small Cap Fund, Inc.,
Alliance Global Strategic Income Trust, Inc., Alliance Government
Reserves, Alliance Greater China '97 Fund, Inc., Alliance Growth
and Income Fund, Inc., Alliance Health Care Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Institutional Funds, Inc.,
Alliance Institutional Reserves, Inc., Alliance International
Fund, Alliance International Premier Growth Fund, Inc., Alliance
Limited Maturity Government Fund, Inc., Alliance Money Market
Fund, Alliance Mortgage Securities Income Fund, Inc., Alliance
Multi-Market Strategy Trust, Inc., Alliance Municipal Income
Fund, Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
16
<PAGE>
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
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. and The Alliance Portfolios, all registered open-end
investment companies; and to ACM Government Income Fund, Inc.,
ACM Government Opportunity Fund, Inc., ACM Government Securities
Fund, Inc., ACM Government Spectrum 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
accordance with Rule 12b-1 adopted by the Securities and Exchange
Commission (the "Commission") under the 1940 Act (the "Rule 12b-1
Plan").
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
17
<PAGE>
that in each case the sales charge and distribution services fee
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 AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares under the Rule 12b-1 Plan is directly tied to the
expenses incurred by AFD. Actual distribution expenses for
Class B and Class C shares for any given year, however, will
probably exceed the distribution services fees payable under the
Rule 12b-1 Plan and payments received from contingent deferred
sales charges ("CDSCs"). The excess will be carried forward by
AFD and reimbursed from distribution services fees payable under
the Rule 12b-1 Plan 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.
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.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement was initially approved by the Directors of
the Fund at meetings held on June 7, 2000. The Agreement will
18
<PAGE>
continue in effect until [____________], 2001 and continue in
effect thereafter so long as its continuance is specifically
approved at least annually by the Directors of the Fund or by
vote of the holders of a majority of the outstanding voting
securities (as defined in the 1940 Act) of that class, and, in
either case, by a majority of the Directors of the Fund who are
not parties to the Agreement or interested persons, as defined in
the 1940 Act, of any such party (other than as directors of the
Fund) and who have no direct or indirect financial interest in
the operation of the Rule 12b-1 Plan or any agreement related
thereto.
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.
________________________________________________________________
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."
19
<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
20
<PAGE>
4:00 p.m., Eastern time) by dividing the value of the Fund's
total assets, less its liabilities, by the total number of its
shares then outstanding. A Fund business day is any day on which
the Exchange is open for trading.
The respective per share net asset values of the
Class A, Class B 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.
21
<PAGE>
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m., Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission 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, such cash or other
incentives will take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B and Class C shares each represent an
interest in the same portfolio of investments of the Fund, have
22
<PAGE>
the same rights and are identical in all respects, except that
(i) Class A shares bear the expense of the initial sales charge
(or contingent deferred sales charge when applicable) and Class B
and Class C shares bear the expense of the deferred sales charge,
(ii) Class B shares and Class C shares each bear the expense of a
higher distribution services fee than that borne by Class A
shares, (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
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<PAGE>
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
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
24
<PAGE>
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ ____________
Less than
$100,000 . . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . . 1.78 1.75 1.50
_____________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
25
<PAGE>
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
26
<PAGE>
charge. The circumstances under which such investors may pay a
reduced initial sales charge are described below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-Quality Bond Portfolio
-U.S. Government Portfolio
Alliance Disciplined Value Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Health Care Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
27
<PAGE>
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance 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
28
<PAGE>
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the Fund held by the
investor and (b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described
in paragraph (ii) owned by another shareholder eligible to
combine his or her purchase with that of the investor into a
single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B 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.
29
<PAGE>
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
$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,
30
<PAGE>
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable
to each succeeding monthly purchase will be that normally
applicable, under such schedule, to an investment equal to the
sum of (i) the total purchase previously made during the 13-month
period and (ii) the current month's purchase multiplied by the
number of months (including the current month) remaining in the
13-month period. Sales charges previously paid during such
period will not be retroactively adjusted on the basis of later
purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes,
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including:
(i) investment management clients of the Adviser
or its affiliates;
(ii) officers and present or former Directors of
the 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
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<PAGE>
ACMC, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; officers,
directors and present full-time employees of
selected dealers or agents; or the spouse,
sibling, direct ancestor or direct descendant
(collectively, "relatives") of any such
person; or any trust, individual retirement
account or retirement plan account for the
benefit of any such person or relative; or the
estate of any such person or relative, if such
shares are purchased for investment purposes
(such shares may not be resold except to the
Fund);
(iii) the Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their
affiliates; certain employee benefit plans for
employees of the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and
their affiliates;
(iv) registered investment advisers or 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; and
(vi) employer-sponsored qualified pension or
profit-sharing plans (including Section 401(k)
plans), custodial accounts maintained pursuant
to Section 403(b)(7), retirement plans and
individual retirement accounts (including
32
<PAGE>
individual retirement accounts to which
simplified employee pension ("SEP")
contributions are made), if such plans or
accounts are established or administered under
programs sponsored by administrators or other
persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares that
are redeemed within four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 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
33
<PAGE>
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).
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).
34
<PAGE>
Conversion Feature. Eight years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
35
<PAGE>
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
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.
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________________________________________________________________
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
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
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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
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
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<PAGE>
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,
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
39
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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
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." The shareholder services set forth below are applicable
to Class A, Class B and Class C shares unless otherwise
indicated.
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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.
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
41
<PAGE>
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
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
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<PAGE>
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,
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
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<PAGE>
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.
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
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<PAGE>
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
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
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<PAGE>
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
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<PAGE>
subject to any otherwise applicable contingent deferred sales
charge.
Statements and Reports
Each shareholder of the Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent 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 Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors 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 indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the mean of the closing bid and asked prices on such day. If
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<PAGE>
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.
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
exchange 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
other 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
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<PAGE>
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.
Trading in securities on Far Eastern or 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
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<PAGE>
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
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
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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.
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
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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,
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
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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.
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
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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
date of acquisition of the asset and the date of disposition also
are treated as ordinary income or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
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
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than forward foreign currency contracts will be considered 60%
long-term and 40% short-term capital gain or loss. Gain or loss
realized by the Fund on forward foreign currency contracts
generally will be treated as section 988 gain or loss and will
therefore be characterized as ordinary income or loss and will
increase or decrease the amount of the Fund's net investment
income available to be distributed to shareholders as ordinary
income, as described above. The Fund can elect to exempt its
section 1256 contracts which are part of a "mixed straddle" (as
described below) from the application of section 1256.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations issued under this authority generally should not
apply to the type of hedging transactions in which the Fund
intends to engage.
With respect to equity options or options traded over-
the-counter or on certain foreign exchanges, gain or loss
realized by the Fund upon the lapse or sale of such options held
by the Fund will be either long-term or short-term capital gain
or loss depending upon the Fund's holding period with respect to
such option. However, gain or loss realized upon the lapse or
closing out of such options that are written by the Fund will be
treated as short-term capital gain or loss. In general, if the
Fund exercises an option, or an option that the Fund has written
is exercised, gain or loss on the option will not be separately
recognized but the premium received or paid will be included in
the calculation of gain or loss upon disposition of the property
underlying the option.
Gain or loss realized by the Fund on the lapse or sale
of put and call options on foreign currencies which are traded
over-the-counter or on certain foreign exchanges will be treated
as section 988 gain or loss and will therefore be characterized
as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be
distributed to shareholders as ordinary income, as described
above. The amount of such gain or loss shall be determined by
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
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general, if the Fund exercises such an option on a foreign
currency, or such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, forward
foreign currency contract, currency swap, or other position
entered into or held by the Fund in conjunction with any other
position held by the Fund may constitute a "straddle" for federal
income tax purposes. A straddle of which at least one, but not
all, the positions are section 1256 contracts may constitute a
"mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's
gains and losses with respect to straddle positions by requiring,
among other things, that (i) loss realized on disposition of one
position of a straddle not be recognized to the extent that the
Fund has unrealized gains with respect to the other position in
such straddle; (ii) the Fund's holding period in straddle
positions be suspended while the straddle exists (possibly
resulting in gain being treated as short-term capital gain rather
than long-term capital gain); (iii) losses recognized with
respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as
60% long-term and 40% short-term capital loss; (iv) losses
recognized with respect to certain straddle positions which would
otherwise constitute short-term capital losses be treated as
long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may
be deferred. The Treasury Department is authorized to issue
regulations providing for the proper treatment of a mixed
straddle where at least one position is ordinary and at least one
position is capital. No such regulations have yet been issued.
Various elections are available to the Fund which may mitigate
the effects of the straddle rules, particularly with respect to
mixed straddles. In general, the straddle rules described above
do not apply to any straddles held by the Fund all of the
offsetting positions of which consist of section 1256 contracts.
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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
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
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managed by the Adviser are simultaneously engaged in the purchase
or sale of the same security, the transactions are allocated to
the respective companies or accounts both as to amount and price,
in accordance with a method deemed equitable to each company or
account. In some cases this system may adversely affect the
price paid or received by the Fund or the size of the position
obtainable for the Fund.
Allocations are made by the officers of the Fund or of
the Adviser. Purchases and sales of portfolio securities are
determined by the Adviser and are placed with broker-dealers by
the order department of the Adviser.
The extent to which commissions that will be charged by
broker-dealers selected by the Fund may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Fund places portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Fund; but, on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in serving the Fund. Consistent with the Conduct Rules of
the National Association of Securities Dealers, Inc., and subject
to seeking best execution, the Fund may consider sales of shares
of the Fund or other investment companies managed by the Adviser
as a factor in the selection of brokers to execute portfolio
transactions for the Fund.
The Fund may from time to time place orders for the
purchase or sale of securities (including listed call options)
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
an affiliate of the Adviser, and with brokers which may have
their transactions cleared or settled, or both, by the Pershing
Division of DLJ, for which DLJ may receive a portion of the
brokerage commissions. In such instances, the placement of
orders with such brokers would be consistent with the Fund's
objective of obtaining best execution and would not be dependent
upon the fact that DLJ is an affiliate of the Adviser.
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
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dealers acting as principal. Over-the-counter transactions
generally do not involve the payment of a stated commission, but
the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally include
a stated underwriter's discount. The Adviser expects to effect
the bulk of its transactions in securities of companies based in
foreign countries through brokers, dealers or underwriters
located in such countries. U.S. Government or other U.S.
securities constituting permissible investments will be purchased
and sold through U.S. brokers, dealers or underwriters.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The 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 of the Fund,
3,000,000,000 shares of Class B Common Stock of the Fund and
3,000,000,000 shares of Class C Common Stock of the Fund, each
having a par value of $.001 per share. All shares of the Fund,
when issued, are fully paid and non- assessable. The Technology
Portfolio, a separate portfolio of the Company, is represented by
9,000,000,000 shares of Common Stock, and the Premier Portfolio,
another separate portfolio of the Company, is represented by
9,000,000,000 shares of Common Stock.
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
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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.
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.
Custodian
Brown Brothers Harriman & Co., 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, Brown
Brothers Harriman & Co. may enter into sub-custodial agreements
for the holding of the Fund's foreign securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 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
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Fund has agreed to indemnify the Principal Underwriter, in the
absence of its willful misfeasance, bad faith, gross negligence
or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the
Securities Act.
Counsel
Legal matters in connection with the issuance of the
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 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
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individual income taxes. An investor's principal invested in the
Fund is not fixed and will fluctuate in response to prevailing
market conditions. The Fund may advertise the fluctuation of its
net asset value over certain time periods and compare its
performance to that available from other investments, including
money market funds and certificates of deposit, the later of
which, unlike the Fund, are insured and have fixed rates of
return.
Advertisements quoting performance rankings or ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper, 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.
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________________________________________________________________
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. There are no specific limitations on the Fund's
writing and purchasing of options.
In certain circumstances, 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. In certain circumstances, the Fund may also
purchase call options to hedge against an increase in the price
of securities that the Fund anticipates purchasing in the future.
The premium paid for the call option plus any transaction costs
will reduce the benefit, if any, realized by the Fund upon
exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire worthless to
the Fund.
A put option gives the purchaser of such option, upon
payment of a premium, the right to deliver a specified amount of
a security to the writer of the option on or before a fixed date
at a predetermined price. A call option gives the purchaser of
the option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by
the Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
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acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in 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
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permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
If a put option written by the Fund were exercised, the
Fund would be obligated to purchase the underlying security at
the exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value
of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the option
holder to the Fund at a higher price than its current market
value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering
into a closing transaction prior to the option expiration dates
if a liquid market is available. The Fund retains the premium
received from writing a put or call option whether or not the
option is exercised.
The Fund may purchase or write options on securities of
the types in which it is permitted to invest in privately
negotiated (i.e., over-the-counter) transactions. The Fund will
effect such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and
loan institutions) deemed creditworthy by the Adviser, and the
Adviser has adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written
by the Fund in negotiated transactions are illiquid and it may
not be possible for the Fund to effect a closing transaction at a
time when the Adviser believes it would be advantageous to do so.
An option on a securities index is similar to an option
on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a
securities index gives the holder the right to receive, upon
exercises of the option, an amount of cash if the closing level
of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the
option. There are no specific 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
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option, or purchased, in the case of a put option, since with
regard to certain options, the writer may be assigned an exercise
notice at any time prior to the termination of the obligation.
Whether or not an option expires unexercised, the writer retains
the amount of the premium. This amount, of course, may, in the
case of a covered call option, be offset by a decline in the
market value of the underlying security during the option period.
If a call option is exercised, the writer experiences a profit or
loss from the sale of the underlying security. If a put option
is exercised, the writer must fulfill the obligation to purchase
the underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate
its obligation may effect a "closing purchase transaction." This
is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that
the writer's position will be cancelled by the clearing
corporation. However, a writer may not effect a closing purchase
transaction after being notified of the exercise of an option.
Likewise, an investor who is the holder of a listed option may
liquidate its position by effecting a "closing sale transaction."
This is accomplished by selling an option of the same series as
the option previously purchased. There 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
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in the market price of a call option will generally reflect
increases in the market price of the underlying security, any
loss resulting from the repurchase of a call option is likely to
be offset in whole or in part by appreciation of the underlying
security owned by the Fund.
An option position may be closed out only where there
exists a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by a national
securities exchange ("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
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the option period. Buy-and-write transactions using at-the-money
call options may be used when it is expected that the price of
the underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using out-
of-the-money call options may be used when it is expected that
the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and the Fund's return will be the premium received from the put
option minus the amount by which the market price of the security
is below the exercise price. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent buy-
and-write transactions.
Futures Contracts 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
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of an amount of cash equal to the difference between a specified
dollar multiple of the value of the index on the expiration date
of the contract ("current contract value") and the price at which
the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges or over-the-
counter. These investment techniques will be used only to hedge
against anticipated future changes in market conditions and
interest or exchange rates which otherwise might either adversely
affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to
purchase at a later date. The Fund will not enter into any
futures contracts or options on futures contracts if immediately
thereafter the aggregate of the market value of the outstanding
futures contracts of the Fund and the market value of the
currencies and futures contracts subject to outstanding options
written by the Fund would exceed 100% 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
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purchase. If a put or call option the Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its futures positions, the
Fund's losses from existing options on futures may to some extent
be reduced or increased by changes in the value of portfolio
securities.
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put
options on portfolio securities. For example, the Fund may
purchase a put option on a futures contract to hedge the Fund's
portfolio against the risk of rising interest rates.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the
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
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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
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
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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
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
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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.
Additional Risks of Options on Futures
Contracts and Forward Contracts
Unlike transactions entered into by the Fund in futures
contracts and forward contracts are not traded on contract
markets regulated by the CFTC or 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.
In addition, futures contracts, options on futures
contracts and forward contracts may be traded on foreign
exchanges. Such transactions are subject to the risk of
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governmental actions affecting trading in or the prices of
foreign currencies or securities. The value of such positions
also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in
the United States of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the
United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.
Forward Foreign Currency Exchange Contracts
The Fund may purchase or sell forward foreign currency
exchange contracts ("forward contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date, and is individually
negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of the security ("transaction hedge").
The Fund may not engage in transaction hedges with respect to the
currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency.
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.
dollar, it may enter into a forward sale contract to sell an
amount of that foreign currency approximating the value of some
or all of the Fund's portfolio securities denominated in such
foreign currency, or when the Fund believes that the U.S. dollar
may suffer a substantial decline against a foreign currency, it
may enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's custodian will place
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
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be placed in the account on a daily basis so that the value of
the account will equal the amount of the Fund's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the segregated account, the Fund may purchase a call
option permitting the Fund to purchase the amount of foreign
currency being hedged by a forward sale contract at a price no
higher than the forward contract price or the Fund may purchase a
put option permitting the Fund to sell the amount of foreign
currency subject to a forward purchase contract at a price as
high or higher than the forward contract price. Unanticipated
changes in currency prices may result in poorer overall
performance for the Fund than if it had not entered into such
contracts.
Forward Commitments
The Fund may enter into forward commitments for the
purchase or sale of securities. Such transactions may include
purchases on a "when-issued" basis or purchases or sales on a
"delayed delivery" basis. In some cases, a forward commitment
may be conditioned upon the occurrence of a subsequent event,
such as approval and consummation of a merger, corporate
reorganization or debt restructuring (i.e., a "when, as and if
issued" trade).
When forward commitment transactions are negotiated, the
price, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
intends to enter into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be cancelled in the event that the
required conditions did not occur and the trade was cancelled.
The Fund's right to receive or deliver a security under
a forward commitment may be sold prior to the settlement date,
but the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a segregated account of the Fund,
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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
Adviser monitors the creditworthiness of the dealers with which
the Fund enters into repurchase agreement transactions.
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Standby Commitment Agreements
The Fund may from time to time enter into standby
commitment agreements. Such agreements commit the Fund, for a
stated period of time, to purchase a stated amount of a security
which may be issued and sold to the Fund at the option of the
issuer. The price and coupon of the security are fixed at the
time of the commitment. At the time of entering into the
agreement the Fund is paid a commitment fee, regardless of
whether or not the security ultimately is issued, which is
typically approximately 0.5% of the aggregate purchase price of
the security which the Fund has committed to purchase. The Fund
will enter into such agreements only for the purpose of investing
in the security underlying the commitment at a yield and price
which are considered advantageous to the Fund and which are
unavailable on a firm commitment basis. The Fund will not enter
into a standby commitment with a remaining term in excess of 45
days and will limit its investment in such commitments so that
the aggregate purchase price of the securities subject to the
commitments will not exceed 50% of its assets taken at the time
of acquisition of such commitment. The Fund will at all times
maintain a segregated account with its custodian of liquid assets
in an aggregate amount equal to the purchase price of the
securities underlying the commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued and the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security
underlying the commitment is at the option of the issuer, the
Fund will bear the risk of capital loss in the event the value of
the security declines and may not benefit from an appreciation in
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.
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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. 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
futures contracts, options or forward contracts or may realize
losses and thus be in a worse position than if such strategies
had not been used. Unlike many exchange-traded futures contracts
and options on futures contracts, there are no daily price
fluctuation limits with respect to options on currencies and
forward contracts, and adverse market movements could therefore
continue to an unlimited extent over a period of time. In
addition, the correlation between movements in the prices of such
instruments and movements in the prices of the securities and
A-16
<PAGE>
currencies hedged or used for cover will not be perfect and could
produce unanticipated losses.
The Fund's ability to dispose of its position in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of fixed income
securities and currencies are relatively new and still
developing. It is impossible to predict the amount of trading
interest that may exist in various types of futures contracts,
options and forward contracts. If a secondary market does not
exist with respect to an option purchased or written by the Fund
over-the-counter, it might not be possible to effect a closing
transaction in the option (i.e., dispose of the option) with the
result that (i) an option purchased by the Fund would have to be
exercised in order for the Fund to realize any profit and
(ii) the Fund may not be able to sell currencies or portfolio
securities covering an option written by the Fund until the
option expires or it delivers the underlying futures contract or
currency upon exercise. Therefore, no assurance can be given
that the Fund will be able to utilize these instruments
effectively for the purposes set forth above. 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.
A-17
<PAGE>
________________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
________________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a daily
valuation basis, if when the plan is established as an
active plan on Merrill Lynch's recordkeeping system:
(a) the plan is one which is not already investing in
shares of mutual funds or interests in other commingled
investment vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or manager
("MLAM Funds"), and either (A) the aggregate assets of
the plan are less than $3 million or (B) the total of
the sum of (x) the employees eligible to participate in
the plan and (y) those persons, not including any such
employees, for whom a plan account having a balance
therein is maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in the normal
course prior to the date the plan is established as an
active plan on Merrill Lynch's recordkeeping system (an
"Active Plan"); or
(b) the plan is one which is already investing in shares of
or interests in MLAM Funds and the assets of the plan
have an aggregate value of less than $5 million, as
determined by Merrill Lynch as of the date the plan
becomes an Active Plan.
B-1
<PAGE>
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."
00250432.AA8
B-2
