<PAGE>
As filed with the Securities and Exchange
Commission on October 30, 1998
File No. 2-48227
811-2383
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF l933
Pre-Effective Amendment No.
Post-Effective Amendment No. 66 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 44 X
ALLIANCE BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrants Telephone Number, including Area Code: (800) 221-5672
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York l0105
(Name and address of agent for service)
It is proposed that this filing will become effective (check
appropriate box)
X immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
Location in
N-1A ITEM NO. Prospectus
PART A (Caption)
Item 1. Cover Page. . . . . . . . . . . . Cover Page
Item 2. Synopsis. . . . . . . . . . . . . The Funds at a Glance
Item 3. Condensed Financial Information . Financial Highlights
Item 4. General Description of Description of the
Registrant. . . . . . . . . . . . Fund; General
Information
Item 5. Management of the Fund. . . . . . Management of the
Fund; General
Information
Item 6. Capital Stock and Other Dividends,
Securities. . . . . . . . . . . . Distributions and
Taxes; General
Information
Item 7. Purchase of Securities Being Purchase and Sale
Offered . . . . . . . . . . . . . of Shares; General
Offered
Item 8. Redemption or Repurchase. . . . . Purchase and Sale of
Shares
Item 9. Pending Legal Proceedings . . . . Not Applicable
<PAGE>
LOCATION IN STATEMENT
OF ADDITIONAL
INFORMATION
PART B (Caption)
Item 10. Cover Page. . . . . . . . . . . . Cover Page
Item 11. Table of Contents . . . . . . . . Cover Page
Item 12. General Information . . . . . . . Description of the
Fund; General
Information
Item 13. Investment Objectives and Description of
Policies. . . . . . . . . . . . . the Fund
Item 14. Management of the Registrant. . . Management of the
Fund
Item 15. Control Persons and Principal Management of the
Holders of Securities . . . . . . Fund; General
Information
Item 16. Investment Advisory and Other Management of the
Services. . . . . . . . . . . . . Fund
Item 17. Brokerage Allocation and Portfolio
Other Practices . . . . . . . . . Transactions
Item 18. Capital Stock and Other
Securities. . . . . . . . . . . .General Information
Item 19. Purchase, Redemption and Pricing Purchase, Redemption
of Securities Being Offered . . . and Repurchase of
Shares
Item 20. Tax Status. . . . . . . . . . . . Dividends,
Distributions and
Taxes
Item 21. Underwriters. . . . . . . . . . . General Information
Item 22. Calculation of Performance
Data. . . . . . . . . . . . . . . General Information
Item 23. Financial Statements. . . . . . . Financial Statements;
Report of Independent
Auditors
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
C/O ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
NOVEMBER 2, 1998
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY -ALLIANCE GLOBAL STRATEGIC
GOVERNMENT FUND INCOME TRUST
MORTGAGE FUND CORPORATE BOND FUNDS
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND -ALLIANCE HIGH YIELD FUND
MULTI-MARKET FUND
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- ----------------- ----
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 15
Description of the Funds 16
Investment Objectives and Policies 16
Additional Investment Practices 23
Certain Fundamental Investment Policies 35
Risk Considerations 36
Purchase and Sale of Shares 41
Management of the Funds 43
Dividends, Distributions and Taxes 46
General Information. 47
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Fund invests in mortgage-related
securities, while the Multi-Market Fund diversifies its investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Funds invest primarily in corporate
debt securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or
call the "For Literature" telephone number shown above.
Each Fund offers three classes of shares through this Prospectus. These shares
may be purchased, at the investor's choice, at a price equal to their net asset
value (i) plus an initial sales charge imposed at the time of purchase (the
"Class A shares"), (ii) with a contingent deferred sales charge imposed on most
redemptions made within three years of purchase (four years of purchase for
Alliance Global Strategic Income Trust and Alliance High Yield Fund) (the
"Class B shares"), or (iii) without any initial or contingent deferred sales
charge, as long as the shares are held for one year or more (the "Class C
shares"). See "Purchase and Sale of Shares."
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
Alliance (R)
INVESTING WITHOUT THE MYSTERY.(SM)
(R)/(SM) These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including more than 120 mutual funds. Since 1971, Alliance
has earned a reputation as a leader in the investment world with over $262
billion in assets under management as of June 30, 1998. Alliance provides
investment management services to 32 of the FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
SEEKS . . . High current income consistent with preservation of capital.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
SEEKS . . . As high a level of current income as is consistent with safety of
principal.
INVESTS SOLELY IN . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States. The Board of
Directors of the Fund has approved, and recommended to shareholders for their
approval, changes to the Fund's investment objective and policies. See
"Description of the Funds--U.S. Government Portfolio."
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUND
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso. The
Fund expects to maintain at least 25% of its assets in securities denominated
in the U.S. Dollar. In addition, the Fund may invest up to 25% of its total
assets in debt securities issued by governmental entities in Argentina.
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
GLOBAL STRATEGIC INCOME TRUST
SEEKS . . . Primarily a high level of current income and secondarily capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of fixed-income
securities of U.S. and non-U.S. issuers.
2
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term; secondarily, the
Fund will attempt to increase its capital through appreciation of its
investments.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Dollar-denominated
corporate bonds issued by domestic and foreign issuers that give promise of
relatively attractive yields.
HIGH YIELD FUND
SEEKS . . . A high total return by maximizing current income and, to the extent
consistent with that objective, capital appreciation.
INVESTS PRIMARILY IN . . . A diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of price and risk of
principal and income than higher quality fixed-income securities.
DISTRIBUTIONS . . .
The Funds intend to make monthly distributions to shareholders. These
distributions may include ordinary income and capital gain (each of which is
taxable) and a return of capital (which is generally non-taxable). See
"Dividends, Distributions and Taxes."
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate daily as the
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market Fund and any other Fund that may invest a
significant amount of its assets in non-U.S. securities involves risks not
associated with Funds that invest primarily in securities of U.S. issuers.
While the Funds invest principally in fixed-income securities, in order to
achieve their investment objectives, the Funds may at times use certain types
of derivative instruments, such as options, futures, forwards and swaps. These
instruments involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. These risks are fully
discussed in this Prospectus. See "Description of the Funds--Additional
Investment Practices" and "--Risk Considerations."
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund can be purchased for a minimum initial investment of $250, and subsequent
investments can be made for as little as $50. For detailed information about
purchasing and selling shares, see "Purchase and Sale of Shares." In addition,
the Funds offer several time and money saving services to investors. Be sure to
ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
ALLIANCE CAPITAL (R)
(R) These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund and annual operating expenses for each class of
shares of each Fund. For each Fund, the "Examples" below show the cumulative
expenses attributable to a hypothetical $1,000 investment, assuming a 5% annual
return, in each class for the periods specified.
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES(B) CLASS B SHARES(D) CLASS C SHARES
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.25%(a) None None None
Sales charge imposed on dividend reinvestments None None None None
Deferred sales charge (as a percentage
of original purchase price or redemption
proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the first year, the first year, the first year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the third after the fourth
year (c) year (e)
Exchange fee None None None None
</TABLE>
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE "PURCHASE AND SALE OF
SHARES--HOW TO BUY SHARES" --PAGE 41.
(B) FOR ALL FUNDS EXCEPT GLOBAL STRATEGIC INCOME AND HIGH YIELD.
(C) CLASS B SHARES OF EACH FUND, OTHER THAN GLOBAL STRATEGIC INCOME AND HIGH
YIELD, AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER SIX YEARS. SEE "PURCHASE
AND SALE OF SHARES--HOW TO BUY SHARES" --PAGE 41.
(D) FOR GLOBAL STRATEGIC INCOME AND HIGH YIELD ONLY.
(E) SHARES OF GLOBAL STRATEGIC INCOME AND HIGH YIELD AUTOMATICALLY CONVERT TO
CLASS A SHARES AFTER EIGHT YEARS. SEE "PURCHASE AND SALE OF SHARES--HOW TO BUY
SHARES"--PAGE 41.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
SHORT-TERM U.S. GOVERNMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(a) (after waiver) None None None After 1 year $ 60 $ 56 $ 26 $ 36 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $ 97 $ 89 $ 79 $ 79 $ 79
Other expenses After 5 years $137 $136 $136 $136 $136
Interest expense .42% .45% .45% After 10 years $246 $254 $254 $289 $289
Other operating expenses(a)(b)
(after reimbursement) 1.10% 1.10% 1.10%
Total other expenses 1.52% 1.55% 1.55%
Total fund operating expenses(b)(c)
(after waiver/reimbursement) 1.82% 2.55% 2.55%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
U.S. GOVERNMENT
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 75 $ 65 $ 55 $ 55 $ 55
Other expenses(b) .21% .21% .21% After 5 years $ 98 $ 95 $ 95 $ 95 $ 95
Total fund operating expenses 1.06% 1.76% 1.76% After 10 years $166 $172 $172 $207 $207
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
LIMITED MATURITY GOVERNMENT
Management fees .65% .65% .65% After 1 year $ 66 $ 62 $ 32 $ 42 $ 32
12b-1 fees .30% 1.00% 1.00% After 3 years $114 $107 $ 97 $ 97 $ 97
Other expenses After 5 years $166 $164 $164 $164 $164
Interest expense .76% .75% .76% After 10 years $305 $313 $313 $344 $344
Other operating expenses(b) .70% .74% .72%
Total other expenses 1.46% 1.49% 1.48%
Total fund operating expenses(d) 2.41% 3.14% 3.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------------- ----------------------------------------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
Management fees .52% .52% .52% After 1 year $ 56 $ 52 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 77 $ 67 $ 66 $ 66
Other expenses After 5 years $116 $115 $115 $114 $114
Interest expense .34% .36% .35% After 10 years $204 $212 $212 $245 $245
Other operating expenses(b) .25% .26% .25%
Total other expenses .59% .62% .60%
Total fund operating expenses(e) 1.41% 2.14% 2.12%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
MULTI-MARKET STRATEGY
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 33 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 90 $ 82 $ 72 $ 71 $ 71
Other expenses After 5 years $125 $123 $123 $122 $122
Other operating expenses(d) .68% .69% .68% After 10 years $222 $228 $228 $262 $262
Total other expenses
Total fund operating expenses(d) 1.58% 2.29% 2.28%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
NORTH AMERICAN GOVERNMENT INCOME
Management fees(f) .73% .73% .73% After 1 year $ 63 $ 59 $ 29 $ 39 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 99 $ 89 $ 88 $ 88
Other expenses After 5 years $153 $151 $151 $150 $150
Interest expense .77% .77% .77% After 10 years $280 $286 $286 $318 $318
Other operating expenses(b) .35% .36% .35%
Total other expenses 1.12% 1.13% 1.12%
Total fund operating expenses(g) 2.15% 2.86% 2.85%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
GLOBAL DOLLAR GOVERNMENT
Management fees .75% .75% .75% After 1 year $ 57 $ 53 $ 23 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 87 $ 79 $ 69 $ 69 $ 69
Other expenses(b) .43% .47% .44% After 5 years $120 $119 $119 $117 $117
Total fund operating After 10 years $212 $220 $220 $252 $252
expenses 1.48% 2.22% 2.19%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
GLOBAL STRATEGIC INCOME
Management fees(h)(after waiver) None None None After 1 year $ 61 $ 66 $ 26 $ 37 $ 26
12b-1 fees .30% 1.00% 1.00% After 3 years $100 $101 $ 81 $ 81 $ 81
Other expenses(b)(h) After 5 years $141 $138 $138 $138 $138
(after reimbursement) 1.60% 1.60% 1.60% After 10 years $255 $261 $261 $293 $293
Total fund operating expenses(h)
(after waiver/reimbursement) 1.90% 2.60% 2.60%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
CORPORATE BOND
Management fees .55% .55% .55% After 1 year $ 53 $ 48 $ 18 $ 28 $ 18
12b-1 fees .30% 1.00% 1.00% After 3 years $ 74 $ 65 $ 55 $ 55 $ 55
Other expenses(b) .20% .20% .20% After 5 years $ 98 $ 95 $ 95 $ 95 $ 95
Total fund operating After 10 years $165 $171 $171 $206 $206
expenses 1.05% 1.75% 1.75%
CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C+ CLASS C++
------- ------- ------- ------- -------- --------- -------- ---------
HIGH YIELD
Management fees .75% .75% .75% After 1 year $ 56 $ 62 $ 22 $ 32 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 86 $ 87 $ 67 $ 67 $ 67
Other expenses(b)(i) After 5 years $117 $114 $114 $114 $114
(after reimbursement) .38% .38% .38% After 10 years $207 $228 $228 $246 $246
Total fund operating expenses(i)
(after reimbursement) 1.43% 2.13% 2.13%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 6.
5
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS (EIGHT
YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD
TEN YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS
(EIGHT YEARS IN THE CASE OF GLOBAL STRATEGIC INCOME AND HIGH YIELD).
(A) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 1.97% FOR CLASS A, 2.09% FOR CLASS B AND 2.04% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.82% FOR CLASS A,
3.64% FOR CLASS B AND 3.59% FOR CLASS C.
(B) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE. THE EXPENSES SHOWN REFLECT THE
APPLICATION OF CREDITS THAT REDUCE FUND EXPENSES.
(C) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.40%, FOR CLASS B, 2.10%, AND FOR CLASS C, 2.10%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.65%, FOR CLASS B, 2.39%, AND FOR CLASS C, 2.37%.
(E) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.07%, FOR CLASS B, 1.78%, AND FOR CLASS C, 1.77%.
(F) REPRESENTS .65 OF 1% OF THE FUND'S AVERAGE DAILY ADJUSTED TOTAL NET
ASSETS.
(G) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.38%, FOR CLASS B, 2.09%, AND FOR CLASS C, 2.08%.
(H) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENT. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .75%, OTHER
EXPENSES WOULD HAVE BEEN 3.01% FOR CLASS A, 3.01% FOR CLASS B, AND 3.02% FOR
CLASS C, AND TOTAL OPERATING EXPENSES WOULD HAVE BEEN 4.06% FOR CLASS A, 4.76%
FOR CLASS B, AND 4.77% FOR CLASS C.
(I) NET OF EXPENSE REIMBURSEMENTS. ABSENT SUCH REIMBURSEMENTS, OTHER EXPENSES
WOULD HAVE BEEN .41% FOR CLASS A, .41% FOR CLASS B, AND .41% FOR CLASS C; AND
TOTAL OPERATING EXPENSES WOULD HAVE BEEN 1.46% FOR CLASS A, 2.16% FOR CLASS B,
AND 2.16% FOR CLASS C.
The purpose of the tables on pages 4, 5 and 6 is to assist the investor in
understanding the various costs and expenses that shareholders of a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Conduct Rules of the National Association of
Securities Dealers, Inc. See "Management of the Funds--Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the
remaining portion of the Rule 12b-1 fee. With respect to each of SHORT-TERM
U.S. GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
MORTGAGE SECURITIES INCOME and LIMITED MATURITY GOVERNMENT, "interest expense"
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See "Description of Funds--Risk
Considerations--Effects of Borrowing." Excluding interest expense, total fund
operating expenses of each of SHORT-TERM U.S. GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES INCOME and
LIMITED MATURITY GOVERNMENT would be lower (see notes (b), (c), (d), (e), (g),
(h) and (i) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The Examples set forth above assume
reinvestment of all dividends and distributions and utilize a 5% annual rate of
return as mandated by Commission regulations. THE EXAMPLES SHOULD NOT BE
CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN. ACTUAL RETURNS WILL VARY.
6
FINANCIAL HIGHLIGHTS
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables relating to SHORT-TERM U.S. GOVERNMENT has been
audited by PricewaterhouseCoopers LLP, the independent accountants for the
Fund, and the information in the tables relating to U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME,
CORPORATE BOND and HIGH YIELD has been audited by Ernst & Young LLP, the
independent auditors for these Funds. A report of PricewaterhouseCoopers LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund appears in the Fund's Statement of Additional Information. The following
information for each Fund should be read in conjunction with the financial
statements and related notes which are included in the Fund's Statement of
Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the "For Literature"
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT#
CLASS A
Year Ended 8/31/98 $ 9.63 $ .49(h) $(.11) $ .38 $(.50) $0.00
Year Ended 8/31/97 9.66 .47(h) .03 .50 (.46) 0.00
Year Ended 8/31/96 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/98 $ 9.74 $ .42(h) $(.08) $ .34 $(.43) $0.00
Year Ended 8/31/97 9.77 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/98 $ 9.73 $ .42(h) $(.08) $ .34 $(.43) $0.00
Year Ended 8/31/97 9.76 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/98 $ 7.41 $ .54(h) $ .18 $ .72 $(.54) $0.00
Year Ended 6/30/97 7.52 .57(h) (.10) .47 (.57) 0.00
Year Ended 6/30/96 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
CLASS B
Year Ended 6/30/98 $ 7.41 $ .48(h) $ .18 $ .66 $(.48) $0.00
Year Ended 6/30/97 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/98 $ 7.41 $ .48(h) $ .18 $ .66 $(.48) $0.00
Year Ended 6/30/97 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
5/3/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
12/1/97 to 5/31/98 $ 9.44 $ .25(h) $ .01 $ .26 $(.27) $0.00
Year Ended 11/30/97 9.45 .51(h) .02 .53 (.52) 0.00
Year Ended 11/30/96 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
12/1/97 to 5/31/98 $ 9.44 $ .21(h) $ .03 $ .24 $(.24) $0.00
Year Ended 11/30/97 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
12/1/97 to 5/31/98 $ 9.44 $ .21(h) $ .03 $ .24 $(.24) $0.00
Year Ended 11/30/97 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(.03) $(.53) $ 9.48 4.04% $ 5,535 1.83%(i) 5.00% 206%
0.00 (.07) (.53) 9.63 5.29 3,901 1.41(d)(e) 4.90 65
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40*(d) 3.98* 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$0.00 $(.03) $(.46) $ 9.62 3.52% $ 10,827 2.56%(i) 4.49% 206%
0.00 (.07) (.46) 9.74 4.45 6,458 2.11(d)(e) 4.13 65
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10*(d) 3.22* 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$0.00 $(.03) $(.46) $ 9.61 3.53% $ 5,074 2.56%(i) 4.48% 206%
0.00 (.07) (.46) 9.73 4.45 5,012 2.11(d)(e) 4.15 65
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10*(d) 3.26* 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $(.02) $(.56) $ 7.57 10.02% $352,749 1.06% 7.08% 153%
0.00 (.01) (.58) 7.41 6.49 354,782 1.02 7.66 330
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
$0.00 $(.02) $(.50) $ 7.57 9.20% $390,523 1.76% 6.37% 153%
0.00 (.01) (.53) 7.41 5.69 471,889 1.73 6.95 330
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 0.00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 0.00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $(.02) $(.50) $ 7.57 9.21% $114,392 1.76% 6.38% 153%
0.00 (.01) (.53) 7.41 5.69 115,607 1.72 6.96 330
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 0.00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $0.00 $(.27) $ 9.43 2.78% $ 17,154 2.79%(e)* 5.21%* 176%
0.00 (.02) (.54) 9.44 5.79 16,197 2.41(e) 5.52 249
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $0.00 $(.24) $ 9.44 2.52% $ 32,294 3.47%(e)* 4.49%* 176%
0.00 (.02) (.47) 9.44 5.04 33,613 3.14(e) 4.80 249
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $0.00 $(.24) $ 9.44 2.53% $ 24,022 3.45%(e)* 4.50%* 176%
0.00 (.02) (.47) 9.44 5.05 28,738 3.13(e) 4.82 249
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.74*(e) 3.70* 499
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
9
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE SECURITIES INCOME
CLASS A
1/1/98 to 6/30/98 $ 8.63 $ .26(h) $ .02 $ .28 $ (.28) $ 0.00
Year Ended 12/31/97 8.51 .54(h) .15 .69 (.54) 0.00
Year Ended 12/31/96 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
CLASS B
1/1/98 to 6/30/98 $ 8.63 $ .23(h) $ .02 $ .25 $ (.25) $ 0.00
Year Ended 12/31/97 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
1/1/98 to 6/30/98 $ 8.63 $ .23(h) $ .02 $ .25 $ (.25) $ 0.00
Year Ended 12/31/97 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
MULTI-MARKET STRATEGY
CLASS A
11/1/97 to 4/30/98 $ 7.11 $ .23(h) $ .04 $ .27 $ (.59) $ 0.00
Year Ended 10/31/97 7.23 .47(h) .08 .55 (.47) 0.00
Year Ended 10/31/96 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
11/1/97 to 4/30/98 $ 7.11 $ .18(h) $ .07 $ .25 $ (.56) $ 0.00
Year Ended 10/31/97 7.23 .42(h) .06 .48 (.42) 0.00
Year Ended 10/31/96 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
11/1/97 to 4/30/98 $ 7.11 $ .20(h) $ .05 $ .25 $ (.56) $ 0.00
Year Ended 10/31/97 7.23 .42(h) .07 .49 (.42) 0.00
Year Ended 10/31/96 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
12/1/97 to 5/31/98 $ 8.02 $ .44(h) $ (.11) $ .33 $ (.48) $ 0.00
Year Ended 11/30/97 8.01 1.03(h) (.05) .98 (.97) 0.00
Year Ended 11/30/96 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
12/1/97 to 5/31/98 $ 8.02 $ .41(h) $ (.10) $ .31 $ (.45) $ 0.00
Year Ended 11/30/97 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
12/1/97 to 5/31/98 $ 8.02 $ .41(h) $ (.10) $ .31 $ (.45) $ 0.00
Year Ended 11/30/97 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 6.75 1.05(h) 1.11 2.16 (.69) 0.00
Year Ended 11/30/95 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (.28) $ 8.63 3.32% $ 367,230 1.90%(e)* 6.18%* 86%
(.03) 0.00 (.57) 8.63 8.04 372,494 1.41(e) 6.30 184
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
$ 0.00 $ 0.00 $ (.25) $ 8.63 2.94% $ 263,783 2.59%(e)* 5.45%* 86%
(.03) 0.00 (.51) 8.63 7.60 323,916 2.14(e) 5.60 184
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$ 0.00 $ 0.00 $ (.25) $ 8.63 2.94% $ 26,044 2.59%(e)* 5.47%* 86%
(.03) 0.00 (.51) 8.63 7.60 27,859 2.12(e) 5.61 184
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$ 0.00 $ 0.00 $ (.59) $ 6.79 4.00% $ 100,629 1.69%* 6.55%* 12%
(.20) 0.00 (.67) 7.11 7.82 96,133 1.58(i) 6.50 173
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$ 0.00 $ 0.00 $ (.56) $ 6.80 3.69% $ 9,948 2.37%* 5.67%* 12%
(.18) 0.00 (.60) 7.11 6.90 29,949 2.29(i) 5.79 173
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$ 0.00 $ 0.00 $ (.56) $ 6.80 3.70% $ 848 2.37%* 5.80%* 12%
(.19) 0.00 (.61) 7.11 6.92 1,203 2.28(i) 5.80 173
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
$ 0.00 $ 0.00 $ (.48) $ 7.87 4.20% $ 719,954 1.99%(f)* 10.93%* 128%
0.00 0.00 (.97) 8.02 12.85 511,749 2.15(f) 12.78 118
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$ 0.00 $ 0.00 $ (.45) $ 7.88 3.88% $1,401,892 2.71%(f)* 10.26%* 128%
0.00 0.00 (.90) 8.02 11.88 1,378,407 2.86(f) 12.15 118
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$ 0.00 $ 0.00 $ (.45) $ 7.88 3.88% $ 292,894 2.70%(f)* 10.27%* 128%
0.00 0.00 (.90) 8.02 11.88 283,483 2.85(f) 12.14 118
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
11
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- --------------------- ------------- -------------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/98 $10.64 $ .73(h) $(4.03) $(3.30) $(.73) $(1.37)
Year Ended 8/31/97 10.01 .88(h) 1.85 2.73 (.95) (1.15)
Year Ended 8/31/96 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/98 $10.64 $ .67(h) $(4.05) $(3.38) $(.67) $(1.36)
Year Ended 8/31/97 10.01 .81(h) 1.84 2.65 (.87) (1.15)
Year Ended 8/31/96 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/98 $10.64 $ .67(h) $(4.05) $(3.38) $(.67) $(1.36)
Year Ended 8/31/97 10.01 .82(h) 1.84 2.66 (.88) (1.15)
Year Ended 8/31/96 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
GLOBAL STRATEGIC INCOME
CLASS A
11/1/97 to 4/30/98 $11.46 $ .38(h) $ .48 $ .86 $(.55) $(.36)
Year Ended 10/31/97 10.83 .74(h) 1.02 1.76 (.75) (.10)
1/9/96+ to 10/31/96 10.00 .69(h) .95 1.64 (.81) 0.00
CLASS B
11/1/97 to 4/30/98 $11.46 $ .34(h) $ .48 $ .82 $(.51) $(.36)
Year Ended 10/31/97 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 9.97 .41(h) 1.01 1.42 (.56) 0.00
CLASS C
11/1/97 to 4/30/98 $11.46 $ .33(h) $ .49 $ .82 $(.51) $(.36)
Year Ended 10/31/97 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 9.97 .39(h) 1.03 1.42 (.56) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/98 $14.19 $1.08(h) $ .12 $1.20 $(1.08) $0.00
Year Ended 6/30/97 13.29 1.15(h) .97 2.12 (1.22) 0.00
Year Ended 6/30/96 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
CLASS B
Year Ended 6/30/98 $14.19 $ .98(h) $ .13 $1.11 $(.98) $0.00
Year Ended 6/30/97 13.29 1.05(h) .98 2.03 (1.13) 0.00
Year Ended 6/30/96 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/98 $14.19 $ .99(h) $ .12 $1.11 $(.99) $0.00
Year Ended 6/30/97 13.29 1.04(h) .99 2.03 (1.13) 0.00
Year Ended 6/30/96 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/3/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
HIGH YIELD
CLASS A
Year Ended 8/31/98 $11.17 $1.03(h) $(.27) $ .76 $(1.02) $(.14)
4/22/97+ to 8/31/97 10.00 .37(h) 1.15 1.52 (.35) 0.00
CLASS B
Year Ended 8/31/98 $11.17 $ .96(h) $(.28) $ .68 $(.95) $(.14)
4/22/97+ to 8/31/97 10.00 .31(h) 1.19 1.50 (.33) 0.00
CLASS C
Year Ended 8/31/98 $11.17 $ .96(h) $(.28) $ .68 $(.95) $(.14)
4/22/97+ to 8/31/97 10.00 .32(h) 1.18 1.50 (.33) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
12
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
------------- ---------- -------------- ---------- --------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.04) $(.15) $(2.29) $ 5.05 (38.56)% $ 32,365 1.48% 8.51% 188%
0.00 0.00 (2.10) 10.64 30.04 37,416 1.55 8.49 314
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$(.04) $(.14) $(2.21) $ 5.05 (39.11)% $ 79,660 2.22% 7.78% 188%
0.00 0.00 (2.02) 10.64 29.14 93,377 2.26 7.81 314
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$(.04) $(.14) $(2.22) $ 5.05 (39.09)% $ 23,711 2.19% 7.75% 188%
0.00 0.00 (2.03) 10.64 29.17 25,130 2.25 7.82 314
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$0.00 $0.00 $(.91) $11.41 7.88% $ 21,877 1.90%(d)* 6.91%* 247%
(.28) 0.00 (1.13) 11.46 16.83 12,954 1.90(d) 6.56 417
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$0.00 $0.00 $(.87) $11.41 7.55% $ 35,840 2.60%(d)* 6.17%* 247%
(.29) 0.00 (1.06) 11.46 16.12 18,855 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$0.00 $0.00 $(.87) $11.41 7.55% $ 8,017 2.60%(d)* 6.18%* 247%
(.29) 0.00 (1.06) 11.46 16.12 4,388 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
$(.12) $0.00 $(1.20) $14.19 8.66% $510,397 1.05% 7.52% 244%
0.00 0.00 (1.22) 14.19 16.59 370,845 1.12 8.34 307
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
$(.13) $0.00 $(1.11) $14.19 7.95% $672,374 1.75% 6.80% 244%
0.00 0.00 (1.13) 14.19 15.80 480,326 1.82 7.62 307
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$(.12) $0.00 $(1.11) $14.19 7.95% $254,530 1.75% 6.83% 244%
0.00 0.00 (1.13) 14.19 15.80 174,762 1.82 7.61 307
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
$(.01) $0.00 $(1.17) $10.76 6.42% $ 43,960 1.43% 8.89% 311%
0.00 0.00 (.35) 11.17 15.33 5,889 1.70*(d) 8.04* 73
$(.01) $0.00 $(1.10) $10.75 5.69% $269,426 2.13% 8.18% 311%
0.00 0.00 (.33) 11.17 15.07 43,297 2.40*(d) 7.19* 73
$(.01) $0.00 $(1.10) $10.75 5.69% $ 48,337 2.13% 8.17% 311%
0.00 0.00 (.33) 11.17 15.07 7,575 2.40*(d) 7.24* 73
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 14.
13
# PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
("EQUITABLE") SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
"TRUST"), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER TO THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL
FOR THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B
AND $(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING AN INITIAL INVESTMENT MADE
AT THE NET ASSET VALUE AT THE BEGINNING OF THE PERIOD, REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AT THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) "TOTAL DIVIDENDS AND DISTRIBUTIONS" INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME, FOR THE YEAR ENDED APRIL 30,
1994, WITH RESPECT TO CLASS A SHARES OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995, 3.04% FOR THE YEAR ENDED AUGUST 31,
1996, 2.42% FOR THE YEAR ENDED AUGUST 31, 1997, 2.82% FOR THE YEAR ENDED AUGUST
31, 1998; WITH RESPECT TO CLASS B SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21%
FOR THE YEAR ENDED APRIL 30, 1994, 3.60% (ANNUALIZED) FOR THE PERIOD ENDED
AUGUST 31, 1994, 4.33% FOR THE YEAR ENDED AUGUST 31, 1995, 3.74% FOR THE YEAR
ENDED AUGUST 31, 1996 AND 3.10% FOR THE YEAR ENDED AUGUST 31, 1997 3.64% FOR
THE YEAR ENDED AUGUST 31, 1998; WITH RESPECT TO CLASS C SHARES, 3.10%
(ANNUALIZED) FOR THE YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE
PERIOD ENDED AUGUST 31, 1994 (ANNUALIZED), 4.23% FOR THE YEAR ENDED AUGUST 31,
1995, 3.72% FOR THE YEAR ENDED AUGUST 31, 1996, 3.10% FOR THE YEAR ENDED AUGUST
31, 1997, 3.59% FOR THE YEAR ENDED AUGUST 31, 1998. IF LIMITED MATURITY
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 1.55% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO
CLASS B SHARES, 2.28% (ANNUALIZED) FOR 1992. THE RATIO OF NET INVESTMENT INCOME
TO AVERAGE NET ASSETS FOR LIMITED MATURITY GOVERNMENT WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 6.47% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO
CLASS B SHARES, 5.86% (ANNUALIZED) FOR 1992. IF NORTH AMERICAN GOVERNMENT
INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT
TO CLASS A SHARES, 2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B
SHARES, 3.16% (ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD BORNE ALL
EXPENSES FOR THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE EXPENSE
RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.91% (ANNUALIZED); WITH
RESPECT TO CLASS B SHARES, 2.63% (ANNUALIZED); AND WITH RESPECT TO CLASS C
SHARES, 2.59% (ANNUALIZED). IF GLOBAL STRATEGIC INCOME HAD BORNE ALL EXPENSES
FOR THE RESPECTIVE PERIODS JANUARY 9, 1996 TO OCTOBER 31, 1996, 1997 AND ITS
FISCAL YEAR ENDED IN 1998, THE EXPENSE RATIO WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 19.20% (ANNUALIZED), 4.06%, AND 2.00% RESPECTIVELY; WITH
RESPECT TO CLASS B SHARES, 19.57% (ANNUALIZED), 4.76%, AND 2.69% RESPECTIVELY;
AND WITH RESPECT TO CLASS C SHARES, 19.49% (ANNUALIZED), 4.77%, AND 2.71%
RESPECTIVELY. IF HIGH YIELD HAD BORNE ALL EXPENSES FOR THE PERIOD APRIL 22,
1997 TO AUGUST 31, 1997, THE EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 3.11% (ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 3.85%
(ANNUALIZED); AND WITH RESPECT TO CLASS C SHARES, 3.84% (ANNUALIZED).
(E) IF SHORT-TERM U.S. GOVERNMENT HAD NOT BORNE INTEREST EXPENSES, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.40% FOR 1996, 1997, AND 1998; WITH RESPECT TO CLASS B SHARES, 2.10%
FOR 1996, 1997, AND 1998; AND WITH RESPECT TO CLASS C SHARES, 2.10% FOR 1996,
1997, AND 1998. IF LIMITED MATURITY GOVERNMENT HAD NOT BORNE INTEREST EXPENSES,
THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993, 1.20% FOR 1994,
1.41% FOR 1995, 1.58% FOR 1996, 1.65% FOR 1997, AND 1.64% FOR 1998; WITH
RESPECT TO CLASS B SHARES, 2.10% (ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91%
FOR 1994, 2.11% FOR 1995, 2.30% FOR 1996, 2.39% FOR 1997, AND 2.35% FOR 1998;
WITH RESPECT TO CLASS C SHARES, 1.58% (ANNUALIZED), FOR 1993, 1.89% FOR 1994,
2.10% FOR 1995, 2.29% FOR 1996, 2.37% FOR 1997, AND 2.33% FOR 1998. IF MORTGAGE
SECURITIES INCOME FUND HAD NOT BORNE INTEREST EXPENSE THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES .97% FOR
1994, 1.03% FOR 1995, 1.03% FOR 1996, 1.07% FOR 1997, AND 1.11% FOR 1998; WITH
RESPECT TO CLASS B SHARES, 1.68% FOR 1994, 1.74% FOR 1995, 1.74% FOR 1996,
1.78% FOR 1997, AND 1.82% FOR 1998; WITH RESPECT TO CLASS C SHARES 1.69% FOR
1994, 1.73% FOR 1995, 1.73% FOR 1996, 1.77% FOR 1997, AND 1.80% FOR 1998.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993, 1.30% FOR 1994, 1.55% FOR 1995, AND 1.60% FOR
1996; WITH RESPECT TO CLASS B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR
1992, 2.11% FOR 1993, 2.01% FOR 1994, 2.22% FOR 1995, AND 2.31% FOR 1996; WITH
RESPECT TO CLASS C SHARES, 2.11% (ANNUALIZED) FOR 1993, 1.99% FOR 1994, 2.24%
FOR 1995, AND 2.30% FOR 1996. IF NORTH AMERICAN GOVERNMENT INCOME HAD NOT BORNE
INTEREST EXPENSES, THE RATIO OF EXPENSES (NET OF INTEREST EXPENSES) TO AVERAGE
NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.66% (ANNUALIZED)
FOR 1992, 1.33% FOR 1993, 1.37% FOR 1994, 1.51% FOR 1995, 1.41% FOR 1996, 1.38%
FOR 1997, AND 1.31% FOR 1998; WITH RESPECT TO CLASS B SHARES, 2.35%
(ANNUALIZED) FOR 1992, 2.04% FOR 1993, 2.07% FOR 1994, 2.22% FOR 1995, 2.12%
FOR 1996, 2.09% FOR 1997, AND 2.02% FOR 1998; AND WITH RESPECT TO CLASS C
SHARES, 2.04% (ANNUALIZED) FOR 1993, 2.06% FOR 1994, 2.21% FOR 1995, 2.12% FOR
1996, 2.08% FOR 1997, AND 2.01% FOR 1998.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
(H) BASED ON AVERAGE SHARES OUTSTANDING.
(I) AMOUNTS DO NOT REFLECT THE IMPACT OF EXPENSE OFFSET ARRANGEMENT WITH THE
TRANSFER AGENT. TAKING INTO ACCOUNT SUCH EXPENSE OFFSET ARRANGEMENTS, THE RATIO
OF EXPENSES TO AVERAGE NET ASSETS, ABSENT THE ASSUMPTION AND/OR
WAIVER/REIMBURSEMENT OF EXPENSES FOR MULTI-MARKET STRATEGY THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.57% FOR 1997, WITH RESPECT TO CLASS B SHARES 2.28% FOR 1997 AND WITH RESPECT
TO CLASS C SHARES 2.27% FOR 1997. FOR SHORT-TERM U.S. GOVERNMENT THE RATIO OF
EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES
1.82% FOR 1998, WITH RESPECT TO CLASS B SHARES 2.55% FOR 1998 AND WITH RESPECT
TO CLASS C SHARES 2.55% FOR 1998.
14
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under "Description of the Funds--Additional
Investment Practices" and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB or below, or
determined by Alliance to be of equivalent quality, and are commonly referred
to as "junk bonds."
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks, and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and the other of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
NRSRO is a nationally recognized securities rating organization.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch IBCA, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "SECURITIES ACT").
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.
15
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ("Short-Term U.S. Government") seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. In periods of rising interest rates the
Fund may, to the extent it invests in mortgage-related securities, be subject
to the risk that its average dollar-weighted portfolio maturity may be extended
as a result of lower than anticipated prepayment rates. See "Additional
Investment Practices--Mortgage-Related Securities." The Fund's investment
objective is not fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales "against the
box," (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ("U.S. Government") seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see "Additional Investment Practices." The Fund's investment
objective is not fundamental.
The Board of Directors of the Fund has approved, and has recommended to
shareholders for their approval, changes to the U.S. Government Portfolio's
investment objective and policies. If approved by shareholders, the foregoing
paragraph describing the U.S. Government Portfolio's investment objective and
policies shall be replaced in its entirety by the following two paragraphs:
U.S. Government Portfolio ("U.S. Government") is a diversified investment
company that seeks a high level of current income that is consistent with
prudent investment risk. As a matter of fundamental policy the Fund pursues its
objective by investing at least 65% of the value of its total assets in U.S.
Government securities and repurchase agreements and forward contracts relating
to U.S. Government securities. The Fund may invest the remaining 35% of the
value of its total assets in non-U.S. Government mortgage-related and
asset-backed securities. The Fund will not invest in any security rated below
BBB or Baa. The Fund may invest in unrated securities of equivalent quality to
the rated securities in which it may invest, as determined by Alliance. The
Fund expects, but is not required, to dispose of securities that are downgraded
below BBB and Baa or, if unrated, are determined by Alliance to have undergone
similar credit quality deterioration subsequent to their purchase. See "Risk
Considerations--Securities Ratings."
The Fund may also (i) enter into repurchase agreements and reverse repurchase
agreements, forward contracts, and dollar rolls, (ii) enter into various
hedging transactions, such as interest rate swaps, caps and floors, (iii)
purchase and sell futures contracts for hedging purposes, and (iv) purchase
call and put options on futures contracts or on securities for hedging
purposes. For additional information on the use, risks and costs of these
practices, see "Additional Investment Practices."
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ("Limited Maturity Government")
seeks the highest level of current income, consistent with low volatility of
net asset value. As a
16
matter of fundamental policy, the Fund normally has at least 65% of the value
of its total assets invested in U.S. Government securities, including
mortgage-related securities, and repurchase agreements relating to U.S.
Government securities. For a description of these securities, see "Additional
Investment Practices."
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of relative yields on securities of different maturities and the
expected effect of future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by the Fund has
either a remaining maturity of not more than ten years or a duration not
exceeding that of a ten-year Treasury note. Duration is a measure that relates
the price volatility of a security to changes in interest rates. The duration
of a debt security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including coupon payments
and principal repayments. Thus, by definition, duration is always less than or
equal to full maturity.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have high quality debt issues outstanding and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see "Additional Investment Practices."
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See "Risk Considerations--Foreign Investment."
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ("Mortgage Securities Income")
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
"Additional Investment Practices."
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance Multi-Market Strategy Trust, Inc. ("Multi-Market Strategy") is a
non-diversified investment company that has been designed to offer investors a
higher yield than a money market fund and less fluctuation in net asset value
than a
17
longer-term bond fund. The Fund seeks the highest level of current income,
consistent with what Alliance considers to be prudent investment risk, that is
available from a portfolio of high quality debt securities having remaining
maturities of not more than five years. The Fund seeks high current yields by
investing in a portfolio of debt securities denominated in the U.S. Dollar and
selected foreign currencies. The Fund seeks investment opportunities in
foreign, as well as domestic, securities markets. The Fund normally expects to
maintain at least 70% of its assets in debt securities denominated in foreign
currencies.
In pursuing its investment objective, the Fund seeks to minimize credit risk
and fluctuations in net asset value by investing only in short-term debt
securities. Normally, a high proportion of the Fund's portfolio consists of
money market instruments. Alliance actively manages the Fund's portfolio in
accordance with a multi-market investment strategy, allocating the Fund's
investments among securities denominated in the U.S. Dollar and the currencies
of a number of foreign countries and, within each such country, among different
types of debt securities. Alliance adjusts the Fund's exposure to each currency
such that the percentage of assets invested in securities of a particular
country or denominated in a particular currency varies in accordance with
Alliance's assessment of the relative yield and appreciation potential of such
securities and the relative strength of a country's currency. Fundamental
economic strength, credit quality and interest rate trends are the principal
factors considered by Alliance in determining whether to increase or decrease
the emphasis placed upon a particular type of security or industry sector
within a Fund's investment portfolio. The Fund does not invest more than 25% of
its net assets in debt securities denominated in a single currency other than
the U.S. Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
"cross-hedges" (see "Additional Investment Practices--Forward Foreign Currency
Exchange Contracts"), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of the Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to the Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, the Fund could be in a less advantageous
position than if such a hedge had not been established.
The Fund invests in debt securities denominated in the currencies of countries
whose governments are considered stable by Alliance. In addition to the U.S.
Dollar, such currencies include, among others, the Australian Dollar, Austrian
Schilling, British Pound Sterling, Canadian Dollar, Danish Krone, Dutch
Guilder, French Franc, Irish Pound, Italian Lira, Japanese Yen, Mexican Peso,
New Zealand Dollar, Norwegian Krone, Spanish Peseta, Swedish Krona, Swiss Franc
and German Mark. The Fund expects to invest in debt securities denominated in
the Euro.
An issuer of debt securities purchased by the Fund may be domiciled in a
country other than the country in whose currency the instrument is denominated.
In addition, the Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency while the principal
amounts of, and value of interest payments on, such securities are determined
with reference to another currency.
The Fund may invest in debt securities issued by supranational organizations
including the World Bank, which was chartered to finance development projects
in developing member countries; the European Union; the European Coal and Steel
Community, which is an economic union of various European nations' steel and
coal industries; and the Asian Development Bank, which is an international
development bank established to lend funds, promote investment and provide
technical assistance to member nations in the Asian and Pacific regions.
The Fund seeks to minimize investment risk by limiting its portfolio
investments to debt securities of high quality. Accordingly, the Fund's
portfolio securities will consist of (i) U.S. Government securities, (ii) high
quality foreign government securities, (iii) obligations issued by
supranational entities and corporate debt securities having a high quality
rating, (iv) certificates of deposit and bankers' acceptances issued or
guaranteed by, or time deposits maintained at, banks (including foreign
branches of foreign banks) having total assets of more than $500 million, and
determined by Alliance to be of high quality, and (v) prime commercial paper or
unrated commercial paper determined by Alliance to be of equivalent quality and
issued by U.S. or foreign companies having outstanding high quality debt
securities.
As a matter of fundamental policy, the Fund concentrates at least 25% of its
total assets in debt instruments issued by domestic and foreign companies
engaged in the banking industry, including bank holding companies. Such
investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in "Additional
Investment Practices--Repurchase Agreements." See "Risk
Considerations--Investment in the Banking Industry."
18
The Fund may also (i) invest in indexed commercial paper, (ii) enter into
futures contracts and purchase and write options on futures contracts, (iii)
purchase and write put and call options on foreign currencies, (iv) purchase or
sell forward foreign currency exchange contracts, (v) enter into interest rate
swaps, caps and floors, (vi) invest in variable, floating and inverse floating
rate instruments, (vii) make secured loans of its portfolio securities, and
(viii) enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, more than 10% of its assets would be so invested.
For additional information on the use, risks and costs of these practices, see
"Additional Investment Practices."
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ("North American
Government Income") seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ("Government securities"). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ("Argentine Government securities"). The Fund expects that it will
not retain a debt security which is down graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current state of the Mexican
economy.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities. For a
general description of Canada, Mexico and Argentina, see Appendix B and the
Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Government of Canada Treasury bills are debt obligations with maturities
of less than one year. A new issue of Government of Canada bonds frequently
consists of several different bonds with maturities ranging from one to 25
years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
19
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bonos del Tesoro ("BOTE"), which are
obligations of the Argentine Treasury, and (ii) Bonos de Consolidacion
Economica ("BOCON"), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years. Although not all
Argentine Government securities are rated investment grade quality by S&P,
Moody's, Duff & Phelps or Fitch, Alliance believes that there are unrated
Argentine Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." The Fund also maintains borrowings of
approximately one-third of its total assets less liabilities (other than the
amount borrowed). See "Risk Considerations--Effects of Borrowing."
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ("Global Dollar Government") seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as "Brady Bonds" that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ("collateralized Brady Bonds"). See "Additional
Investment Practices--Brady Bonds" and "Risk Considerations--Sovereign Debt
Obligations." The Fund may also invest up to 35% of its total assets in U.S.
and non-U.S. corporate fixed-income securities. See "Risk Considerations--U.S.
Corporate Fixed-Income Securities." The Fund will limit its investments in
sovereign debt obligations and U.S. and non-U.S. corporate fixed-income
securities to U.S. Dollar-denominated securities. Alliance expects that, based
upon current market conditions, the Fund's portfolio of U.S. fixed-income
securities will have an average maturity range of approximately nine to 15
years and the Fund's portfolio of non-U.S. fixed-income securities will have an
average maturity range of approximately 15 to 25 years. Alliance anticipates
that the Fund's portfolio of sovereign debt obligations will have a longer
average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A. The
Fund may also invest in investment grade securities. Unrated securities will be
considered for investment by the Fund when Alliance believes that the financial
condition of the issuers of such obligations and the protection afforded by the
terms of the obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are consistent with the Fund's
investment objectives and policies. As of August 31, 1998, the percentages of
the Fund's assets invested in securities rated (or considered by Alliance to be
of equivalent quality to securities rated) in particular rating categories were
5% in A and above, 3% in Baa or BBB 50% in Ba or BB, 22% in B, 3% in CC, 1% in
C and 18% in non-rated. See "Risk Considerations--Securities Ratings,"
"--Investment in Fixed-Income Securities Rated Baa and BBB," "--Investment in
Lower-Rated Fixed-Income Securities" and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
investment focus is expected to be in securities or obligations of Argentina,
Brazil, Mexico, Morocco, the Philippines, Russia and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. Alliance anticipates that
other countries that will provide investment opportunities for the Fund
include, among others, Bolivia, Costa Rica, the Dominican Republic, Ecuador,
Jordan, Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. See
"Additional Investment Practices--Brady Bonds."
20
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia or Venezuela, each
of which is an emerging market country, and the Fund will limit investments in
the sovereign debt obligations of each such country (or of any other single
foreign country) to less than 25% of its total assets. The Fund expects that it
will not invest more than 10% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any other
single foreign country and is not required to invest any minimum amount of its
assets in the securities or obligations of issuers located in any particular
country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ("Discount
Obligations") and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of "original issue discount"
previously accrued thereon, i.e., purchased at a "market discount."
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
"Additional Investment Practices." While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See "Risk
Considerations--Effects of Borrowing."
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust, Inc. ("Global Strategic Income") is a
non-diversified investment company that seeks primarily a high level of current
income and secondarily capital appreciation. The Fund pursues its investment
objectives by investing primarily in a portfolio of fixed-income securities of
U.S. and non-U.S. companies and U.S. Government and foreign government
securities and supranational entities, including lower-rated securities. The
Fund may also use derivative instruments to attempt to enhance income. The
average weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between five years and 30 years in accordance with Alliance's
changing perceptions of the relative attractiveness of various maturity ranges.
Under normal market conditions, at least 65% of the value of the Fund's total
assets will be invested in the fixed-income securities of issuers located in at
least three countries, one of which may be the United States. No more than 25%
of the value of its total assets, however, will be invested in the securities
of any one foreign government. U.S. Government securities in which the Fund may
invest include mortgage-related securities and zero coupon securities.
Fixed-income securities in which the Fund may invest include preferred stock,
mortgage-related and other asset-backed securities, and zero coupon securities.
The Fund may also invest in rights and warrants (for debt securities or for
equity securities that are acquired in connection with debt instruments), and
loan participations and assignments.
The Fund will maintain at least 65% of the value of its total assets in
investment grade securities and may maintain not more than 35% of the value of
its total assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." Unrated securities will be considered for investment
by the Fund when Alliance believes that the financial condition of the issuers
of such obligations and the protection afforded by the terms of the obligations
themselves limit the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's investment objectives and
policies. Lower-rated securities in which the Fund may invest include Brady
Bonds and fixed-income securities of issuers located in emerging markets. There
is no minimum rating requirement applicable to the Fund's investments in
lower-rated fixed-income securities.
The Fund may also: (i) invest in foreign currencies, (ii) purchase and write
put and call options on securities and foreign currencies, (iii) purchase or
sell forward foreign exchange contracts, (iv) invest in variable, floating and
inverse floating rate instruments, (v) invest in indexed commercial paper, (vi)
invest in structured securities, (vii) lend portfolio securities amounting to
not more than 25% of its total assets, (viii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (ix) use reverse
repurchase agreements and dollar rolls, (x) purchase and sell securities on a
forward commitment basis, (xi) enter into standby commitments, (xii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, foreign government
securities or common stock, and purchase and write options on futures
contracts, (xiii) invest in Eurodollar instruments, (xiv) enter into interest
rate swaps, caps and floors, and (xv) make
21
short sales of securities or maintain a short position. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices" and "Risk Considerations." The Fund may
borrow in order to purchase securities or make other investments, although it
currently intends to limit its ability to borrow to an amount not to exceed 25%
of its total assets. See "Risk Considerations--Effects of Borrowing."
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ("Corporate Bond") is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
The Fund follows an investment strategy which in certain respects can be
regarded as more aggressive than the strategies of many other funds investing
primarily in corporate bonds. In this regard, the Fund's investment portfolio
normally tends to have a relatively long average maturity and duration, and to
place significant emphasis on both foreign corporate and sovereign debt
obligations and corporate bonds that are expected to benefit from improvement
in their issuers' credit fundamentals. Consequently, in recent years the Fund
frequently has experienced greater net asset value volatility than most other
corporate bond funds. Prospective investors in the Fund should therefore be
prepared to accept the degree of volatility associated with its investment
strategy. See "Risk Considerations."
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered investment grade or higher. The remainder of the Fund's
assets may be invested in lower-rated fixed-income securities. See "Risk
Considerations--Securities Ratings," "--Investment in Fixed-Income Securities
Rated Baa and BBB," "--Investment in Lower-Rated Fixed-Income Securities" and
Appendix A. During the fiscal year ended June 30, 1998, on a weighted average
basis, the percentages of the Fund's assets invested in securities rated (or
considered by Alliance to be of equivalent quality to securities rated) in
particular rating categories were 24% in A and above, 51% in Baa or BBB, 22% in
Ba or BB, 3% in B, 1% in CC, 1% in CCC and 1% in non rated securities.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities
and sovereign debt obligations. Not more than 15% of the Fund's total assets
may be invested in sovereign debt obligations in the form of foreign
government loan participations and assignments, which may be lower rated and
considered to be predominantly speculative as regards the issuer's capacity to
pay interest and repay principal. All of the Fund's investments, whether
foreign or domestic, are U.S. Dollar-denominated.
Within the foregoing limitations, the Fund has complete flexibility as to the
types of securities in which it will invest and the relative proportions
thereof, and the Fund plans to vary the proportions of its holdings of long-
and short-term fixed-income securities and of equity securities in order to
reflect its assessment of prospective cyclical changes even if such action may
adversely affect current income. However, substantially all of the Fund's
investments will be income producing. The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between one
year or less and 30 years.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through
mortgage-related securities. As a matter of fundamental policy, the Fund will
not purchase illiquid securities. For additional information on the use, risks
and costs of these practices, see "Additional Investment Practices."
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund, Inc. ("High Yield") is a diversified management
investment company that seeks primarily to achieve high total return by
maximizing current income and, to the extent consistent with that objective,
capital appreciation. The Fund pursues this objective by investing primarily in
a diversified mix of high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of principal and income than
higher quality fixed-income securities. The below investment grade debt
securities in which the Fund invests are known as "junk bonds." The Fund is
managed to maximize current income by taking advantage of market developments,
yield disparities and variations in the creditworthiness of issuers. The Fund
uses various strategies in attempting to achieve its objective.
22
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in high yield fixed-income securities rated below investment grade by
two or more NRSROs (i.e., rated lower than Baa by Moody's or lower than BBB by
S&P) or unrated but deemed by Alliance to be equivalent to such lower-rated
securities. The Fund will not, however, invest more than 10% of its total
assets in (i) fixed-income securities which are rated lower than B3 or B- or
their equivalents by two or more NRSROs or if unrated are of equivalent quality
as determined by Alliance, and (ii) money market instruments of any entity
which has an outstanding issue of unsecured debt that is rated lower than B3 or
B- or their equivalents by two or more NRSROs or if unrated is of equivalent
quality as determined by Alliance.
As of August 31, 1998, on a weighted average basis, the percentages of the
Fund's assets invested in securities rated (or considered by Alliance to be of
equivalent quality to securities rated) in particular rating categories were 5%
in A and above, 4% in Ba or BB, 73% in B, 5% in CCC and 13% in unrated
securities. The Fund did not invest in securities rated below CCC by each of
Moody's, S&P, Duff & Phelps and Fitch or, if not rated, considered by Alliance
to be of equivalent quality to securities so rated.
Certain of the Fund's investments may be in fixed-income securities which
provide high current yields because of risks other than credit. For example,
the Fund may invest in securities which have prepayment risks, and non-U.S.
dollar denominated foreign securities, which have currency risks.
See Appendix A, "Bond Ratings," for a description of each rating category. In
the event that any securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and may continue to
hold such securities if, in the opinion of Alliance, such investment is
considered appropriate under the circumstances.
A portion of the Fund's assets may be invested in foreign securities, and the
Fund may buy and sell foreign currencies principally for the purpose of
preserving the value of foreign securities or in anticipation of purchasing
foreign securities. See "Risk Considerations--Foreign Investment" and
"--Currency Considerations."
In addition, and although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed and
asset-backed securities, (ii) enter into repurchase agreements, (iii) invest in
loan participations and assignments of loans to corporate, governmental, or
other borrowers originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of securities and
purchase and sell securities on a when-issued or delayed delivery basis, (v)
write covered put and call options on fixed-income securities, securities
indices and foreign currencies and purchase put or call options on fixed-income
securities, securities indices and foreign curencies, (vi) purchase and sell
futures contracts and related options on debt securities and on indices of debt
securities, (vii) enter into contracts for the purchase or sale of a specific
currency for hedging purposes only, and (viii) lend portfolio securities. For
additional information on the uses, risks and costs of these practices, see
"Additional Investment Practices."
In addition to the foregoing, the Fund may from time to time make investments
in (i) U.S. Government securities, (ii) certificates of deposit, bankers'
acceptances, bank notes, time deposits and interest bearing savings deposits
issued or guaranteed by certain domestic and foreign banks, (iii) commercial
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not rated, issued
by domestic or foreign companies having high quality outstanding debt
securities) and participation interests in loans extended by banks to such
companies, (iv) corporate debt obligations with remaining maturities of less
than one year rated at least high quality as well as corporate debt obligations
rated at least high grade provided the corporation also has outstanding an
issue of commercial paper rated at least A-1 by S&P or Prime-1 Moody's, and (v)
floating rate or master demand notes.
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. A Fund may take a significant
position in those derivatives that are within its investment policies if, in
Alliance's judgement, this represents the most effective response to current or
anticipated market conditions. MULTI-MARKET STRATEGY, HIGH YIELD and GLOBAL
STRATEGIC INCOME, in particular, generally make extensive use of carefully
selected forwards and other derivatives to achieve the currency hedging
23
that is an integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control from the
standpoint of each Fund's investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments--options, futures,
forwards and swaps--from which virtually any type of derivative transaction can
be created.
OPTIONS--An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, and a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
is obligated to sell (in the case of a call option) or to purchase (in the case
of a put option) the underlying asset (or settle for cash an amount based on an
underlying asset, rate or index).
FUTURES--A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
FORWARDS--A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
SWAPS--A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to calculate
the payment streams but is not exchanged. With respect to currency swaps,
actual principal amounts of currencies may be exchanged by the counterparties
at the initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See "Indexed Commercial Paper"
and "Structured Securities" below. The term "derivative" is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under "Mortgage-Related Securities" and "Other
Asset-Backed Securities."
Derivatives involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. Following is a general
discussion of important risk factors and issues concerning the use of
derivatives that investors should understand before investing in a Fund.
MARKET RISK--This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
MANAGEMENT RISK--Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio,
and the ability to forecast price, interest rate or currency exchange rate
movements correctly.
CREDIT RISK--This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a "counterparty") to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
24
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
LIQUIDITY RISK--Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
LEVERAGE RISK--Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
OTHER RISKS--Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a 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 a Fund is covered if the Fund holds a
put option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as "cross-hedging." A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved with other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND and HIGH YIELD generally purchase or write privately negotiated options on
securities. A Fund that does so will effect such 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 counterparties.
Privately negotiated options purchased or written by a Fund may be illiquid,
and it may not be possible for the Fund to effect a closing transaction at an
advantageous time. See "Illiquid Securities" below. Neither MORTGAGE
SECURITIES INCOME nor CORPORATE BOND will purchase an option on a security if,
immediately thereafter, the aggregate cost of all outstanding options purchased
by such Fund would exceed 2% of the Fund's total assets. Nor will either such
Fund write an option if, immediately thereafter, the aggregate value of the
Fund's portfolio securities subject to outstanding options would exceed 15% of
the Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an
25
option on a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in the case of a
put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated securities held by a Fund and against increases in the
U.S. Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, and
GLOBAL STRATEGIC INCOME may invest in rights and warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants, and GLOBAL STRATEGIC INCOME may
invest in rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights are similar to
warrants except that they have a substantially shorter duration. Rights and
warrants do not carry with them dividend or voting rights with respect to the
underlying securities, or any rights in the assets of the issuer. As a result,
an investment in rights and warrants may be considered more speculative than
certain other types of investments. In addition, the value of a right or a
warrant does not necessarily change with the value of the underlying
securities, and a right or a warrant ceases to have value if it is not
exercised prior to its expiration date. GLOBAL STRATEGIC INCOME may invest up
to 20% of its total assets in rights and warrants.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery of futures
contracts upon exercise. Options on futures contracts written or purchased by a
Fund will be traded on U.S. or foreign exchanges and, except with respect to
SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC INCOME, will be used only for
hedging purposes.
LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL STRATEGIC INCOME will not enter into a futures contract or
write or purchase an option on a futures contract if immediately thereafter the
market values of the outstanding futures contracts of the Fund and the
currencies and futures contracts subject to outstanding options written by the
Fund would exceed 50% of its total assets. MORTGAGE SECURITIES INCOME will not
write or purchase options on futures contracts. Nor will LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter into a futures contract or,
if otherwise permitted, write or purchase an option on a futures contract, if
immediately thereafter the aggregate of initial margin deposits on all the
outstanding futures contracts of the Fund and premiums paid on outstanding
options on futures contracts would exceed 5% of the market value of the total
assets of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i) other than one on
fixed-income securities or based on interest rates, or (ii) if immediately
thereafter the sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be delivered under
open futures contract purchases would exceed 30% of the value of the Fund's
total assets.
HIGH YIELD will not purchase or sell futures contracts or options on futures
contracts unless either (i) the futures contracts or options thereon are for
"bona fide hedging" purposes (as that term is defined under the Commodities
Futures Trading Commission regulations) or (ii) if for other purposes, the sum
of amounts of initial margin deposits and premiums required to establish
non-hedging positions would not exceed 5% of the Fund's liquidation value.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC INCOME intend to use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR (to which many short-term borrowings and floating rate securities in
which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward foreign currency exchange contracts ("forward contracts") attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A 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 (a "transaction hedge"). When a 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 (a "position hedge"). Instead of entering into a position
hedge, a 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
26
decline in the U.S. Dollar value of the currency in which portfolio securities
of the Fund are denominated (a "cross-hedge").
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a "when, as and if issued" trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT or GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than 25% of the total
assets of GLOBAL STRATEGIC INCOME and 30% of the total assets of each of the
other Funds.
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may realize a gain
or incur a loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or "notional") amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC
INCOME may enter into interest rate swaps involving payments in the same
currency or in different currencies. SHORT-TERM U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND will not enter into an interest rate
swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is then rated in the highest
rating category of at least one NRSRO. Each of MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will enter into interest
rate swap, cap or floor transactions with its respective custodian, and with
other counterparties, but only if: (i) for transactions with maturities under
one year, such other counterparty has outstanding prime commercial paper; or
(ii) for transactions with maturities greater than one year, the counterparty
has high quality debt securities outstanding.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
27
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a 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. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% or 25% with
respect to GLOBAL STRATEGIC INCOME, of their respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, 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
is at the option of the issuer, a 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.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of the
issuer to borrow from the U.S. Treasury or backed only by the credit of the
issuing agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full faith
and credit of the United States and differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less with no interest paid and hence issued at a discount and repaid at full
face value upon maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable every six months) and U.S. Treasury bonds (generally
maturities of greater than ten years with interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the U.S.
Government, such as securities issued by GNMA, the Farmers Home Administration,
the Department of Housing and Urban Development, the Export-Import Bank, the
General Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit of the
U.S. Government, such as securities issued by FNMA and FHLMC, and governmental
CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
"Mortgage-Related Securities" below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See "Mortgage-Related Securities" and "Zero Coupon and Principal-Only
Securities" below. Although these stripped securities are purchased and sold by
institutional investors through several investment banking firms acting as
brokers or dealers, these securities were only recently developed. As a result,
established trading markets have not yet developed and, accordingly, these
securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are
28
backed by the full faith and credit of the United States; those issued by FNMA
and FHLMC are not so backed. Mortgage-related securities bear interest at
either a fixed rate or an adjustable rate determined by reference to an index
rate. Mortgage-related securities frequently provide for monthly payments that
consist of both interest and principal, unlike more traditional debt
securities, which normally do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
One type of mortgage-related security is of the "pass-through" variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of whether payments are actually made
on the underlying mortgages.
Another form of mortgage-related security is a "pay-through" security, which is
a debt obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. Collateralized
mortgage obligations (CMOs) are the predominant type of "pay-through"
mortgage-related security. In a CMO, a series of bonds or certificates is
issued in multiple classes. Each class of a CMO, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral underlying a CMO
may cause one or more tranches of the CMO to be retired substantially earlier
than the stated maturities or final distribution dates of the collateral. The
principal and interest on the underlying mortgages may be allocated among
several classes of a series of a CMO in many ways. In a common structure,
payments of principal, including any principal prepayments, on the underlying
mortgages are applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates, so that no
payment of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid in
full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float," at a specified increment over an index such as LIBOR.
Floating-rate CMOs may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized for this purpose.
Floating-rate CMOs are typically issued with lifetime caps on the coupon rate
thereon. These caps, similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a floating-rate CMO
may not be increased regardless of increases in the interest rate index to
which the floating-rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of mortgage-backed bonds
or pass-through securities. CMOs may be issued by a U.S. Government
instrumentality or agency or by a private issuer. Although payment of the
principal of, and interest on, the underlying collateral securing privately
issued CMOs may be guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
obligations solely of the private issuer and are not insured or guaranteed by
GNMA, FNMA, FHLMC, any other governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
29
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets; while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Changes in
the values of IOs and POs can be substantial and occur quickly, such as
occurred in the first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayments of underlying mortgages. Such prepayments generally occur during
periods of falling mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event, a Fund
may be unable to invest the proceeds from the early payment of the
mortgage-related securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities.
The occurrence of mortgage prepayments is affected by the level of general
interest rates, general economic conditions and other social and demographic
factors. During periods of falling interest rates, the rate of mortgage
prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. Conversely, during periods of rising interest
rates, a reduction in prepayments may increase the effective life of
mortgage-related securities, subjecting them to greater risk of decline in
market value in response to rising interest rates. If the life of a
mortgage-related security is inaccurately predicted, a Fund may not be able to
realize the rate of return it expected.
Although the market for mortgage-related securities is becoming increasingly
liquid, those issued by certain private organizations may not be readily
marketable. In particular, the secondary markets for CMOs, IOs and POs may be
more volatile and less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell those securities
at any particular time.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such an adverse effect
is especially possible with fixed-rate mortgage securities. If the yield
available on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rates of
mortgage prepayments and early payments of mortgage-related securities
generally tend to decline during a period of rising interest rates.
Although the values of ARMS may not be affected as much as the values of
fixed-rate mortgage securities by rising interest rates, ARMS may still decline
in value as a result of rising interest rates. Although, as described above,
the yields on ARMS vary with changes in the applicable interest rate or index,
there is often a lag between increases in general interest rates and increases
in the yield on ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often have interest rate
or payment caps that limit the ability of the adjustable-rate mortgages or ARMS
to fully reflect increases in the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome
30
to perfect the interest of the security issuer in the underlying collateral and
the underlying collateral may become damaged or stolen.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and "lock in" a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons is the
Treasury bill. Although the U.S. Treasury does not itself issue Treasury notes
and bonds without coupons, under the U.S. Treasury STRIPS program interest and
principal payments on certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be separately
traded and owned. In addition, in the last few years a number of banks and
brokerage firms have separated ("stripped") the principal portions from the
coupon portions of U.S. Treasury bonds and notes and sold them separately in
the form of receipts or certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a custodial or
trust account). The staff of the Commission has indicated that, in its view,
these receipts or certificates should be considered as securities issued by the
bank or brokerage firm involved and, therefore, should not be included in a
Fund's categorization of U.S. Government securities. The Funds disagree with
the staff's position but will not treat such securities as U.S. Government
securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see "Dividends, Distributions and Taxes--Zero
Coupon Treasury Securities" in the Statement of Additional Information of each
Fund that is permitted to invest in such securities.
GLOBAL STRATEGIC INCOME and CORPORATE BOND may also invest in "pay-in-kind"
debentures (i.e., debt obligations the interest on which may be paid in the
form of obligations of the same type rather than cash), which have
characteristics similar to zero coupon securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A "variable" interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or "cap." The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME and CORPORATE BOND may invest represent interests in
entities organized and operated solely for the purpose of restructuring the
investment characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND. This type of restructuring involves
the deposit with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady Bonds) and the
issuance by that entity of one or more classes of structured securities backed
by, or representing interests in, the underlying instruments. The cash flow on
the underlying instruments may be apportioned among the newly issued
31
structured securities to create securities with different investment
characteristics such as varying maturities, payment priorities and interest
rate provisions, and the extent of the payments made with respect to structured
securities is dependent on the extent of the cash flow on the underlying
instruments. Because structured securities typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments. Structured securities of a given class may be either
subordinated or unsubordinated to the right of payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities. GLOBAL DOLLAR
GOVERNMENT may invest up to 25% of its total assets, and GLOBAL STRATEGIC
INCOME and CORPORATE BOND may invest without limit, in these types of
structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender.
The assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign government
securities, with respect to CORPORATE BOND and HIGH YIELD, is restricted by the
governing documentation as to the nature of the assignee such that the only way
in which the Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of assignments and
participations because to do so it will have to assign such securities to a
third party. Because there may not be a liquid market for such investments,
they can probably be sold only to a limited number of institutional investors.
The lack of a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its liquidity needs in
response to a specific economic event such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
participations and assignments also may make it more difficult for the Fund to
assign a value to these investments for purposes of valuing the Fund's
portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest up to 25%, and
CORPORATE BOND may invest up to 15%, of their total assets, in loan
participations and assignments. The government that is the borrower on the loan
will be considered by a Fund to be the issuer of a loan participation or
assignment for purposes of its fundamental investment policy that it may not
invest 25% or more of its total assets in securities of issuers conducting
their principal business activities in the same industry (i.e., foreign
government).
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the "Brady Plan"). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a
32
convertible security will normally vary with changes in the price of the
underlying equity security, although the higher yield tends to make the
convertible security less volatile than the underlying equity security. As with
debt securities, the market value of convertible securities tends to decrease
as interest rates rise and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality, they enable investors to
benefit from increases in the market price of the underlying common stock.
Convertible debt securities that are rated Baa or lower by Moody's or BBB or
lower by S&P, Duff & Phelps or Fitch and comparable unrated securities may
share some or all of the risks of debt securities with those ratings. For a
description of these risks, see "Risk Considerations--Investment in Lower-Rated
Fixed-Income Securities."
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, is not to be delivered upon
consummation of the sale. A short sale is "against the box" if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation that the market
price of that security will decline. When the Fund makes a short sale of a
security that it does not own, it must borrow from a broker-dealer the security
sold short and deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow particular
securities and is often obligated to pay over any payments received on such
borrowed securities. The Fund's obligation to replace the borrowed security
will be secured by collateral deposited with a broker-dealer qualified as a
custodian. 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 order to defer realization of gain or loss for U.S. federal income tax
purposes, GLOBAL STRATEGIC INCOME may also make short sales "against the box"
of securities which are eligible for such deferal. The Fund may not make a
short sale, if as a result, more than 25% of its total assets would be held as
collateral for short sales.
If the price of the security sold short increases between the time of the short
sale and the time a 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 a Fund's gain is limited to the
price at which it sold the security short, its potential loss is theoretically
unlimited.
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 a Fund to
keep all of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a 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, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of New York),
although LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT currently enter into repurchase
agreements only with their custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the "drop")
as well as by the interest earned on the cash proceeds of the initial sale.
33
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. SHORT-TERM U.S. GOVERNMENT may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar rolls with respect
to greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase agreements with
commercial banks and registered broker-dealers in order to increase income, in
an amount up to 25% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL STRATEGIC INCOME will not
exceed 25% of its total assets. See "Risk Considerations--Effects of Borrowing."
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other secured extensions of credit, consist of possible loss of rights in
the collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
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. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 50%, with
respect to HIGH YIELD, 25%, with respect to SHORT-TERM U.S. GOVERNMENT and
GLOBAL STRATEGIC INCOME, and 20%, with respect to each of LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT, of its total assets, nor will a
Fund lend portfolio securities to any officer, director, employee or affiliate
of the Fund or Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many 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. Rule
144A securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that are different from
or exceed those involved in the practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities, including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. For a complete description of the types of
securities in which a Fund may invest while in a temporary defensive position,
see the Fund's Statement of Additional Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under "Financial
Highlights." These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
"Dividends, Distributions and Taxes" in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
LIMITED MATURITY GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer or own more than 10% of the outstanding
voting securities of such issuer (other than U.S. Government securities),
except that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of the Fund's
total assets, and (iv) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or U.S. Government securities,
(iii) borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might require the untimely
disposition of securities, borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not exceed 5% of the
value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made, outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any subsequent investments are made, (iv) pledge,
hypothecate, mortgage or otherwise encumber its assets, except in an amount of
not more than 15% of the value of its total assets to secure borrowings for
temporary or emergency purposes and except as provided in (vi) below, provided,
however, that this limitation does not apply to deposits made in connection
with the entering into and holding of interest rate futures contracts, (v)
invest more than 10% of the value of its total assets in the aggregate in
illiquid securities or other illiquid investments and repurchase agreements
maturing in more than seven days, or (vi) lend its portfolio securities if
immediately after such a loan more than 20% of the value of the Fund's total
assets would be subject to such loans.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
35
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, (b) borrow
for temporary or emergency purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, and (c) enter into reverse repurchase
agreements and dollar rolls, (iv) pledge, hypothecate, mortgage or otherwise
encumber its assets, except to secure permitted borrowings, or (v) purchase a
security if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own more than 3% of the
total outstanding voting stock of any investment company or more than 5% of the
value of the Fund's net assets would be invested in securities of any one or
more investment companies.
GLOBAL STRATEGIC INCOME may not (i) borrow money, except the Fund may, in
accordance with provisions of the 1940 Act, (a) borrow from a bank, if after
such borrowing there is asset coverage of at least 300% as defined in the 1940
Act, (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, and (c) enter into reverse
repurchase agreements and dollar rolls, or (ii) pledge, hypothecate, mortgage
or otherwise encumber its assets, except to secure permitted borrowings.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.
HIGH YIELD may not (i) invest in any one industry if that investment would make
the Fund's holding in that industry exceed 25% of the Fund's total assets and
(ii) will not make an investment unless, when considering all its other
investments, 75% of the value of its assets would consist of cash, cash items,
U.S. Government Securities, securities of other investment companies and other
securities.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities will generally rise, although
if falling interest rates are viewed as a precursor to a recession, the values
of a Fund's securities may fall along with interest rates. Conversely, during
periods of rising interest rates, the values of a Fund's securities will
generally decline. Changes in interest rates have a greater effect on
fixed-income securities with longer maturities and durations than those with
shorter maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but will be reflected in the net asset value of a
Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT and HIGH YIELD invest may include
securities issued in connection with corporate restructurings such as takeovers
or leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Furthermore, the
market price of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize. The Funds may also
invest in U.S. corporate fixed-income securities that are not current in the
payment of interest or principal or are in default, so long as Alliance
believes such investment is consistent with the Fund's investment objectives.
The Funds' rights with respect to defaults on such securities will be subject
to applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. 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, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities registration,
custody and settlements may in some instances be subject to delays and legal
and administrative uncertainties. Furthermore, foreign investment in the
securities markets of certain foreign countries is restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude
investment in certain securities and may increase the cost and expenses of a
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain advance
government notification or authority, and if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances. A Fund could also be adversely affected by
delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may
36
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these factors
exists could be affected, and Alliance will monitor the effect of any such
factor or factors on a Fund's investments. Furthermore, transaction costs
including brokerage commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in that country. In the event of nationalization,
expropriation or other confiscation, a Fund could lose its entire investment in
securities in the country involved. In addition, laws in foreign countries
governing business organizations, bankruptcy and insolvency may provide less
protection to security holders such as the Fund than that provided by U.S. laws.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a
material adverse effect on the Fund's investments in the securities of Mexican
and other non-Canadian foreign issuers, including investments in securities
denominated in Mexican Pesos or other non-Canadian foreign currencies. If not
hedged, however, currency fluctuations could affect the unrealized appreciation
and depreciation of Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks, a Fund may engage in certain currency hedging transactions, which
themselves involve certain special risks. See "Additional Investment Practices"
above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT and GLOBAL
STRATEGIC INCOME will invest. Reduced secondary market liquidity may have an
adverse effect on the market price and a Fund's ability to dispose of
particular instruments when necessary to meet its liquidity requirements or in
response to specific economic events such as a deterioration in the
creditworthiness of the issuer. Reduced secondary market liquidity for certain
sovereign debt obligations may also make it more difficult for a Fund to obtain
accurate market quotations for the purpose of valuing its portfolio. Market
quotations are generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring
37
agreements may affect the economic performance and political and social
stability of those issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Funds' investment objectives.
The Funds may have limited legal recourse in the event of a default with
respect to certain sovereign debt obligations it holds. For example, remedies
from defaults on certain sovereign debt obligations, unlike those on private
debt, must, in some cases, be pursued in the courts of the defaulting party
itself. Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return than if a Fund were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset
value per share than if the Fund were not leveraged. In an extreme case if a
Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by MULTI-MARKET
STRATEGY, GLOBAL STRATEGIC INCOME or NORTH AMERICAN GOVERNMENT INCOME could
adversely affect the Funds' shareholders, as noted above, or in anticipation
of such changes, each Fund may increase the percentage of its investment
portfolio invested in U.S. Government securities, which would tend to offset
the negative impact of leverage on Fund shareholders. Each Fund may also
reduce the degree to which it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is "asset coverage," as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
38
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance and
such sales could cause the Fund to incur related transaction costs and to
realize taxable gains.
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
STRATEGIC INCOME and GLOBAL DOLLAR GOVERNMENT may borrow to repurchase its
shares or to meet redemption requests. In addition, each Fund may borrow for
temporary purposes (including the purposes mentioned in the preceding sentence)
in an amount not exceeding 5% of the value of the assets of the Fund.
Borrowings for temporary purposes are not subject to the 300% asset average
limit described above. See "Certain Fundamental Investment Policies."
SHORT-TERM U.S. GOVERNMENT, LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC
INCOME may also borrow through the use of reverse repurchase agreements, and
GLOBAL DOLLAR GOVERNMENT, LIMITED MATURITY GOVERNMENT and GLOBAL STRATEGIC
INCOME also through the use of dollar rolls to the extent permitted by the 1940
Act. See "Investment Objectives and Policies--Reverse Repurchase Agreements and
Dollar Rolls."
INVESTMENT IN THE BANKING INDUSTRY. Due to its investment policies with respect
to investments in the banking industry, MULTI-MARKET STRATEGY will have greater
exposure to the risk factors which are characteristic of such investments. In
particular, the value of and investment return on the Fund's shares will be
affected by economic or regulatory developments in or related to the banking
industry. Sustained increases in interest rates can adversely affect the
availability and cost of funds for a bank's lending activities, and a
deterioration in general economic conditions could increase the exposure to
credit losses. The banking industry is also subject to the effects of the
concentration of loan portfolios in particular businesses such as real estate,
energy, agriculture or high technology-related companies; competition within
those industries as well as with other types of financial institutions; and
national and local governmental regulation. In addition, the Fund's investments
in commercial banks located in several foreign countries are subject to
additional risks due to the combination in such banks of commercial banking and
diversified securities activities. As discussed above, however, the Fund will
seek to minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with respect to the
issuer's ability to pay interest and repay principal. Securities rated B are
judged to have highly speculative elements or to be predominantly speculative.
Such securities may have small assurance of interest and principal payments.
Securities rated Baa by Moody's are also judged to have speculative
characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH YIELD when Alliance believes
that the financial condition of the issuers of such securities, or the
protection afforded by the terms of the securities themselves,
39
limits the risk to the Fund to a degree comparable to that of rated securities
which are consistent with the Fund's objective and policies.
NON-DIVERSIFIED STATUS. Each of MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME 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, each Fund intends to conduct its operations so as to qualify
to be taxed as a "regulated investment company" for purposes of the Code, which
will relieve the Fund of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information. To so qualify, among
other requirements, each Fund will limit its investments so that, at the close
of each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will
be invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities are not subject to these limitations.
Because each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME is a non-diversified investment
company, it may invest in a smaller number of individual issuers than a
diversified investment company, and an investment in such Fund may, under
certain circumstances, present greater risk to an investor than an investment
in a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, each of GLOBAL STRATEGIC INCOME and NORTH AMERICAN GOVERNMENT INCOME
will be required to diversify its portfolio of foreign government securities in
a manner which would not be necessary if the Fund had made similar investments
in U.S. Government securities.
YEAR 2000 AND EURO. Many computer systems and applications in use today process
transactions using two-digit date fields for the year of the transaction,
rather than the full four digits. If these systems are not modified or
replaced, transactions occurring after 1999 could be processed as year "1900",
which could result in processing inaccuracies and computer system failures.
This is commonly known as the Year 2000 problem. In addition to the Year 2000
problem, the European Economic and Monetary Union has established a single
currency, the Euro Currency ("Euro") that will replace the national currency of
certain European countries effective January 1, 1999. Computer systems and
applications must be adapted in order to be able to process Euro sensitive
information accurately beginning in 1999. Should any of the computer systems
employed by the Funds' major service providers fail to process Year 2000 or
Euro related information properly, that could have a significant negative
impact on the Funds' operations and the services that are provided to the
Funds' shareholders. In addition, to the extent that the operations of issuers
of securities held by the Funds are impaired by the Year 2000 problem or the
Euro, or prices of securities held by the Funds decline as a result of real or
perceived problems relating to the Year 2000 or the Euro, the value of the
Funds' shares may be materially affected.
With respect to the Year 2000, the Funds have been advised that the Adviser,
Principal Underwriter and Transfer Agent (collectively, "Alliance") began to
address the Year 2000 issue several years ago in connection with the
replacement or upgrading of certain computer systems and applications. During
1997, Alliance began a formal Year 2000 initiative, which established a
structured and coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000 issues on its
domestic and international computer systems and applications. Currently,
management of Alliance expects that the required modifications for the majority
of its significant systems and applications that will be in use on January 1,
2000, will be completed and tested by the end of 1998. Full integration testing
of these systems and testing of interfaces with third-party suppliers will
continue through 1999. At this time, management of Alliance believes that the
costs associated with resolving this issue will not have a material adverse
effect on its operations or on its ability to provide the level of services it
currently provides to the Funds.
With respect to the Euro, the Funds have been advised that Alliance has
established a project team to assess changes that will be required in
connection with the introduction of the Euro. Alliance reports that its project
team has assessed all systems, including those developed or managed internally,
as well as those provided by vendors, in order to determine the modifications
that will be required to process accurately transactions denominated in Euro
after 1998. At this time, management of Alliance expects that the required
modifications for the introduction of the Euro will be completed and tested
before the end of 1998. Management of Alliance believes that the costs
associated with resolving this issue will not have a material adverse effect on
its operations or on its ability to provide the level of services it currently
provides to the Funds.
The Funds and Alliance have been advised by the Funds' Custodians that they are
also in the process of reviewing their systems with the same goals. As of the
date of this prospectus, the Funds and Alliance have no reason to believe that
the Custodians will be unable to achieve these goals.
40
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds at a price based on the next
calculated net asset value after receipt of a proper purchase order either
through broker-dealers, banks or other financial intermediaries, or directly
through Alliance Fund Distributors, Inc. ("AFD"), each Fund's principal
underwriter. The minimum initial investment in each Fund (whether by cash or
through exchange from another Alliance Mutual Fund) is $250. The minimum for
subsequent investments in each Fund is $50. Investments of $25 or more are
allowed under the automatic investment program of each Fund. Share certificates
are issued only upon request. See the Subscription Application and Statements
of Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling 800-221-5672
and may not exceed $500,000.
Each Fund offers three classes of shares through this Prospectus, Class A,
Class B and Class C. The Funds may refuse any order to purchase shares. In this
regard, the Funds reserve the right to restrict purchases of Fund shares
(including through exchanges) when they appear to evidence a pattern of
frequent purchases and sales made in response to short-term considerations.
CLASS A SHARES--INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------------------------------------------------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less
than $250,000 3.36 3.25 3.00
$250,000 to less
than $500,000 2.30 2.25 2.00
$500,000 to less
than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced
or eliminated sales charges in accordance with a 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 Statements of Additional
Information.
CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. A Fund will thus receive the full amount of your purchase. However, you
may pay a CDSC if you redeem shares within three years (four years in the case
of GLOBAL STRATEGIC INCOME and HIGH YIELD) after purchase. The amount of the
CDSC (expressed as a percentage of the lesser of the current net asset value or
original cost) will vary according to the number of years from the purchase of
Class B shares until the redemption of those shares.
The amount of the CDSC for Class B shares for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
GLOBAL STRATEGIC INCOME and HIGH YIELD:
- ---------------------------------------
Year Since Purchase CDSC
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
ALL OTHER FUNDS:
- ---------------------------------------
Year Since Purchase CDSC
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years, eight years in the case of GLOBAL STRATEGIC INCOME and
HIGH YIELD (after which they convert to Class A shares). The higher fees mean a
higher expense ratio, so Class B shares pay correspondingly lower dividends and
may have a lower net asset value than Class A shares.
CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at net asset value without any initial sales
charge. A Fund will thus receive the full amount of your purchase, and, if you
hold your shares for one year or more, you will receive the entire net asset
value of your shares upon redemption. Class C shares incur higher distribution
fees than Class A shares and do not convert to any other class of shares of the
Fund. The higher fees mean a higher expense ratio, so Class C shares pay
correspondingly lower dividends and may have a lower net asset value than Class
A shares.
Class C shares redeemed within one year of purchase will be subject to a CDSC
equal to 1% of the lesser of their original cost or net asset value at the time
of redemption.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC. The CDSC is deducted from the amount of the redemption and is paid to
AFD. The CDSC will be
41
waived on redemptions of shares following the death or disability of a
shareholder, to meet the requirements of certain qualified retirement plans or
pursuant to a monthly, bimonthly or quarterly systematic withdrawal plan. See
the Statements of Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the Exchange is open as of the
close of regular trading (currently 4:00 p.m. Eastern time). The securities in
a Fund are valued at their current market value determined on the basis of
market quotations or, if such quotations are not readily available, such other
methods as the Fund's Directors or Trustees believe accurately reflect fair
market value.
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 of the Funds, including maximum and minimum initial investment
requirements, that are different from those described in this Prospectus.
Employee Benefit Plans may also not offer all classes of shares of the Funds.
In order to enable participants investing through Employee Benefit Plans to
purchase shares of the Funds, 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.
GENERAL
The decision as to which class of shares is most beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there is no initial sales charge and, as long as the shares are held
for one year or more, no CDSC. Consult your financial agent. Dealers and agents
may receive differing compensation for selling Class A, Class B or Class C
shares. There is no size limit on purchases of Class A shares. The maximum
purchase of Class B shares is $250,000. The maximum purchase of Class C shares
is $1,000,000.
GLOBAL STRATEGIC INCOME and HIGH YIELD offer a fourth class of shares, Advisor
Class shares, by means of separate prospectuses. Advisor Class shares may be
purchased and held solely by (i) accounts established under a fee-based program
sponsored and maintained by a registered broker-dealer or other financial
intermediary and approved by AFD, (ii) a self-directed defined contribution
employee benefit plan (e.g., a 401(k) plan) that has at least 1,000
participants or $25 million in assets and (iii) certain other categories of
investors described in the prospectuses for the Advisor Class, including
investment advisory clients of, and certain other persons associated with,
Alliance and its affiliates or the Funds. Advisor Class shares are offered
without any initial sales charge or CDSC and without an ongoing distribution
fee and are expected, therefore, to have different performance than Class A,
Class B or Class C shares. You may obtain more information about Advisor Class
shares by contacting AFS at 800-221-5672 or by contacting your financial
representative.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent, financial intermediary or other financial
representative with respect to the purchase, sale or exchange of Class A, Class
B or Class C shares made through such financial representative. Such financial
intermediaries may also impose requirements with respect to the purchase, sale
or exchange of shares that are different from, or in addition to, those imposed
by a Fund, including requirements as to the minimum initial and subsequent
investment amounts.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants Inc., an affiliate of AFD, in connection
with the sale of shares of the Funds. Such additional amounts may be utilized,
in whole or in part, in some cases together with other revenues of such dealers
or agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares in a Fund to the Fund) on
any day the Exchange is open, either directly or through your financial
intermediary. The price you will receive is the net asset value (less any
applicable CDSC) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will
not send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that
42
day's net asset value (less any applicable CDSC). Your broker is responsible
for furnishing all necessary documentation to a Fund and may charge you for
this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value, and, except for
certain omnibus accounts, may be made only once per day. A shareholder who has
completed the appropriate section of the Subscription Application, or the
Shareholder Options form obtained from AFS, can elect to have the proceeds of
his or her redemption sent to his or her bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a shareholder's
address of record. Redemption requests by electronic funds transfer may not
exceed $100,000 and redemption requests by check may not exceed $50,000.
Telephone redemption is not available for shares held in nominees or "street
name" accounts or retirement plan accounts or shares held by a shareholder who
has changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it fails to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Subscription Application. A shareholder
manual explaining all available services will be provided upon request. To
request a shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund business day in order to receive that
day's net asset value.
Shares will continue to age without regard to exchanges for the 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 AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of June 30, 1998 totaling more than $262 billion (of
which approximately $107 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 58 registered investment companies managed by Alliance
comprising 123 separate investment portfolios currently have over three million
shareholder accounts. As of June 30, 1998,
43
Alliance was retained as an investment manager for employee benefit plan assets
of 32 of the Fortune 100 companies.
Alliance Capital Management Corporation ("ACMC"), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA-UAP, a French insurance
holding company. Certain information concerning the ownership and control of
Equitable by AXA-UAP is set forth in each Fund's Statement of Additional
Information under "Management of the Fund."
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance.
Jeffrey S. Phlegar since 1997 Associated with
-Senior Vice President Alliance.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance.
Patricia J. Young since 1997 (see above)
-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Limited Maturity Patricia J. Young (see above)
Government since inception-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Mortgage Securities Patricia J. Young since (see above)
Income 1992-(see above)
Jeffrey S. Phlegar (see above)
since 1997-(see above)
Multi-Market Strategy Douglas J. Peebles since Associated with
inception-Senior Vice Alliance.
President
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
Global Strategic Wayne D. Lyski since inception (see above)
Income -(see above)
Douglas J. Peebles since (see above)
inception-(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since Associated with
January 1992-Vice Alliance.
President
High Yield Wayne C. Tappe Associated with
since 1991-Senior Alliance.
Vice President
Nelson Jantzen Associated with
since 1991-Senior Alliance.
Vice President
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the "Historical Portfolio")
of a registered investment company, sold only to separate accounts of insurance
companies in connection with variable life insurance contracts and variable
annuities certificates and contracts (the "Contracts"), that has substantially
the same investment objective and policies and has been managed in accordance
with essentially the same investment strategies and techniques as those of HIGH
YIELD. See "Description of the Funds." Alliance since July 22, 1993, and prior
thereto, Equitable Capital Management Corporation, whose advisory business
Alliance acquired on that date, have served as investment adviser to the
Historical Portfolio since its inception in 1987. Wayne C. Tappe, who together
with Nelson Jantzen is primarily responsible for the day-to-day management of
HIGH YIELD, has been the person principally responsible for the day-to-day
management of the Historical Portfolio since 1995.
The following tables set forth performance results for the Historical Portfolio
since its inception (January 2, 1987), together with those of HIGH YIELD and
the Lipper High Current Yield Mutual Funds Average as a comparative benchmark.
As of September 30, 1998, the assets in the Historical Portfolio totalled
approximately $ million.
The performance data do not reflect account charges applicable to the Contracts
or imposed at the insurance company separate account level, which, if
reflected, would lower the performance of the Historical Portfolio. In
addition, the performance data do not reflect the Fund's higher expenses,
which, if reflected, would lower the performance of the Historical Portfolio.
The performance data have not been adjusted for corporate or individual taxes,
if any, payable with respect to the Historical Portfolio. The rates of return
shown for the Historical Portfolio are not an estimate or guarantee of future
investment performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of the
performance of a large number of mutual funds the investment objective of each
of which is similar to that of the Fund. Nonetheless, the investment policies
pursued by Funds in the survey may differ from those of HIGH YIELD and the
Historical Portfolio. This survey is published by Lipper Analytical Services,
Inc. ("Lipper"), a firm recognized for its reporting of performance of actively
managed funds. According to Lipper, performance data are presented net of
investment management fees, operating expenses and, for funds with Rule 12b-1
plans, asset-based sales charges.
44
The performance results presented below are based on percent changes in net
asset values of the Historical Portfolio with dividends and capital gains
reinvested. Cumulative rates of return reflect performance over a stated period
of time. Annualized rates of return represent the rate of growth that would
have produced the corresponding cumulative return had performance been constant
over the entire period.
ANNUALIZED RATES OF RETURN
PERIODS ENDED SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -------------------------------------------------------------------------------
Historical Portfolio (4.84)% 12.39% 11.13% 11.20% 10.58%
Lipper High Current Yield
Mutual Funds Average (1.77) 8.23 7.78 9.18 8.85
High Yield 8.34**
CUMULATIVE RATES OF RETURN
PERIODS ENDING SEPTEMBER 30, 1998
- -------------------------------------------------------------------------------
PORTFOLIO/BENCHMARK 1 YEAR 3 YEARS 5 YEARS 10 YEARS INCEPTION*
- -------------------------------------------------------------------------------
Historical Portfolio (4.84)% 41.95% 69.47% 189.20% 226.05%
Lipper High Current Yield
Mutual Funds Average (1.77) 26.86 45.69 142.21 172.92
* JANUARY 2, 1987
** RATE OF RETURN IS ANNUALIZED, FOR CLASS A SHARES, ASSUMING IMPOSITION OF THE
MAXIMUM 4.25% SALES CHARGE. THE FUND COMMENCED OPERATIONS ON APRIL 22, 1997.
EXPENSES OF HIGH YIELD
In addition to the payments to Alliance under its Advisory Agreement, HIGH
YIELD pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses and
shareholder reports, (vi) costs of maintaining the Fund's existence, (vii)
interest charges, taxes, brokerage fees and commissions, (viii) costs of
stationary and supplies, (ix) expenses and fees related to registration and
filing with the Commission and with state regulatory authorities, and (x) upon
the approval of the Board of Directors, costs of personnel of Alliance or its
affiliates rendering clerical, accounting and other office services and (xi)
such promotional, shareholder servicing and other expenses as may be
contemplated by the Distribution Services Agreement, described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund
pays to AFD a Rule 12b-1 distribution services fee, which may not exceed an
annual rate of .30% (.50% with respect to SHORT-TERM U.S. GOVERNMENT) of the
Fund's aggregate average daily net assets attributable to the Class A shares,
1.00% of the Fund's aggregate average daily net assets attributable to the
Class B shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, for distribution expenses. The Trustees of
SHORT-TERM U.S. GOVERNMENT currently limit payments with respect to Class A
shares under the Plan to .30% of the Fund's aggregate average daily net assets
attributable to Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to
.25%, annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in a Fund
by their customers. Distribution services fees received from the Funds, except
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares will not be used to
pay any interest expenses, carrying charges or other financing costs or
allocation of overhead of AFD. Distribution services fees received from the
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each 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 Plans
of the other Funds 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
applicable Plan with respect to the class involved and, in the case of Class B
and Class C shares, payments received from CDSCs. The excess will be carried
forward by AFD and reimbursed from distribution services fees payable under the
Plan with respect to the class involved and, in the case of Class B and Class C
shares, payments subsequently received through CDSCs, so long as the Plan is in
effect. Since AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT
is not directly tied to its expenses incurred, the amount of compensation
received by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried
45
over for reimbursement in future years in respect of the Class B and Class C
shares for all Funds (except SHORT-TERM U.S. GOVERNMENT), were, as of that
time, as follows:
Amount of Unreimbursed Distribution Expenses
(As % of Net Assets of Class)
--------------------------------------------
Class B Class C
- -------------------------------------------------------------------------------
U.S. Government $ 7,204,946 (1.85%) $ 4,179,954 (3.65%)
Limited Maturity Government $ 356,382 (.56%) $ 2,860,904 (8.09%)
Mortgage Securities Income $10,423,667 (2.53%) $ 2,946,979 (9.52%)
Multi-Market Strategy $ 9,474,320 (4.15%) $ 553,610 (43.71%)
North American Government Income $36,319,865 (2.02%) $ 4,072,381
Global Dollar Government $ 4,281,388 (5.37%) $ 860,038 (3.63%)
Corporate Bond $13,555,599 (2.66%) $ 2,876,562 (1.13%)
Global Strategic Income $ 994,542 (9.91%) $ 188,869 (7.41%)
High Yield $11,190,075 (4.15%) $ 523,224 (1.08%)
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that
a change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
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 that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each 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 any Fund will be able to
do so. Furthermore, a shareholder's ability to claim a foreign tax credit or
deduction in respect of foreign taxes paid by a Fund may be subject to certain
limitations (including a holding period limitation) imposed by the Code, as a
result of which a shareholder may not be permitted to claim a full credit or
deduction for the amount of such taxes.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. So long as a Fund distributes at least 90% of its income,
qualification as a
46
regulated investment company relieves that Fund of Federal income taxes on that
part of its taxable income, including net capital gain, which it pays out to
its shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. The investment objectives of the Funds are such that only a small
portion, if any, of a Fund's distributions is expected to qualify for the
dividends-received deduction for corporate shareholders. In addition, corporate
shareholders who receive qualifying distributions must meet the holding-period
requirements in the Code in order to take the dividends-received deduction.
Distributions of net capital gain (i.e., the excess of net long-term capital
gain over net short-term capital loss) are taxable as long-term capital gain,
regardless of how long a shareholder has held shares in a Fund. Distributions
of net capital gain may be taxable at different rates depending on the length
of time a Fund holds its assets.
Under current federal tax law, the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. Any loss realized on the sale of shares held six months
or less will be a long-term capital loss to the extent of any distributions of
net capital gain received by the shareholder with respect to such shares.
A dividend or capital gains distribution with respect to shares of a 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.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's federal income tax return.
Under certain circumstances, if a 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 a Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant) any further returns of capital will be taxable as capital gain.
See "Dividends, Distributions and Taxes" in the Statements of Additional
Information. Shareholders will be advised annually as to the federal tax status
of dividends and capital gains and return of capital distributions made by a
Fund for the preceding year. Shareholders are urged to consult their tax
advisers regarding their own tax situation. Distributions by a Fund may be
subject to state and local taxes.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc., and subject to seeking best price and execution, a Fund may
consider sales of its shares as a factor in the selection of dealers to enter
into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(1983), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC. (1991), ALLIANCE NORTH
AMERICAN GOVERNMENT INCOME TRUST, INC. (1992), ALLIANCE GLOBAL DOLLAR
GOVERNMENT FUND, INC. (1993), ALLIANCE GLOBAL STRATEGIC INCOME TRUST, INC.
(1995) and ALLIANCE HIGH YIELD FUND, INC. (1996). Prior to March 1, 1996,
ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance Mortgage
Strategy Trust, Inc. Prior to January 4, 1993, CORPORATE BOND PORTFOLIO was
known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND is
a series of The Alliance Portfolios, a Massachusetts business trust that was
organized in 1987. Prior to August 2, 1993, The Alliance Portfolios was known
as The Equitable Funds and SHORT-TERM U.S. GOVERNMENT was known as The
Equitable Short-Term U.S. Government Fund.
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 or
Trustees.
A shareholder in a Fund will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from the
Fund's assets and, upon redeeming shares, will receive the then current net
asset value of the Fund represented by the redeemed shares less any applicable
CDSC. The Funds are 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
47
an additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors or Trustees, that affect
each portfolio and class in substantially the same manner. Class A, Class B and
Class C shares of each Fund have identical voting, dividend, liquidation and
other rights, except that each class bears its own distribution and transfer
agency expenses. Each class of shares of each Fund votes separately with
respect to a Fund's Rule 12b-1 distribution plan and other matters for which
separate class voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the Directors and
Trustees and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Since this Prospectus sets forth information about all the Funds,
it is theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another Fund.
Based on the advice of counsel, however, the Funds believe that the potential
liability of each Fund with respect to the disclosure in this Prospectus
extends only to the disclosure relating to that Fund. Certain additional
matters relating to a Fund's organization are discussed in its Statement of
Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
("Complaint") styled In re ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the U.S. District Court for the
Southern District of New York ("District Court") against the Fund, Alliance,
ACMC, AFD, The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of the Fund and
ACMC, alleging violations of the federal securities laws, fraud and breach of
fiduciary duty in connection with the Fund's investments in Mexican and
Argentine securities. The Complaint sought certification of a plaintiff class
of all persons who purchased or owned Class A, B or C shares of the Fund from
March 27, 1992 through December 23, 1994. Plaintiffs alleged that during 1995
the Fund's losses exceeded $750,000,000 and sought as relief unspecified
damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants' motion to dismiss
all counts of the Complaint ("First Decision"). On October 11, 1996, plaintiffs
filed a motion for reconsideration of the First Decision. On November 25, 1996,
the District Court denied plaintiffs' motion for reconsideration of the First
Decision. On October 29, 1997, the United States Court of Appeals for the
Second Circuit ("Court of Appeals") issued an order granting defendants' motion
to strike and dismissing plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file an amended
complaint ("Amended Complaint"). In the Amended Complaint, plaintiffs asserted
claims against the Fund, Alliance, ACMC, AFD, ECI, and certain current and
former officers of the Fund and ACMC alleging violations of the federal
securities laws, fraud and breach of fiduciary duty. The principal allegations
of the Amended Complaint related to the Fund's hedging practices, the Fund's
investments in certain mortgage-backed securities, and the risk and objectives
of the Fund as described in the Fund's marketing materials. The Amended
Complaint made similar requests for class certification and damages as made in
the Complaint. On July 15, 1997, the District Court denied plaintiffs' motion
for leave to file the Amended Complaint and dismissed the case ("Second
Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the Second
Decision to the Court of Appeals. On October 15, 1998, the Court of Appeals
affirmed in part and reversed in part the Second Decision. The Court of Appeals
affirmed the District Court's denial of plaintiffs' motion for leave to file
the Amended Complaint insofar as the Amended Complaint alleged that defendants
had made misrepresentations and omissions relating to the Funds' investments in
certain mortgage-backed securities and in the Fund's marketing materials. The
Court of Appeals reversed the District Court's decision to deny plaintiffs'
motions for leave to file the Amended Complaint insofar as the Amended
Complaint alleged that defendants had made actionable misrepresentations and
omissions relating to the Fund's hedging practices.
The Fund and Alliance believe that the allegations in the Complaint and the
Amended Complaint are without merit and intend to defend vigorously against
those claims.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "yield" and "total return," which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an "actual distribution rate" for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed
48
separately for Class A, Class B and Class C shares. Advertisements of a Fund's
total return disclose its average annual compounded total return for the
periods prescribed by the Commission. A Fund's total return for each such
period is computed by finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the period that
would equate an assumed initial amount invested to the value of the investment
at the end of the period. For purposes of computing total return, income
dividends and capital gains distributions paid on shares of a Fund are assumed
to have been reinvested when paid and the maximum sales charges applicable to
purchases and redemptions of a Fund's shares are assumed to have been paid. A
Fund's advertisements may quote performance rankings or ratings of a Fund by
financial publications or independent organizations such as Lipper Analytical
Services, Inc. and Morningstar, Inc. or compare a Fund's performance to various
indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE "GENERAL INFORMATION--ORGANIZATION."
49
APPENDIX A: BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa--Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca--Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating--When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
A-1
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments are being
continued.
D--The D rating, unlike other ratings, is not prospective; rather, it is used
only where a default has actually ocurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may move
up or down frequently within this category.
B+, B, B- --Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctutate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC--Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal, interest or preferred dividends. Protection
factors are narrow and risk can be substantial with unfavorable
economic/industry conditions, and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled principal
and/or interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
A-2
C--Bonds are in imminent default in payment of interest or principal.
DDD, DD, D--Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
A-3
APPENDIX B: GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
_______________________________________________________________________________
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate generally has been
narrower than the range of fluctuation between the U.S. Dollar and most other
major currencies. Since 1991, Canada generally has experienced a weakening of
its currency. The Canadian Dollar reached an all-time low of 1.5770 Canadian
Dollars per U.S. Dollars per U.S. Dollar on August 27, 1998. On October 13,
1998 the Canadian Dollar-U.S. Dollar exchange rate was 1.5510:1. The range of
fluctuation that has occurred in the past is not necessarily indicative of the
range of fluctuation that will occur in the future. Future rates of exchange
cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
Prior to 1994, when Mexico experienced an economic crisis that led to the
devaluation of the Peso in December 1994, the Mexican economy experienced
improvement in a number of areas, including growth in gross domestic product
and a substantial reduction in the rate of inflation and in the public sector
financial deficit. Much of the past improvement in the Mexican economy was due
to a series of economic policy initiatives intended to modernize and reform the
Mexican economy, control inflation, reduce the financial deficit, increase
public revenues through the reform of the tax system, establish a competitive
and stable currency exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role in the
economy. In this regard, the Mexican government launched a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and the
government and the business and labor sectors of the economy entered into a new
accord in an effort to stabilize the economy and the financial markets. To help
relieve Mexico's liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial assistance from the
United States, other countries and certain international agencies conditioned
upon the implementation and continuation of the economic reform program.
In October 1995, and again in October 1996, the Mexican government announced
new accords designed to encourage economic growth and reduce inflation. While
it cannot be accurately predicted whether these accords will continue to
achieve their objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates that continued
to be a factor after 1994 have subsided as well. After declining for five
consecutive quarters beginning with the first quarter of 1995, Mexico's gross
domestic product began to grow in the second quarter of 1996. That growth was
sustained in 1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for the first half of 1998 was 5.4%. In addition,
inflation dropped from a 52% annual rate in 1995 to a 27.7% annual rate in 1996
and a 15.7% annual rate in 1997. For the first eight months of 1998, the
inflation rate fluctuated between
B-1
15.0% and 15.5% on an annualized basis. Mexico's economy is influenced by
international economic conditions, particularly those in the United States, and
by world prices for oil and other commodities. The recovery of the economy will
require continued economic and fiscal discipline as well as stable political
and social conditions. In addition, there is no assurance that Mexico's
economic policy initiatives will be successful or that succeeding
administrations will continue these initiatives.
Under economic policy initiatives implemented on and after December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float freely against
other currencies, resulting in a precipitous decline against the U.S. Dollar.
By December 31, 1996, the Peso-Dollar exchange rate had decreased approximately
40% from that on December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange rate decreased
approximately 4% from that in 1996. At the end of the first nine months of
1998, the Peso-Dollar exchange rate decreased approximately 25% from the end of
1997.
Mexico has in the past imposed strict foreign exchange controls. There is no
assurance that future regulatory actions in Mexico would not affect the Fund's
ability to obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
1930 and has ruled the country for 22 of the past 68 years. The most recent
military government ruled the country from 1976 to 1983. Four unsuccessful
military uprisings have occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including an aggressive privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the announcement of a new economic plan in March 1991,
the Argentine economy was characterized by low and erratic growth, declining
investment rates and rapidly worsening inflation. Despite its strengths, which
include a well-balanced natural resource base and a high literacy rate, the
Argentine economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure from its
predecessors in calling for raising revenues, cutting expenditures and reducing
the public deficit. The extensive privatization program commenced in 1989 was
accelerated, the domestic economy deregulated and opened up to foreign trade
and the frame-work for foreign investment reformed. As a result of the economic
stabilization reforms, gross domestic product has increased each year since
1991, with the exception of 1995. During 1997, gross domestic product increased
an estimated 8.4% from 1996. Preliminary data indicate that during the first
quarter of 1998 gross domestic product increased 6.9% from the first quarter of
1997. The rate of inflation is generally viewed to be under control.
Significant progress was also made between 1991 and 1994 in rescheduling
Argentina's debt with both external and domestic creditors, which improved
fiscal cash flows in the medium term and allowed a return to voluntary credit
markets. There is no assurance that Argentina's economic policy initiatives
will be successful or that succeeding administrations will continue these
initiatives.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on Argentine bank deposits,
which was brought under control by a series of measures designed to strengthen
the financial system. The measures included the "dollarization" of banking
reserves, the establishment of two trust funds and strengthening bank reserve
requirements.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by international reserves, in an effort to
make the Argentine Peso fully convertible into the U.S. Dollar at a rate of one
to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from
high rates of unemployment. It is not clear that the government will be able to
resist pressure to devalue the currency. However, the historic range is not
necessarily indicative of fluctuations that may occur in the exchange rate over
time and future rates of exchange cannot be accurately predicted. The Argentine
foreign exchange market was highly controlled until December 1989, when a free
exchange rate was established for all foreign currency transactions. Argentina
has eliminated restrictions on foreign direct investment and capital
repatriation. In 1993, legislation was adopted abolishing previous requirements
of a three-year waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.
B-2
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'. (If you are eligible for a reduced sales charge,
you must also complete Section 4F). 3 Check off a distribution option for
your dividends. 4 Check off a distribution option for your capital gains.
All distributions (dividends and capital gains) will be reinvested into your
fund account unless you direct otherwise. If you want distributions sent
directly to your bank account, then you must complete Section 4D and attach
a preprinted, voided check for that account. If you want your distributions
sent to a third party you must complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D. If more than one dividend direction
or monthly exchange is desired, please call our Literature Center to obtain a
Shareholder Account Services Options Form for completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
80888GEN-TABFAPP-P1
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio and High Yield Fund.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUNDS
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
80888GEN-TABFAPP-P2
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
80888GEN-TABFAPP-P3
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
80888GEN-TABFAPP-P4
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
80888GEN-TABFAPP-P5
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000. This service can be enacted once every 30 days.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
80888GEN-TABFAPP-P6
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
STATE STREET BANK AND TRUST COMPANY (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<PAGE>
The Registrant's Advisor Class Prospectus is incorporated herein
by reference to Part A of the Amendment to the Registrant's
Registration Statement on Form N-1A filed with the Commission on
February 28, 1997.
<PAGE>
ALLIANCE BOND FUND, INC.
-CORPORATE BOND PORTFOLIO
(LOGO)(R)
____________________________________________________________
P. O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800) 227-4681
____________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 2, 1998
____________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the Corporate Bond Portfolio (the "Portfolio") of
the Alliance Bond Fund, Inc. (the "Fund") that offers Class A,
Class B and Class C shares of the Portfolio and, if the Portfolio
begins to offer Advisor Class shares, the Prospectus that offers
the Advisor Class shares of the Portfolio (the "Advisor Class
Prospectus" and, together with any Prospectus that offers the
Class A, Class B, and Class C shares, the "Prospectus(es)"). The
Portfolio currently does not offer Advisor Class shares. Copies
of the Prospectus(es) of the Portfolio 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 Portfolio..........................
Management of the Fund................................
Purchase of Shares....................................
Redemption and Repurchase of Shares...................
Shareholder Services..................................
Net Asset Value.......................................
Portfolio Transactions................................
Taxes.................................................
General Information...................................
Financial Statements and Report of
Independent Auditors................................
Appendix A: Certain Employee Benefit Plans............ A-1
(R) This is a registered service mark used under license from
the owner, Alliance Capital Management L.P.
<PAGE>
_____________________________________________________________
DESCRIPTION OF THE PORTFOLIO
_____________________________________________________________
INTRODUCTION TO THE FUND
The Fund is an open-end management investment company
commonly known as a "mutual fund" whose shares are offered in
separate series referred to as portfolios. Each portfolio is a
separate pool of assets constituting, in effect, a separate fund
with its own investment objectives and policies. A shareholder
in the portfolio will be entitled to his or her pro-rata share of
all dividends and distributions arising from that portfolio's
assets and, upon redeeming shares of that portfolio, the
shareholder will receive the then current net asset value of that
portfolio represented by the redeemed shares. (See "Purchase of
Shares" and "Redemption and Repurchase of Shares," in the
Portfolio's Prospectus.) The Fund is empowered to establish,
without shareholder approval, additional portfolios which may
have different investment objectives.
The Fund currently has two portfolios: the Corporate
Bond Portfolio and the U.S. Government Portfolio.
Except as otherwise indicated, the Portfolio's
investment policies are not designated "fundamental policies"
and, therefore, may be changed by the Board of Directors without
a shareholder vote. However, the Portfolio will not change its
investment policies without contemporaneous written notice to its
shareholders. The Portfolio's investment objectives may not be
changed without shareholder approval. There can be, of course,
no assurance that the Portfolio will achieve its investment
objectives.
THE CORPORATE BOND PORTFOLIO
INVESTMENT OBJECTIVE
GENERAL. The primary investment objective of the
Portfolio is to maximize income over the long term consistent
with providing reasonable safety in the value of each
shareholder's investment. As a secondary objective, the
Portfolio will attempt to increase its capital through
appreciation of its investments in order to preserve and, if
possible, increase the purchasing power of each shareholder's
investment.
2
<PAGE>
HOW THE PORTFOLIO PURSUES ITS OBJECTIVES
In pursuing these objectives, the Portfolio's policy is
to invest in readily marketable securities which give promise of
relatively attractive yields, but which do not involve
substantial risk of loss of capital. The Portfolio follows a
policy of maintaining at least 65% of its net assets invested in
debt securities. Such objectives and policies cannot be changed
without the approval of the holders of a majority of the
Portfolio's voting securities. The Portfolio also follows a
policy of maintaining at least 65% of its net assets invested in
corporate bonds. Moreover, the Portfolio intends to manage its
portfolio actively by taking advantage of such trading
opportunities as swaps to higher yielding bonds of similar
quality and swaps to different types of bonds which are more
attractive investments due to distortions in normal yield
differentials.
There is no minimum rating requirement applicable to the
Portfolio's investments in fixed-income securities. Currently,
the Portfolio believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in
fixed-income securities considered investment grade or higher
(securities rated at least Baa by Moody's Investors Services,
Inc. ("Moody's") or BBB by Standard & Poor's Ratings Services
("S&P")). During the fiscal year ended June 30, 1998, the
Portfolio did not invest in securities rated below B by Moody's,
or if unrated by Moody's, considered by Alliance Capital
Management L.P. (the "Investment Adviser") to be of equivalent
quality to such a rating. Securities rated Ba or below by Moody's
or BB or below by S&P are often referred to as junk bonds. (See
"Special Risk Considerations" below). The Portfolio expects that
it will not retain a security which is downgraded below B, or if
unrated, determined by the Investment Adviser to have undergone
similar credit quality deterioration subsequent to purchase.
During this period, the Portfolio has continued to hold its
position in certain 8.25% notes issued by Grupo Mexicano de
Desarollo ("GMD") which have been downgraded below B following
GMD's default on its coupon payments on these notes. A number of
GMD noteholders, including the Fund, have commenced litigation
against GMD and have been awarded a judgment for the full amounts
due them on the Notes. The noteholders are seeking to obtain
enforcement of this judgment in Mexico and, concurrently, are in
negotiations with GMD and its other creditors in an effort to
arrive at a consensual restructuring of the Notes. There can be
no assurance at this time that the Fund will be able to obtain
enforcement of its judgment against GMD or that the parties can
arrive at a consensual restructuring.
The Portfolio will not invest more than 5% of its total
assets in the securities of any one issuer, excepting U.S.
3
<PAGE>
Government obligations. Further, the Portfolio will not own more
than 10% of the outstanding voting securities of any issuer. The
Portfolio has complete flexibility as to the types of securities
in which it will invest and the relative proportions thereof, and
the Portfolio plans to vary the proportions of its holdings of
long- and short-term fixed-income securities (including debt
securities, convertible debt securities, U.S. Government (full
faith and credit) obligations) and of common and preferred stocks
in order to reflect its assessment of prospective cyclical
changes even if such action may adversely affect current income.
However, substantially all of the Portfolio's investments will be
income producing. (See "Investment Restrictions", below, for
additional restrictions which are fundamental policies of the
Portfolio and which cannot be changed without shareholder
approval).
The Portfolio may invest up to 50% of the value of its
total assets in foreign debt securities which will consist
primarily of corporate fixed-income securities and instruments
issued or guaranteed by foreign governments ("Sovereign Debt
Obligations"). Sovereign Debt Obligations may include, as
described below, securities issued in connection with foreign
government debt restructurings as well as foreign government loan
participations and assignments. Not more than 15% of the
Portfolio's total assets may be invested in Sovereign Debt
Obligations in the form of foreign government loan participations
and assignments, substantially all of which may be high-yield,
high-risk debt securities that are low-rated (i.e. below
investment grade) or of comparable quality and unrated, and that
are considered to be predominantly speculative as regards the
issuer's capacity to pay interest and repay principal. Investors
should be aware that there are risks associated with investment
by the Portfolio in foreign securities. See "Special Risk
Considerations."
BRADY BONDS. The Portfolio may invest in certain debt
obligations customarily referred to as "Brady Bonds," which are
created through the exchange of existing commercial bank loans to
foreign entities for new obligations in connection with debt
restructurings under a plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady (the "Brady Plan").
Brady Plan debt restructurings totaling more than $120
billion have been implemented to date in Argentina, Bolivia,
Brazil, Costa Rica, The Dominican Republic, Ecuador, Mexico,
Nigeria, the Phillipines, Uruguay and Venezuela, with the largest
proportion of Brady Bonds having been issued to date by
Argentina, Brazil, Mexico and Venezuela.
Brady Bonds have been issued only recently, and,
accordingly, do not have a long payment history. They may be
4
<PAGE>
collateralized or uncollateralized and issued in various
currencies (although most are dollar-denominated) and they are
actively traded in the over-the-counter secondary market.
Certain Brady Bonds are collateralized in full as to principal
due at maturity by zero coupon obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities having
the same maturity ("Collateralized Brady Bonds").
Dollar-denominated, Collateralized Brady Bonds may be
fixed rate bonds or floating rate bonds. Interest payments on
Brady Bonds are often collateralized by cash or securities in an
amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments or, in the case of
floating rate bonds, initially is equal to at least one year's
rolling interest payments based on the applicable interest rate
at that time and is adjusted at regular intervals thereafter.
Certain Brady Bonds are entitled to "value recovery payments" in
certain circumstances, which in effect constitute supplemental
interest payments but generally are not collateralized. Brady
Bonds are often viewed as having three or four valuation
components: (i) collateralized repayment of principal at final
maturity; (ii) collateralized interest payments; (iii)
uncollateralized interest payments; and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a
default with respect to Collateralized Brady Bonds as a result of
which the payment obligations of the issuer are accelerated, the
U.S. Treasury zero coupon obligations held as collateral for the
payment of principal will not be distributed to investors, nor
will such obligations be sold and the proceeds distributed. The
collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will
equal the principal payments which would have been due on the
Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the
history of defaults with respect to commercial bank loans by
public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.
STRUCTURED SECURITIES. The Portfolio may invest in
interests in entities organized and operated solely for the
purpose of restructuring the investment characteristics of
Sovereign Debt Obligations and loan participations and
assignments. This type of restructuring involves the deposit
with or purchase by an entity, such as a corporation or trust, of
specified instruments (such as commercial bank loans or Brady
Bonds) and the issuance by that entity of one or more classes of
securities ("Structured Securities") backed by, or representing
interests in, the underlying instruments. The cash flow on the
underlying instruments may be apportioned among the newly issued
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Structured Securities to create securities with different
investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the
payments made with respect to Structured Securities is dependent
on the extent of the cash flow on the underlying instruments.
Because Structured Securities of the type in which the Portfolio
anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to
that of the underlying instruments.
The Portfolio is permitted to invest in a class of
Structured Securities that is either subordinated or
unsubordinated to the right of payment of another class.
Subordinated Structured Securities typically have higher yields
and present greater risks than unsubordinated Structured
Securities.
Certain issuers of Structured Securities may be deemed
to be "investment companies" as defined in the Investment Company
Act of 1940, as amended (the "1940 Act"). As a result, the
Portfolio's investment in these Structured Securities may be
limited by the restrictions contained in the 1940 Act. Under the
1940 Act, the Portfolio may not own more than 3% of the total
outstanding voting stock of any investment company and not more
than 5% of the value of the Portfolio's total assets may be
invested in the securities of any investment company. If the
Portfolio acquires shares in investment companies, shareholders
would bear both their proportionate shares of expenses in the
Portfolio (including management and advisory fees) and,
indirectly, the expenses of such investment companies (including
the management and advisory fees).
LOAN PARTICIPATIONS AND ASSIGNMENTS. The Portfolio may
invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between an issuer of Sovereign Debt
Obligations and one or more financial institutions ("Lenders").
The Portfolio's investments in Loans are expected in most
instances to be in the form of participations in Loans
("Participations") and assignments of all or a portion of Loans
("Assignments") from third parties. The Portfolio may invest up
to 15% of its total assets in Participations and Assignments.
The government that is the borrower on the Loan will be
considered by the Portfolio to be the issuer of a Participation
or Assignment for purposes of the Portfolio's fundamental
investment policy that it will not invest 25% or more of its
total assets in securities of issuers conducting their principal
business activities in the same industry (i.e., foreign
government). The Portfolio's investment in Participations
typically will result in the Portfolio having a contractual
relationship only with the Lender and not with the borrower. The
Portfolio will have the right to receive payments of principal,
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interest and any fees to which it is entitled only from the
Lender selling the Participation and only upon receipt by the
Lender of the payments from the borrower. The Portfolio will
acquire Participations only if the Lender interpositioned between
the Portfolio and the borrower is a Lender having total assets of
more than $25 billion and whose senior unsecured debt is rated
investment grade or higher (i.e., Baa or higher by Moody's or BBB
or higher by S&P).
In connection with purchasing Participations, the
Portfolio generally will have no right to enforce compliance by
the borrower with the terms of the loan agreement relating to the
Loan, nor any rights of set-off against the borrower, and the
Portfolio may not directly benefit from any collateral supporting
the Loan in which it has purchased the Participation. As a
result, the Portfolio may be subject to the credit risk of both
the borrower and the Lender that is selling the Participation.
In the event of the insolvency of the Lender selling a
Participation, the Portfolio may be treated as a general creditor
of the Lender and may not benefit from any set-off between the
Lender and the borrower. Certain Participations may be
structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender
with respect to the Participation, but even under such a
structure, in the event of the Lender's insolvency, the Lender's
servicing of the Participation may be delayed and the
assignability of the Participation impaired.
When the Portfolio purchases Assignments from Lenders it
will acquire direct rights against the borrower on the Loan.
Because Assignments are arranged through private negotiations
between potential assignees and potential assignors, however, the
rights and obligations acquired by the Portfolio as the purchaser
of an Assignment may differ from, and be more limited than, those
held by the assigning Lender.
The Portfolio may have difficulty disposing of
Assignments and Participations because to do so it will have to
assign such securities to a third party. Because there is no
liquid market for such securities, the Portfolio anticipates that
such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market
may have an adverse impact on the value of such securities and
the Portfolio's ability to dispose of particular Assignments or
Participations when necessary to meet the Portfolio's liquidity
needs or in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for Assignments and Participations
also may make it more difficult for the Portfolio to assign a
value to these securities for purposes of valuing the Portfolio
and calculating its net asset value. Further, the assignability
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of certain Sovereign Debt Obligations is restricted by the
governing documentation as to the nature of the assignee such
that the only way in which the Portfolio may acquire an interest
in a Loan is through a Participation and not an Assignment.
OPTIONS. The Portfolio may purchase put and call
options written by others and write covered put and call options
overlying the types of securities in which the Portfolio may
invest. A put option (sometimes called a "standby commitment")
gives the purchaser of the 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 (sometimes called a "reverse standby commitment")
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. The
Portfolio will not purchase any option if, immediately
thereafter, the aggregate cost of all outstanding options
purchased by the Portfolio would exceed 2% of the value of its
total assets; the Portfolio will not write any option if,
immediately thereafter, the aggregate value of the Portfolio's
securities subject to outstanding options would exceed 15% of its
total assets.
The Portfolio may purchase put and call options to
provide protection against adverse price or yield effects from
anticipated changes in prevailing interest rates. For instance
in periods of rising interest rates and falling bond prices, the
Portfolio might purchase a put option to limit its exposure to
falling prices. In periods of falling interest rates and rising
bond prices, the Portfolio might purchase a call option. In
purchasing a call option, the Portfolio would be in a position to
realize a gain if, during the option period, the price of the
security increased by an amount in excess of the premium paid.
It would realize a loss if the price of the security declined or
remained the same or did not increase during the period by more
than the amount of the premium. By purchasing a put option, the
Portfolio would be in a position to realize a gain if, during the
option period, the price of the security declined by an amount in
excess of the premium paid. It would realize a loss if the price
of the 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 Portfolio were
permitted to expire without being sold or exercised, its premium
would represent a loss to the Portfolio.
When the Portfolio writes a put option it must either
own at all times during the option period an offsetting put
option on the same security or maintain in a segregated account
cash or liquid assets in an amount adequate to purchase the
underlying security should the put be exercised. When the
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Portfolio writes a call option it must own at all times during
the option period either the underlying securities or an
offsetting call option on the same securities. If a put option
written by the Portfolio were exercised the Portfolio would be
obligated to purchase the underlying security at the exercise
price. If a call option written by the Portfolio were exercised
the Portfolio 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 to the Portfolio 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
Portfolio at a lower price than its current market value. These
risks could be reduced by entering into a closing transaction as
described below. The Portfolio retains the premium received from
writing a put or call option whether or not the option is
exercised.
The Portfolio may also write call options for cross-
hedging purposes. A call option is for cross-hedging purposes if
it is designed to provide a hedge against a decline in value in
another security which the Portfolio owns or has the right to
acquire. In such circumstances, the Portfolio collateralizes the
option by maintaining, in a segregated account with the
Custodian, liquid assets in an amount not less than the market
value of the underlying security, marked to market daily.
The Portfolio may dispose of an option which it has
purchased by entering into a "closing sale transaction" with the
writer of the option. A closing sale transaction terminates the
obligation of the writer of the option and does not result in the
ownership of an option. The Portfolio realizes a profit or loss
from a closing sale transaction if the premium received from the
transaction is more than or less than the cost of the option.
The Portfolio may terminate its obligation to the holder
of an option written by the Portfolio through a "closing purchase
transaction." The Portfolio may not, however, effect a closing
purchase transaction with respect to such an option after it has
been notified of the exercise of such option. The Portfolio
realizes a profit or loss from a closing purchase transaction if
the cost of the transaction is more than or less than the premium
received by the Portfolio from writing the option.
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The Portfolio generally purchases or writes options in
negotiated transactions. The Portfolio effects such transactions
only with investment dealers and other financial institutions
(such as commercial banks or savings and loan institutions)
deemed creditworthy by the Investment Adviser. The Investment
Adviser has also adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written
by the Portfolio in negotiated transactions are illiquid and it
may not be possible for the Portfolio to effect a closing
purchase transaction at a time when the Investment Adviser
believes it would be advantageous to do so.
INTEREST RATE TRANSACTIONS. In order to attempt to
protect the value of the Portfolio's investments from interest
rate fluctuations, the Portfolio may enter into various hedging
transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. The Portfolio expects to
enter into these transactions primarily to preserve a return or
spread on a particular investment or portion of its portfolio.
The Portfolio may also enter into these transactions to protect
against any increase in the price of securities the Portfolio
anticipates purchasing at a later date. The Portfolio intends to
use these transactions as a hedge and not as a speculative
investment. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to
pay or receive interest, e.g., an exchange of floating rate
payments for fixed rate payments. The purchase of an interest
rate cap entitles the purchaser, to the extent that a specified
index exceeds a predetermined interest rate, to receive payments
on a notional principal amount from the party selling such
interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index
falls below a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling
such interest rate floor.
The Portfolio may enter into interest rate swaps, caps
and floors on either an asset-based or liability-based basis
depending on whether it is hedging its assets or its liabilities,
and will only be entered into on a net basis, i.e., the two
payment streams are netted out, with the Portfolio receiving or
paying, as the case may be, only the net amount of the two
payments. Inasmuch as these hedging transactions are entered
into for good faith hedging purposes, the Investment Adviser and
the Portfolio believe such obligations do not constitute senior
securities and, accordingly, will not treat them as being subject
to its borrowing restrictions. The net amount of the excess, if
any, of the Portfolio's obligations over its entitlements with
respect to each interest rate swap will be accrued on a daily
basis and an amount of liquid assets having an aggregate net
asset value at least equal to the accrued excess will be
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maintained in a segregated account by the Custodian. The
Portfolio will not enter into any interest rate swap, cap or
floor transaction unless the unsecured senior debt or the claims-
paying ability of the other party thereto is then rated in the
highest rating category of at least one nationally recognized
rating organization at the time of entering into such
transaction. If there is a default by the other party to such a
transaction, the Portfolio will have contractual remedies
pursuant to the agreements related to the transaction. The swap
market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as
principals and agents utilizing standardized swap documentation.
As a result, the swap market has become well established and
provides a degree of liquidity. Caps and floors are more recent
innovations for which documentation is not as standardized and,
accordingly, they are less liquid than swaps.
ZERO COUPON SECURITIES. To the extent consistent with
its investment objectives, the Portfolio may invest without limit
in "zero coupon" securities, which are debt securities that have
been stripped of their unmatured interest coupons and receipts or
certificates representing interests in such stripped debt
obligations and coupons. A zero coupon security pays no interest
to its holder during its life. Its value to an investor consists
of the difference between its face value at the time of maturity
and the price for which it was acquired, which is generally an
amount significantly less than its face value (sometimes referred
to as a "deep discount" price). Accordingly, such securities
usually trade at a deep discount from their face or par value and
will be subject to greater fluctuations of market value in
response to changing interest rates than debt obligations of
comparable maturities that make current distributions of
interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, zero coupon
securities eliminate reinvestment risk and lock in a rate of
return to maturity. The Portfolio may also invest in "pay-in-
kind" debentures (i.e., debt obligations, the interest on which
may be paid in the form of additional obligations of the same
type rather than cash) which have characteristics similar to zero
coupon securities.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS
PASS-THROUGH SECURITIES. Mortgage-related securities in which
the Portfolio may invest may also include collateralized mortgage
obligations ("CMOs") and multi-class pass-through securities.
CMOs are debt obligations issued by special purpose entities that
are secured by mortgage-backed certificates, including, in many
cases, certificates issued by governmental and government-related
guarantors, including GNMA, FNMA and FHLMC, together with certain
funds and other collateral. Multi-class pass-through securities
are equity interests in a trust composed of mortgage loans or
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other mortgage-related securities. Payments of principal and
interest on underlying collateral provide the funds to pay debt
service on the CMO or make scheduled distributions on the multi-
class pass-through security. CMOs and multi-class pass-through
securities (collectively CMOs unless the context indicates
otherwise) may be issued by agencies or instrumentalities of the
United States Government or by private organizations. The issuer
of a CMO may elect to be treated as a Real Estate Mortgage
Investment Conduit ("REMIC").
In a CMO, a series of bonds or certificates is issued in
multiple classes. Each class of CMOs, often referred to as a
"tranche," is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired
substantially earlier than the stated maturities or final
distribution dates. Interest is paid or accrues on all classes
of a CMO on a monthly, quarterly or semi-annual basis. The
principal and interest on the underlying mortgages may be
allocated among the several classes of a series of a CMO in many
ways. In a common structure, payments of principal, including
any principal prepayments, on the underlying mortgages are
applied to the classes of the series of a CMO in the order of
their respective stated maturities or final distribution dates,
so that no payment of principal will be made on any class of a
CMO until all other classes having an earlier stated maturity or
final distribution date have been paid in full.
One or more tranches of a CMO may have coupon rates
which reset periodically at a specified increment over an index
such as the London Interbank Offered Rate ("LIBOR"). These
adjustable rate tranches are known as "floating rate CMOs."
Floating rate CMOs may be backed by fixed or adjustable rate
mortgages. To date, fixed-rate mortgages have been more commonly
utilized for this purpose. Floating rate CMOs are typically
issued with lifetime caps on the coupon rate thereon. These caps
represent a ceiling beyond which the coupon rate on a floating
rate CMO may not be increased regardless of increases in the
interest rate index to which the floating rate CMO is geared.
The staff of the Securities and Exchange Commission (the
"Commission") has determined that certain issuers of CMOs are
investment companies for purposes of the 1940 Act. In reliance
on a 1991 staff interpretation, the Portfolio's investments in
certain qualifying CMOs, including REMICs, are not subject to the
1940 Act's limitation on acquiring interests in other investment
companies. In order to be able to rely on the staff's
interpretation, the CMOs must be unmanaged, fixed-asset issuers
that (i) invest primarily in mortgage-backed securities, (ii) do
not issue redeemable securities, (iii) operate under general
exemptive orders exempting them from all provisions of the 1940
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Act, and (iv) are not registered or regulated under the 1940 Act
as investment companies. To the extent that the Portfolio
selects CMOs that do not meet the above requirements, the
Portfolio may not invest more than 10% of its assets in all such
entities and may not acquire more than 3% of the voting
securities of any single such entity.
LENDING OF PORTFOLIO SECURITIES. Consistent with
applicable regulatory requirements, the Portfolio may loan its
portfolio securities where such loans are continuously secured by
cash collateral equal to no less than the market value,
determined daily, of the securities loaned. In loaning its
portfolio securities, the Portfolio will require that interest or
dividends on securities loaned be paid to the Portfolio. Where
voting or consent rights with respect to loaned securities pass
to the borrower, the Portfolio will follow the policy of calling
the loan, in whole or in part as may be appropriate, to permit it
to exercise such voting or consent rights if the exercise of such
rights involves issues having a material effect on the
Portfolio's investment in the securities loaned. Although the
Portfolio cannot at the present time determine the types of
borrowers to whom it may lend its portfolio securities, the
Portfolio anticipates that such loans will be made primarily to
bond dealers.
ILLIQUID SECURITIES. The Fund will not invest in
securities for which there is no public market (i.e. illiquid
securities). For this purpose, illiquid securities include,
among others, securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual
restriction on resale.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended ("Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
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Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, which is an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc. (NASD).
The Investment Adviser, acting under the supervision of
the Board of Directors, will monitor the liquidity of restricted
securities in the Fund's portfolio that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the
Investment Adviser will consider, among others, the following
factors: (1) the frequency of trades and quotes for the
security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential
purchasers of the security; (4) the number of dealers undertaking
to make a market in the security; (5) the nature of the security
(including its unregistered nature) and the nature of the
marketplace for the security (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics
of the transfer); and (6) any applicable Commission
interpretation or position with respect to such type of
securities.
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SPECIAL RISK CONSIDERATIONS. Securities rated Baa are
considered by Moody's to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising
interest rates are more likely to lead to a weakening in the
issuer's capacity to pay interest and repay principal than in the
case of higher-rated securities. Securities rated below
investment grade, i.e., Ba or BB and lower, ("lower-rated
securities") are subject to greater risk of loss of principal and
interest than higher-rated securities and are considered to be
predominantly speculative with respect to the issuer's capacity
to pay interest and repay principal, which may in any case
decline during sustained periods of deteriorating economic
conditions or rising interest rates. They are also generally
considered to be subject to greater market risk than higher-rated
securities in times of deteriorating economic conditions. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic and competitive industry conditions
than investment grade securities, although the market values of
securities rated below investment grade and comparable unrated
securities tend to react less to fluctuations in interest rate
levels than do those of higher-rated securities.
The market for lower-rated securities may be thinner and
less active than that for higher-quality securities, which can
adversely affect the prices at which these securities can be
sold. To the extent that there is no established secondary
market for lower-rated securities, the Portfolio may experience
difficulty in valuing such securities and, in turn, the
Portfolio's assets. In addition, adverse publicity and investor
perceptions about lower-rated securities, whether or not based on
fundamental analysis, may tend to decrease the market value and
liquidity of such lower-rated securities.
The ratings of fixed-income securities by Moody's and
S&P are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's
standpoint. The rating of an issuer is heavily weighted by past
developments and does not necessarily reflect probable future
conditions. There is frequently a lag between the time a rating
is assigned and the time it is updated. In addition, there may
be varying degrees of difference in credit risk of securities
within each rating category.
The Investment Adviser will try to reduce the risk
inherent in the Portfolio's investment approach through credit
analysis, diversification and attention to current developments
and trends in interest rates and economic conditions. However,
there can be no assurance that losses will not occur. Since the
risk of default is higher for lower-quality securities, the
Investment Adviser's research and credit analysis are a
correspondingly important aspect of its program for managing the
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Portfolio's securities. In considering investments for the
Portfolio, the Investment Adviser will attempt to identify those
high-yielding securities whose financial condition is adequate to
meet future obligations, has improved, or is expected to improve
in the future. The Investment Adviser's analysis focuses on
relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
Non-rated securities will also be considered for
investment by the Portfolio when the Investment Adviser believes
that the financial condition of the issuers of such securities,
or the protection afforded by the terms of the securities
themselves, limits the risk to the Portfolio to a degree
comparable to that of rated securities which are consistent with
the Portfolio's objectives and policies.
In seeking to achieve the Portfolio's primary objective,
there will be times, such as during periods of rising interest
rates, when depreciation and realization of capital losses on
securities in the portfolio will be unavoidable. Moreover,
medium- and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield
and market values than higher rated securities under certain
market conditions. Such fluctuations after a security is
acquired do not affect the cash income received from that
security but are reflected in the net asset value of the
Portfolio.
EXTENT OF TRADING. No established secondary markets may
exist for many of the Sovereign Debt Obligations in which the
Portfolio will invest. Reduced secondary market liquidity may
have an adverse effect on the market price and the Portfolio's
ability to dispose of particular instruments when necessary to
meet its liquidity requirements or in response to specific
economic events such as a deterioration in the creditworthiness
of the issuer. Reduced secondary market liquidity for certain
Sovereign Debt Obligations may also make it more difficult for
the Portfolio to obtain accurate market quotations for purposes
of valuing its portfolio. Market quotations are generally
available on many Sovereign Debt Obligations only from a limited
number of dealers and may not necessarily represent firm bids of
those dealers or prices for actual sales.
ECONOMIC AND POLITICAL FACTORS. By investing in
Sovereign Debt Obligations, the Portfolio will be exposed to the
direct or indirect consequences of political, social and economic
change in various countries. Political changes in a country may
affect the willingness of a foreign government to make or provide
for timely payments of its obligations. The country's economic
status, as reflected, among other things, in its inflation rate,
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the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its
obligations.
Many countries providing investment opportunities for
the Portfolio have experienced substantial, and in some periods
extremely high, rates of inflation for many years. Inflation and
rapid fluctuations in inflation rates have had and may continue
to have adverse effects on the economies and securities of
certain of these countries. In an attempt to control inflation,
wage and price controls have been imposed in certain countries.
Investing in Sovereign Debt Obligations involves
economic and political risks. The Sovereign Debt Obligations in
which the Portfolio will invest in most cases pertain to
countries that are among the world's largest debtors to
commercial banks, foreign governments, international financial
organizations and other financial institutions. In recent years,
the governments of some of these countries have encountered
difficulties in servicing their external debt obligations, which
led to defaults on certain obligations and restructuring of
certain indebtedness. Restructuring arrangements have included,
among other things, reducing and rescheduling interest and
principal payments by negotiating new or amended credit
agreements or converting outstanding principal and unpaid
interest to Brady Bonds, and obtaining new credit to finance
interest payments. Certain governments have not been able to
make payments of interest on or principal of Sovereign Debt
Obligations as those payments have come due. Obligations arising
from past restructuring agreements may affect the economic
performance and political and social stability of those issuers.
Central banks and other governmental authorities which
control the servicing of Sovereign Debt Obligations may not be
willing or able to permit the payment of the principal or
interest when due in accordance with the terms of the
obligations. As a result, the issuers of Sovereign Debt
Obligations may default on their obligations. Defaults on
certain Sovereign Debt Obligations have occurred in the past.
Holders of certain Sovereign Debt Obligations may be requested in
the restructuring and rescheduling of these obligations to extend
further loans to the issuers. The interests of holders of
Sovereign Debt Obligations could be adversely affected in the
course of restructuring arrangements or by certain other factors
referred to below. Furthermore, some of the participants in the
secondary market for Sovereign Debt Obligations may also be
directly involved in negotiating the terms of these arrangements;
and may therefore have access to information not available to
other market participants.
17
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The ability of governments to make timely payments on
their obligations is likely to be influenced strongly by the
issuer's balance of payments, including export performance, and
its access to international credits and investments. A country
whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or
more of those commodities. Increased protectionism on the part
of a country's trading partners could also adversely affect the
country's exports and diminish its trade account surplus, if any.
To the extent that a country receives payments for its exports in
currencies other than dollars, its ability to make debt payments
denominated in dollars could be adversely affected.
To the extent that a country develops a trade deficit,
it will need to depend on continuing loans from foreign
governments, multilateral organizations or private commercial
banks, aid payments from foreign governments and on inflows of
foreign investment. The access of a country to those forms of
external funding may not be certain, and a withdrawal of external
funding could adversely affect the capacity of a government to
make payments on its obligations. In addition, the cost of
servicing debt obligations can be affected by a change in
international interest rates since the majority of these
obligations carry interest rates that are adjusted periodically
based upon international rates.
Another factor bearing on the ability of a country to
repay Sovereign Debt Obligations is the level of the country's
international reserves. Fluctuations in the level of these
reserves can affect the amount of foreign exchange readily
available for external debt payments and, thus, could have a
bearing on the capacity of the country to make payments on its
Sovereign Debt Obligations.
Expropriation, confiscatory taxation, nationalization,
political or social instability or other similar developments,
such as military coups, have occurred in the past in countries in
which the Portfolio may invest and could adversely affect the
Portfolio's assets should these conditions or events recur.
INVESTMENT CONTROLS AND REPATRIATION. Foreign
investment in certain Sovereign Debt Obligations is restricted or
controlled to varying degrees. These restrictions or controls
may at times limit or preclude foreign investment in certain
Sovereign Debt Obligations and increase the costs and expenses of
the Portfolio. Certain countries in which the Portfolio may
invest require governmental approval prior to investments by
foreign persons, limit the amount of investment by foreign
persons in a particular issuer, limit the investment by foreign
persons only to a specific class of securities of an issuer that
may have less advantageous rights than the classes available for
18
<PAGE>
purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.
Certain countries may require governmental approval for
the repatriation of investment income, capital or the proceeds of
the sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances. The Portfolio could be adversely affected by delays
in, or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
Portfolio of any restrictions on investments. Investing in local
markets may require the Portfolio to adopt special procedures,
seek local government approvals or take other actions, each of
which may involve additional costs to the Portfolio.
OTHER CHARACTERISTICS OF INVESTMENT IN FOREIGN ISSUES.
Foreign securities investments are affected by changes in
currency rates or exchange control regulations as well as by
changes in governmental administration, economic or monetary
policy (in the United States or abroad) and changed circumstances
in dealings between nations. Currency exchange rate movements
will increase or reduce the U.S. dollar value of the Portfolio's
net assets and income attributable to foreign securities. Costs
are incurred in connection with conversion of currencies held by
the Portfolio.
There may be less publicly available information about
foreign issuers than about domestic issuers, and foreign issuers
may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those of
domestic issuers. Securities of some foreign issuers are less
liquid and more volatile than securities of comparable domestic
issuers, and foreign brokerage commissions are generally higher
than in the United States. Foreign securities markets may be
less liquid, more volatile and less subject to governmental
supervision than in the United States. Investments in foreign
countries could be affected by other factors not present in the
United States, including expropriation, confiscatory taxation and
potential difficulties in enforcing contractual obligations.
Foreign issuers are subject to accounting, auditing 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 statements 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
19
<PAGE>
which the Portfolio may 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.
FUNDAMENTAL INVESTMENT POLICIES. The following
restrictions supplement those already discussed. These
restrictions may not be changed without shareholder approval
which means the vote of (1) 67% or more of the shares of the
Portfolio represented at a meeting at which more than 50% of the
outstanding shares are represented or (2) more than 50% of the
outstanding shares of the Portfolio, whichever is less.
The following restrictions provide that the Portfolio
may not:
1. Purchase any security of any issuer (other than
United States Government securities) if as a result more than 5%
of the value of its total assets would consist of the securities
of such issuer or the Portfolio would own more than 10% of the
outstanding voting securities of any issuer;
2. Purchase the securities of any other investment
company except in a regular transaction in the open market or as
part of a merger, consolidation or purchase of assets;
3. Invest more than 5% of the value of its total assets
in the securities of any issuer, the business of which has been
in continuous operation for less than three years;
4. Purchase or retain the securities of any issuer if
those officers and directors of the Fund or of the Investment
Adviser beneficially owning individually more than 1/2 of 1% of
the securities of such issuer together beneficially own more than
5% of the securities of such issuer;
5. Invest in other companies for the purpose of
exercising control of management;
6. Purchase securities on margin, except that the
Portfolio may borrow in an amount up to 10% of its total assets
to meet redemption requests and for the clearance of purchases
and sales of portfolio securities (this borrowing provision is
not for investment leverage but solely to facilitate management
of the Portfolio to enable the Portfolio to meet redemption
20
<PAGE>
requests where the liquidation of portfolio securities is deemed
to be disadvantageous or inconvenient and to obtain such short-
term credits as may be necessary for the clearance of purchases
and sales of portfolio securities; all borrowings at any time
outstanding will be repaid before any additional investments are
made; the Portfolio will not mortgage, pledge or hypothecate any
assets in connection with any such borrowing in excess of 15% of
the Portfolio's total assets) or sell securities short;
7. Borrow money except as previously set forth in 6
above;
8. Make loans to other persons except loans of
securities collateralized in cash at 100% each business day (the
acquisition of publicly distributed bonds, debentures and other
debt securities is not considered a loan);
9. Purchase any security (other than United States
Government securities) if as a result more than 25% of the value
of its total assets would be invested in any one industry;
10. Underwrite securities issued by other persons;
11. Purchase any securities as to which it would be
deemed a statutory underwriter under the Securities Act, or any
securities having no public market;
12. Purchase or sell commodities or commodity contracts;
13. Purchase or sell real estate, except that the
Portfolio may invest in marketable securities secured by real
estate or interests therein or issued by companies including real
estate investment trusts, which deal in real estate or interests
therein;
14. Participate in a joint, or a joint and several,
trading account in securities;
15. Invest in interests in oil, gas or other mineral
leases exploration or development programs;
16. Issue any securities senior to the capital stock
offered hereby; or
17. Invest in warrants (other than warrants acquired by
the Portfolio as a part of a unit or attached to securities at
the time of purchase) if, as a result, such warrants valued at
the lower of cost or market would exceed 5% of the value of the
Portfolio's net assets at the time of purchase provided that not
more than 2% of the Portfolio's net assets at the time of
21
<PAGE>
purchase may be invested in warrants not listed on the New York
Stock Exchange or the American Stock Exchange.
The foregoing percentage limitations will apply at the
time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of an acquisition of such
security.
PORTFOLIO TURNOVER. Because the Portfolio will actively
use trading to benefit from yield disparities among different
issues of fixed-income securities or otherwise to achieve its
investment objective and policies, the Portfolio may be subject
to a greater degree of turnover and, thus, a higher incidence of
short-term capital gain taxable as ordinary income than might be
expected from investment companies which invest substantially all
of their funds on a long-term basis and, correspondingly, larger
mark-up charges can be expected to be borne by the Portfolio in
such cases. Management anticipates that the annual turnover in
the Portfolio may be in excess of 600% in future years but is not
expected to exceed 700%. An annual turnover rate of 600% occurs,
for example, when all of the securities in the Portfolio are
replaced six times in a period of one year. The portfolio
turnover rates for the fiscal years ended June 30, 1997 and 1998
were 307% and 244%, respectively.
The value of the Portfolio's shares will be influenced
by the factors which generally affect securities, such as the
economic and political outlook, earnings, dividends and the
supply and demand for various classes of securities. There can
be, of course, no assurance that the Portfolio's investment
objectives will be achieved.
____________________________________________________________
MANAGEMENT OF THE FUND
____________________________________________________________
DIRECTORS AND OFFICERS
The Directors and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Director and officer is also a
director, trustee or officer of other registered investment
companies sponsored by the Investment Adviser. Unless otherwise
specified, the address of each of such persons is 1345 Avenue of
the Americas, New York, New York 10105.
22
<PAGE>
DIRECTORS
JOHN D. CARIFA,* 53, Chairman of the Board, is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
23
<PAGE>
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT (see biography,
above).
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 56, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1992.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 38, is an
Executive Vice President of ACMC, with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Department since
prior to 1993.
PAUL J. DENOON, VICE PRESIDENT, 34, is a Vice President
of ACMC with which he has been associated since prior to 1993.
EDMUND P. BERGAN, JR., SECRETARY, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1993.
ANDREW L. GANGOLF, ASSISTANT SECRETARY, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc.
DOMENICK PUGLIESE, ASSISTANT SECRETARY, 37, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Financial Holding Corporation
since 1994, Vice President and Associate General Counsel of
Prudential Securities since prior to 1993.
EMILIE D. WRAPP, ASSISTANT SECRETARY, 42, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993.
MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
47, is a Senior Vice President of AFS, with which he has been
associated since prior to 1993.
JUAN RODRIGUEZ, CONTROLLER, 40, Assistant Controller is
an Assistant Vice President of AFS, with which he has been
associated since prior to 1993.
CARLA LaROSE, ASSISTANT CONTROLLER, 34, is a Manager
of AFS with which she has been associated since prior to 1993.
24
<PAGE>
JOSEPH J. MANTINEO, ASSISTANT CONTROLLER, 38, is a Vice
President of AFS, with which he has been associated since prior
to 1993.
VINCENT S. NOTO, CONTROLLER, 34, is a Vice President
of AFS, with which he has been associated since prior to
1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended June 30, 1998, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the funds to which the Investment
Adviser provides investment advisory services (collectively, the
"Alliance Fund Complex"), and the total number of registered
investment companies (and separate investment portfolios within
those companies) in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
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 companies in the Alliance
Fund Complex.
Total Number
Total Number of Investment
of Funds in Portfolios
the Alliance Within the
Total Fund Complex, Funds,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is
from Including Director or a Director
Name of Director the Fund the Fund Trustee or Trustee
_________________ _____________ _____________ _____________ _____________
John D. Carifa $ -0- $ -0- 53 118
Ruth Block $1,777 $164,000 40 81
David H. Dievler $1,777 $188,500 46 83
John H. Dobkin $ 963 $126,500 43 80
William H. Foulk, Jr. $ 960 $149,145 48 113
Dr. James M. Hester $1,771 $156,500 40 77
Clifford L. Michel $1,771 $194,500 41 93
Donald J. Robinson $1,758 $217,358 44 107
As of October 9, 1998, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
25
<PAGE>
INVESTMENT ADVISER
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Investment Adviser is a leading international
investment manager supervising client accounts with assets as of
June 30, 1998, totaling more than $262 billion (of which more
than $107 billion represented the assets of investment
companies). The Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundations and endowment funds. The 58
registered investment companies managed by the Investment
Adviser, comprising 123 separate investment portfolios, currently
have more than 3.5 million shareholders. As of September 30,
1998, the Investment Adviser and its subsidiaries employed
approximately 2,000 employees who operate out of domestic offices
and the offices of subsidiaries in Bahrain, Bangalore, Cairo,
Chennai, Hong Kong, Istanbul, Johannesburg, London, Luxembourg,
Madrid, Moscow, Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul,
Singapore, Sydney, Tokyo, Toronto, Vienna and Warsaw. As of June
30, 1998, the Investment Adviser was retained as an investment
manager for employee benefit plan assets of 32 of the FORTUNE 100
companies.
ACMC, the sole general partner of, and the owner of a 1%
general partnership interest in the Investment Adviser, is an
indirect wholly-owned subsidiary of the Equitable Life Assurance
Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States and a wholly-owned
subsidiary of the Equitable Companies Incorporated ("ECI"). ECI
is a holding company controlled by AXA-UAP ("AXA") a French
insurance holding company which at March 1, 1998, beneficially
owned approximately 59% of the outstanding voting shares of ECI.
As of June 30, 1998, ACMC, Inc. and Equitable Capital Management
Corporation, each a wholly-owned direct or indirect subsidiary of
Equitable, together with Equitable, owned in the aggregate
approximately 57% of the issued and outstanding units
representing assignments of beneficial ownership of limited
partnership interests in the Investment Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
26
<PAGE>
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under the Investment Advisory Contract, the Investment
Adviser provides investment advisory services and order placement
facilities for the Fund and pays all compensation of Directors
and officers of the Fund who are affiliated persons of the
Investment Adviser. The Investment Adviser or its affiliates
also furnishes the Fund, without charge, management supervision
and assistance and office facilities and provides persons
satisfactory to the Fund's Board of Directors to serve as the
Fund's officers.
The Investment Adviser is, under the Investment Advisory
Contract, responsible for certain expenses incurred by the Fund,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Commission
and with state regulatory authorities).
The Fund has, under the Investment Advisory Contract,
assumed the obligation for payment of all of its other expenses.
As to the obtaining of services other than those specifically
provided to the Fund by the Investment Adviser, the Fund may
utilize personnel employed by the Investment Adviser or by other
subsidiaries of Equitable. The Fund may employ its own personnel
or contract for services to be provided to the Fund at cost and
the payments specifically approved by the Funds Board of
Directors. The Fund paid to the Investment Adviser a total of
$116,500 in respect of such services during the fiscal year of
the Fund ended in 1998.
27
<PAGE>
For the fiscal years ended June 30, 1996, 1997 and 1998,
the Investment Adviser received under the advisory agreement then
in effect, the amounts of $3,676,819, $4,886,295 and $6,774,012
respectively, as advisory fees from the Portfolio.
The Investment Advisory Contract became effective on
July 22, 1992. The Investment Advisory Contract was approved by
the unanimous vote, cast in person, of the Fund's Directors,
including the Directors who are not parties to the Investment
Advisory Contract or "interested persons" as defined in the 1940
Act of any such party, at a meeting called for such purpose and
held on September 11, 1991. At a meeting held on June 11, 1992,
a majority of the outstanding voting securities of the Portfolio
approved the Investment Advisory Contract.
The Investment Advisory Contract continues in effect for
successive twelve-month periods computed from each July 1,
provided that such continuance is specifically approved at least
annually by a vote of a majority of the Portfolio's outstanding
voting securities or by the Fund's Board of Directors, including
in either case approval by a majority of the Directors who are
not parties to the Investment Advisory Contract or interested
persons of any such party. Most recently, continuance of the
Investment Advisory Contract until June 30, 1999 was approved by
vote, cast in person, by the Board of Directors, including a
majority of the Directors who are not "interested persons" as
defined in the 1940 Act, at their meeting held on March 28,
1998.
The Investment Advisory Contract is terminable without
penalty on 60 days' written notice, by a vote of a majority of
the Fund's outstanding voting securities or by a vote of a
majority of the Fund's Directors or by the Investment Adviser on
60 days' written notice, and will automatically terminate in the
event of its assignment. The Investment Advisory Contract
provides that in the absence of willful misfeasance, bad faith or
gross negligence on the part of the Investment Adviser, or of
reckless disregard of its obligations thereunder, the Investment
Adviser shall not be liable for any action or failure to act in
accordance with its duties thereunder.
Certain other clients of the Investment Adviser may have
investment objectives and policies similar to those of the Fund.
The Investment 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
Investment Adviser to allocate advisory recommendations and the
28
<PAGE>
placing of orders in a manner which is deemed equitable by the
Investment Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Investment 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 Investment Adviser may act as an investment adviser
to other persons, firms or corporations, including investment
companies, and is the investment adviser to the following
registered investment companies: Alliance Institutional
Reserves, Inc., AFD Exchange Reserves, Inc., The Alliance Fund,
Inc., Alliance All-Asia Investment Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Capital Reserves, Alliance Global Dollar
Government Fund, Inc., Alliance Global Environment Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance High Yield Fund,
Inc., Alliance Growth and Income Fund, Inc., Alliance
International Fund, Alliance International Premier Growth Fund,
Inc., Alliance Institutional Funds, Inc., Alliance Limited
Maturity Government Fund, Inc., Alliance Money Market Fund,
Alliance Mortgage Securities Income Fund, Inc., Alliance Multi-
Market Strategy Trust, Inc., Alliance Municipal Income Fund,
Inc., Alliance Municipal Income Fund II, Alliance Municipal
Trust, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Select Investor Series, Inc., Alliance Technology Fund,
Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance Worldwide Privatization
Fund, Inc., The Alliance Portfolios and The Hudson River Trust,
all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end investment companies.
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Portfolios shares and to permit the Fund to pay distribution
29
<PAGE>
services fees to defray expenses associated with the distribution
of its Class A shares, Class B shares and Class C shares in
accordance with a plan of distribution which is included in the
Agreement and has been duly adopted and approved in accordance
with Rule 12b-1 adopted by the Commission under the 1940 Act (the
"Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Portfolio 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
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Portfolio's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of disinterested
Directors (as defined in the 1940 Act) are committed to the
discretion of such disinterested Directors then in office.
The Agreement became effective on July 22, 1992 with
respect to Class A and Class B shares, and was amended as of
April 30, 1993 to permit the distribution of Class C shares, and
September 30, 1996 to permit the distribution of Advisor Class
shares.
The Investment 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.
During the Portfolio's fiscal year ended June 30, 1998,
with respect to Class A shares, the distribution services fees
for expenditure payable to the Principal Underwriter amounted to
$1,328,326, which constituted .30 of 1% of the Portfolio's
average daily net assets attributable to Class A shares during
the fiscal year, and the Investment Adviser made payments from
its own resources aggregating $1,296,760. Of the $2,625,086 paid
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<PAGE>
by the Portfolio and the Investment Adviser under the Plan with
respect to Class A shares, $93,012 was spent on advertising,
$42,752 on the printing and mailing of prospectuses for persons
other than current shareholders, $1,238,645 for compensation to
broker-dealers and other financial intermediaries (including
$185,768 to the Fund's Principal Underwriter), $644,956 for
compensation to sales personnel, and $605,721 was spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Portfolio's fiscal year ended June 30, 1998,
with respect to Class B shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$5,773,033, which constituted 1% of the Portfolio's average daily
net assets attributable to Class B shares during such fiscal
year, and the Investment Adviser made payments from its own
resources aggregating $4,392,207. Of the $10,165,240 paid by the
Portfolio and the Investment Adviser under the Plan with respect
to Class B shares, $128,994 was spent on advertising, $61,203 on
the printing and mailing of prospectuses for persons other than
current shareholders, $8,463,841 for compensation to broker-
dealers and other financial intermediaries (including $266,913 to
the Fund's Principal Underwriter), $522,380 for compensation paid
to sales personnel, and $374,271 was spent on printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses and $614,551 was spent on financing of
interest relating to Class B shares.
During the Portfolio's fiscal year ended June 30, 1998,
with respect to Class C shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$2,097,236, which constituted 1% of the Portfolio's average daily
net assets attributable to Class C shares during such fiscal
year, and the Investment Adviser made payments from its own
resources aggregating $783,036. Of the $2,880,272 paid by the
Portfolio and the Investment Adviser under the Plan with respect
to Class C shares, $59,977 was spent on advertising, $30,939 on
the printing and mailing of prospectuses for persons other than
current shareholders, $2,150,417 for compensation to broker-
dealers and other financial intermediaries (including $129,864 to
the Fund's Principal Underwriter), $234,999 for compensation paid
to sales personnel, and $182,987 was spent on printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, and $220,953 was spent on financing of
interest relating to Class C shares.
The Agreement will continue in effect for successive
twelve-month periods (computed from each July 1) with respect to
each class of the Fund, provided, however, that such continuance
is specifically approved at least annually by the Directors of
the Fund or by vote of the holders of a majority of the
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<PAGE>
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 this Agreement or interested
persons, as defined in the 1940 Act, of any such party (other
than as directors of the Fund) and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan or any
agreement related thereto. Most recently the Directors approved
the continuance of the Agreement until June 30, 1999 at their
meeting held on March 28, 1998.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Portfolio may bear
pursuant to the Agreement without the approval of a majority of
holders of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Portfolio, voting
separately by class or by a majority vote of the disinterested
Directors as defined in the 1940 Act, or (b) by the Principal
Underwriter. To terminate the Agreement, any party must give the
other party 60 days' written notice; to terminate the Rule 12b-1
Plan only, the Fund is not required to give prior written notice
to the Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Investment Adviser, receives a transfer agency
fee per account holder for each of the Class A, Class B, Class C
shares and Advisor Class shares of the Portfolio, plus
reimbursement for out-of-pocket expenses. The transfer agency
fee with respect to the Class B shares and Class C shares is
higher than the transfer agency fee with respect to the Class A
shares and Advisor Class shares. For the fiscal year ended June
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<PAGE>
30, 1998, the Fund paid Alliance Fund Services, Inc.
$1,186,735 for transfer agency services.
PURCHASE OF SHARES
The following information supplements that set forth in
the Portfolio's Prospectus under the heading "Purchase and Sale
of Shares."
GENERAL
Shares of the Portfolio are offered on a continuous
basis at a price equal to their net asset value plus an initial
sales charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Portfolio that are offered subject to a sales charge are
offered through (i) investment dealers that are members of NASD
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"), or (iii) the
Principal Underwriter.
Advisor Class shares of the Portfolio may be purchased
and hold solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, or (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares) or (iv) by
directors and present or retired full-time employees of CB
Richard Ellis, Inc. Generally, a fee-based program must charge
an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
33
<PAGE>
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of the
Portfolio's shares to the public in response to conditions in the
securities markets or for other reasons.
The public offering price of shares of the Portfolio 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 Portfolio invests might
materially affect the value of Portfolio shares, the per share
net asset value is computed in accordance with the Fund's
Articles of Incorporation and By-Laws as of the next close of
regular trading on the New York Stock Exchange (the "Exchange")
(currently 4:00 p.m. Eastern time) by dividing the value of the
Portfolio's total assets, less its liabilities, by the total
number of its shares then outstanding. A Fund business day is any
on which the Exchange is open for trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A shares and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
34
<PAGE>
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes. For purposes of this computation, the
securities in the Portfolio are valued at their current market
value determined on the basis of market quotations. If such
accurate quotations are not readily available, securities will be
valued at such other methods as the Directors believe would
accurately reflect fair market value.
The Fund will accept unconditional orders for 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. 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 selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Portfolio 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
35
<PAGE>
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Portfolio. Such
additional amounts may be utilized, in whole or in part, to
provide additional compensation to registered representatives who
sell shares of the Portfolio. On some occasions, cash or other
incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Portfolio and/or other
Alliance Mutual Funds, as defined below, during a specific period
of time. On some occasions, such cash or other incentives may
take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel
taken by persons associated with a dealer or agent to urban or
resort locations within or outside the United States. Such
dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Portfolio, have the same rights and are identical in all
respects, except that (i) Class A shares bear the expense of the
initial sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B and Class C shares bear higher
transfer agency costs than that borne by Class A and Advisor
Class shares, (iv) each of Class A, Class B and Class C shares
has exclusive voting rights with respect to provisions of the
36
<PAGE>
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 Portfolio
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders and the Class A shareholders, the Class B
shareholders and the Advisor Class shareholders will vote
separately by class, and (v) Class B and Advisor Class shares
are subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service
options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
ALTERNATIVE RETAIL PURCHASE ARRANGEMENTS -- CLASS A, CLASS B AND
CLASS C SHARES
The alternative purchase arrangements available with
respect to Class A shares, Class B shares, and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length
of time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Fund, the accumulated
distribution services fee and contingent deferred sales charges
on Class B shares prior to conversion, or the accumulated
distribution services fee and contingent deferred sales charges
on Class C shares, would be less than the initial sales charge
and accumulated distribution services fee on Class A shares
purchased at the same time, and to what extent such differential
would be offset by the higher return of Class A shares. Class A
shares will normally be more beneficial than Class B shares to
the investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans and certain employee benefit plans) for
more than $250,000 for Class B shares. (See Appendix A 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
37
<PAGE>
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 three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Portfolio shares
for the three-year period during which Class B shares are subject
to a contingent deferred sales charge may find it more
advantageous to purchase Class C shares.
During the Fund's fiscal years ended June 30, 1998, 1997
and 1996, the aggregate amount of underwriting commission payable
with respect to shares of the Portfolio in each year was
$6,503,230, $3,387,102, and $2,039,062, respectively. Of that
amount, the Principal Underwriter received amounts of $211,204,
$112,211, and $66,987 , respectively, representing that portion
of the sales charges paid on shares of the Portfolio sold during
the year which was not reallowed to selected dealers (and was,
38
<PAGE>
accordingly, retained by the Principal Underwriter). During the
Fund's fiscal years ended in 1998, 1997 and 1996, the Principal
Underwriter received contingent deferred sales charges of
$21,508, $668, and $-0-, respectively, on Class A shares,
$570,591, $463,689, and $396,376, respectively, on Class B
shares, and $77,109, $49,841, and $-0-, respectively, on Class C
shares.
CLASS A SHARES
The public offering price of Class A shares is the
net asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ ____________
Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 3.36 3.25 3.00
$250,000 but
less than
$500,000 2.30 2.25 2.00
$500,000 but
less than
$1,000,000* 1.78 1.75 1.50
____________________
*There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
39
<PAGE>
on certain redemptions, as described below under Class B Shares.
In determining the contingent deferred sales charge applicable to
a redemption of Class A shares, it will be assumed that the
redemption is, first, of any shares that are not subject to a
contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have
been held beyond the period during which the charge applies or
were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers or agents for selling Class A
shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Investment Adviser may,
pursuant to the Agreement described above, pay such dealers or
agents from its own resources a fee of up to .25 of 1% of the
amount invested to compensate such dealers or agents for their
distribution assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other Alliance Mutual Funds (as that term is
defined under Combined Purchase Privilege below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves (AFDER) that
were purchased for cash without the payment of an initial sales
charge and without being subject to a contingent deferred sales
charge or (iii) upon the automatic conversion of Class B shares
or Advisor Class shares as described below under "--Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Portfolio 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.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
40
<PAGE>
purchase of Class A shares of the Portfolio aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Portfolio on June 30, 1998.
Net Asset Value per Class A Share
at June 30, 1998 $14.19
Per Share Sales Charge - 4.25%
of offering price (4.44%) .63
of net asset value per share)
Class A Per Share Offering Price
to the Public $14.82
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Portfolio 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 Portfolio 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
Portfolio 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:
41
<PAGE>
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Premier Growth Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York 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 Worldwide Privatization Fund, Inc.
The Alliance Portfolios
- Alliance Growth Fund
- Alliance Conservative Investors Fund
- Alliance Growth Investors Fund
- Alliance Short-Term U.S. Government Fund
42
<PAGE>
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 Portfolio
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the
Portfolio 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 Portfolio
worth an additional $100,000, the initial 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 Portfolio, rather than
the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Portfolio or any
other Alliance Mutual Fund. Each purchase of shares under a
Statement of Intention will be made at the public offering price
or prices applicable at the time of such purchase to a single
transaction of the dollar amount indicated in the Statement of
Intention. At the investor's option, a Statement of Intention
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may include purchases of shares of the Portfolio or any other
Alliance Mutual Fund made not more than 90 days prior to the date
that the investor signs a Statement of Intention; however, the
13-month period during which the Statement of Intention is in
effect will begin on the date of the earliest purchase to be
included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Portfolio, the investor
and the investor's spouse each purchase shares of the Portfolio
worth $20,000 (for a total of $40,000), it will only be necessary
to invest a total of $60,000 during the following 13 months in
shares of the Portfolio or any other Alliance Mutual Fund, to
qualify for the 3.25% sales charge on the total amount being
invested (the sales charge applicable to an investment of
$100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Portfolio 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
Portfolio 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 Portfolio 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.
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CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the
Portfolio 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 Portfolio will be that
normally applicable, under the schedule of the sales charges set
forth in this Statement of Additional Information, to an
investment 13 times larger than such initial purchase. The sales
charge applicable to each succeeding monthly purchase will be
that normally applicable, under such schedule, to an investment
equal to the sum of (i) the total purchase previously made during
the 13-month period and (ii) the current month's purchase
multiplied by the number of months (including the current month)
remaining in the 13-month period, and (ii) the total purchase
previously made during 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
Portfolio to be redeemed or repurchased may reinvest all or any
portion of the redemption or repurchase proceeds in Class A
shares of the Portfolio 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 Portfolio 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 Portfolio may sell its
Class A shares at net asset value (i.e., without an initial sales
charge) and without any contingent deferred sales charge to
certain categories of investors, including: (i) investment
management clients of the Investment Adviser or its affiliates;
(ii) officers and present or former Directors of the Fund;
present or former directors and trustees of other investment
companies managed by the Investment Adviser; present or retired
full-time employees of the Investment Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
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officers and directors of ACMC, the Principal Underwriter,
Alliance Fund Services, Inc. and their affiliates; officers,
directors and present and 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 Investment Adviser, Principal Underwriter,
Alliance Fund Services, Inc. and their affiliates; certain
employee benefit plans for employees of the Investment Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their service and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker- dealer or financial intermediary,
or its affiliate or agent, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and (vii)
employer-sponsored qualified pension or profit-sharing plans
(including Section 401(k) plans), custodial accounts maintained
pursuant to Section 403(b)(7) retirement plans and individual
retirement accounts (including individual retirement accounts to
which simplified employee pension (SEP) contributions are made),
if such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter.
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 Portfolio will
receive the full amount of the investor's purchase payment.
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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 Portfolio 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 Portfolio 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 three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase as set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
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Contingent Deferred
Sales Charge as
a % of
Year Dollar Amount
Since Purchase Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
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 Code, of a shareholder, (ii) to the extent that
the redemption represents a minimum required distribution from an
individual retirement account or other retirement plan to a
shareholder who has attained the age of 70-1/2, (iii) that had
been purchased by present or former Directors of the Fund, by the
relative of any such person, by any trust, individual retirement
account or retirement plan account for the benefit of any such
person or relative, or by the estate of any such person or
relative, or (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services--Systematic Withdrawal Plan" below).
CONVERSION FEATURE. Six 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
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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 six 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
Portfolio will receive the full amount of the investor's purchase
payment and, as long as the shares are held for one year or more,
without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution
services fee enables the Portfolio 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 Portfolio and incur
higher distribution services fees 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
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<PAGE>
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
Portfolio 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 Portfolio to sell the Class C shares without a sales charge
being deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
CONVERSION OF ADVISOR CLASS SHARES TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary
relationships described above under "Purchase of Shares--
General," and by investment advisory clients of, and by certain
other persons associated with, the Investment Adviser and its
affiliates or the Fund. If (i) a holder of Advisor Class shares
ceases to participate in the fee-based program or plan, or to be
associated with the investment adviser or financial intermediary,
in each case, that satisfies the requirements to purchase shares
set forth under "Purchase of Shares--General" or (ii) the holder
is otherwise no longer eligible to purchase Advisor Class shares
as described in the Advisor Class Prospectus and this Statement
of Additional Information (each, a "Conversion Event"), then all
Advisor Class shares held by the shareholder will convert
automatically and without notice to the shareholder, other than
the notice contained in the Advisor Class Prospectus and this
Statement of Additional Information, to Class A shares of the
Fund during the calendar month following the month in which the
Fund is informed of the occurrence of the Conversion Event. The
failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would
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<PAGE>
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class A shares currently bear a .30% distribution
services fee and have a higher expense ratio than Advisor Class
shares. As a result, Class A shares may pay correspondingly
lower dividends and have a lower net asset value than Advisor
Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his or her Advisor Class shares, which would constitute a
taxable event under federal income tax law.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in
the Portfolio's Prospectus(es) under "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Portfolio that are different from those described herein.
A transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares of the Portfolio tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. Except for any contingent deferred sales charge which may
be applicable to Class A shares, Class B shares and 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.
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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 Portfolio of securities owned by
it is not reasonably practicable or as a result of which it is
not reasonably practicable for the Portfolio 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 Portfolio.
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 Portfolio'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 (either in cash or in portfolio
securities) received by a shareholder upon redemption or
repurchase of his or her shares, assuming the shares constitute
capital assets in his or her hands, will result in long-term or
short-term capital gains (or loss) depending upon the
shareholder's holding period and basis in respect of the shares
redeemed.
To redeem shares of the Portfolio for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Portfolio 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 Portfolio 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 Portfolio 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 Portfolio 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.
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<PAGE>
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Portfolio shareholder is entitled to request redemption by
electronic fund transfer of shares for which no share
certificates have been issued by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption by electronic funds
transfer may not exceed $100,000 (except for certain omnibus
accounts), and must be made by 4:00 p.m. Eastern time on a Fund
business day as defined above. Proceeds of telephone redemptions
will be sent by electronic funds transfer to a shareholder's
designated bank account at a bank selected by the shareholder
that is a member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Portfolio
shareholder is eligible to request redemption by check of
Portfolio shares for which no stock certificate have been issued
by telephone at (800) 221-5672 before 4:00 p.m. Eastern time on a
Fund business day in an amount not exceeding $50,000. Proceeds
of such redemptions are remitted by check to the shareholder's
address of record. A shareholder otherwise eligible for
telephone redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
TELEPHONE REDEMPTIONS - GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Investment 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
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<PAGE>
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 Portfolio may repurchase shares through the
Principal Underwriter, selected financial intermediaries or
selected dealers or agents. The repurchase price will be the net
asset value next determined after the Principal Underwriter
receives the request (less the contingent deferred sales charge,
if any, with respect to the Class A, Class B and Class C shares),
except that requests placed through selected dealers or agents
before the close of regular trading on the Exchange on any day
will be executed at the net asset value determined as of such
close of regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Portfolio 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 Portfolio 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
Portfolio 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
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<PAGE>
of the Portfolio 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 Portfolio's Prospectus(es) under "Purchase and Sale of Shares
- --Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-
based program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Portfolio that are different from those described herein.
A transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Portfolio through
an automatic investment program utilizing electronic fund
transfer drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. In electronic
form, drafts can be made on or about a date each month selected
by the shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Portfolio for
shares of the same class of other Alliance Mutual Funds
(including AFD Exchange Reserves, a money market fund managed by
the Investment Adviser). In addition, (i) present officers and
full-time employees of the Investment Adviser, (ii) present
Directors or Trustees of any Alliance Mutual Fund and
(iii) certain employee benefit plans for employees of the
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<PAGE>
Investment Adviser, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates may, on a tax-free basis,
exchange Class A shares of the Portfolio for Advisor Class shares
of the Portfolio. Exchanges of shares are made at the net asset
value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption
and, in the case of Class B shares, for the purpose of conversion
to Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Portfolio for Advisor Class shares of the
Portfolio, exchanges of shares as described above in this section
are taxable transactions for federal tax purposes. The exchange
service may be changed, suspended, or terminated on 60 days
written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Portfolio shareholder, and the shareholder's
selected dealer, agent or financial representative, as
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applicable, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc. receives written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus.
Such telephone requests cannot be accepted with respect to shares
then represented by stock certificates. Shares acquired pursuant
to a telephone request for exchange will be held under the same
account registration as the shares redeemed through such
exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at (800) 221-5672
before 4:00 p.m., Eastern time, on a Fund business day as defined
above. Telephone requests for exchange received before 4:00 p.m.
Eastern time on a Fund business day will be processed as of the
close of business on that day. During periods of drastic
economic or market developments, such as the market break of
October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Investment
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 Funds being acquired may be legally
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sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Portfolio 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 Portfolio has available
forms of such plans pursuant to which investments can be made in
the Portfolio 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, N.J. 07096-1520
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Portfolio
is deferred until distribution from the IRA. An individual's
eligible contributions 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 the qualified plan reaches $1
million on or before December 15 in any year, all Class B or C
shares of the Portfolio held by the plan can be exchanged, at the
Plans request without any sales charge, for Class A shares of the
Portfolio.
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SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation, minimum $25 per pay
period, may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Portfolio.
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.
SYSTEMATIC WITHDRAWAL PLAN
GENERAL. Any shareholder who owns or purchases shares
of the Portfolio 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 Portfolio automatically reinvested in additional shares
of the Portfolio.
Shares of the Portfolio owned by a participant in the
Fund's systematic withdrawal plan will be redeemed as necessary
to meet withdrawal payments and such payments will be subject to
any taxes applicable to redemptions and, except as discussed
below, any applicable contingent deferred sales charge. Shares
acquired with reinvested dividends and distributions will be
liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent
necessary, and depending upon the amount withdrawn, the
investor's principal may be depleted. A systematic withdrawal
plan may be terminated at any time by the shareholder or the
Portfolio.
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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 Portfolio'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 Portfolio should complete the appropriate portion
of the Subscription Application found in the Prospectus, while
current Portfolio 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 these limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Portfolio
accounts, a Class A, Class B, Class C or Advisor Class account
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with one or more other Alliance Mutual Funds may direct that
income dividends and/or capital gains paid on his or her Class A,
Class B, Class C or Advisor Class Portfolio 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.
STATEMENTS AND REPORTS
Each shareholder of the Portfolio receives semi-annual
and annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
____________________________________________________________
NET ASSET VALUE
____________________________________________________________
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 of the Fund 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
Investment 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
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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 on the business day as of which such value is
being determined. If there has been no sale on such day, the
securities are valued at the quoted bid prices on such day. If
no bid prices are quoted on such day, then the security is valued
at the mean of the bid and asked prices at the close of the
Exchange on such day as obtained from one or more dealers
regularly making a market in such security. Where a bid and
asked price can be obtained from only one such dealer, such
security is valued at the mean of the bid and asked price
obtained from such dealer unless it is determined that such price
does not represent current market value, in which case the
security shall be valued in good faith at fair value by, or
pursuant to procedures established by, the Board of Directors.
Securities for which no bid and asked price quotations are
readily available are valued in good faith at fair value by, or
in accordance with procedures established by, the Board of
Directors. Readily marketable securities not listed on the
Exchange or on a foreign securities exchange are valued in like
manner. Portfolio securities traded on the Exchange and on one
or more other foreign or other national securities exchanges, and
portfolio securities not traded on the Exchange but traded on one
or more foreign or other national securities exchanges are valued
in accordance with these procedures by reference to the principal
exchange on which the securities are traded.
Readily marketable securities traded only in the
over-the-counter market, securities listed on a foreign
securities exchange whose operations are similar to those of the
United States over-the-counter market, and debt securities listed
on a U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund
are valued at the last sale price. If there has been no sale on
that day, such securities will be Valued at the closing bid
prices on that day.
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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 a pricing service take into account many
factors, including institutional size trading in similar groups-
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the
determination of the Fund's net asset value (and the offering and
sales of shares), subject to the rules of the SEC 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
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owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the SEC by order
permits a suspension of the right of redemption or a postponement
of the date of payment on redemption.
For purposes of determining the Fund's net asset
value per share, all assets and liabilities initially expressed
in a foreign currency will be converted into U.S. Dollars at the
mean of the current bid-and asked prices of such currency against
the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares,
Class B shares, 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.
____________________________________________________________
PORTFOLIO TRANSACTIONS
____________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Investment Adviser is responsible for
the investment decisions and the placing of the orders for
portfolio transactions for the Portfolio. The Portfolio's
portfolio transactions occur primarily with issuers, underwriters
or major dealers acting as principals. Such transactions are
normally on a net basis which do not involve payment of brokerage
commissions. The cost of securities purchased from an
underwriter usually includes a commission paid by the issuer to
the underwriter; transactions with dealers normally reflect the
spread between bid and asked prices. Premiums are paid with
respect to options purchased by the Portfolio and brokerage
commissions are payable with respect to transactions in exchange-
traded interest rate futures contracts.
The Investment Adviser makes the decisions for the
Portfolio and determines the broker or dealer to be used in each
specific transaction. Most transactions for the Portfolio,
including transactions in listed securities, are executed in the
over-the-counter market by approximately fifteen (15) principal
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market maker dealers with whom the Investment Adviser maintains
regular contact. Most transactions made by the Portfolio will be
principal transactions at net prices and the Portfolio will incur
little or no brokerage costs. Where possible, securities will be
purchased directly from the issuer or from an underwriter or
market maker for the securities unless the Investment Adviser
believes a better price and execution is available elsewhere.
Purchases from underwriters of newly-issued securities for
inclusion in the Portfolio usually will include a concession paid
to the underwriter by the issuer and purchases from dealers
serving as market makers will include the spread between the bid
and asked price.
The Portfolio has no obligation to enter into
transactions in securities with any broker, dealer, issuer,
underwriter or other entity. In placing orders, it is the policy
of the Fund to obtain the best price and execution for its
transactions. Where best price and execution may be obtained
from more than one broker or dealer, the Investment Adviser may,
in its discretion, purchase and sell securities through brokers
and dealers who provide research, statistical and other
information to the Investment Adviser. Such services may be used
by the Investment Adviser for all of its investment advisory
accounts and, accordingly, not all such services may be used by
the Investment Adviser in connection with the Portfolio. There
may be occasions where the transaction cost charged by a broker
may be greater than that which another broker may charge if the
Fund determines in good faith that the amount of such transaction
cost is reasonable in relationship to the value of the brokerage
and research and statistical services provided by the executing
broker. During the fiscal years ended June 30, 1996, 1997 and
1998, the Portfolio incurred no brokerage commissions.
____________________________________________________________
TAXES
____________________________________________________________
The Fund advises the Portfolio's shareholders annually
as to the Federal income tax status of dividends and
distributions made to the Portfolio's shareholders during each
calendar year.
GENERAL. The Portfolio intends for each taxable year to
qualify as a "regulated investment company" under the Code . To
so qualify, the Portfolio must, among other things, (i) derive at
least 90% of its gross income in each taxable year from
dividends, interest, payments with respect to securities loans,
gains from the sale or other disposition of stock or securities
or foreign currency, or certain other income (including, but not
limited to, gains from options, futures and forward contracts)
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derived with respect to its business of investing in stock,
securities or currency; and(ii) diversify its holdings so that,
at the end of each quarter of its taxable year, the following two
conditions are met: (a) at least 50% of the value of the
Portfolio's assets is represented by cash, cash items, U.S.
Government Securities, securities of other regulated investment
companies and other securities with respect to which the
Portfolio's investment is limited, in respect of any one issuer,
to an amount not greater than 5% of the Portfolio's total assets
and 10% of the outstanding voting securities of such issuer and
(b) not more than 25% of the value of the Portfolio's assets is
invested in securities of any one issuer (other than U.S.
Government Securities or securities of other regulated investment
companies). These requirements, among other things, may limit
the Portfolio's ability to write and purchase options, to enter
into interest rate swaps and to purchase or sell interest rate
caps or floors.
If the Portfolio qualifies as a regulated investment
company for any taxable year and makes timely distributions to
its shareholders of 90% or more of its net investment income for
that year (calculated without regard to its net capital gain,
i.e., the excess of its net long-term capital gain over its net
short-term capital loss), it will not be subject to federal
income tax on the portion of its taxable income for the year
(including any net capital gain) that it distributes to
shareholders.
The Portfolio will also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to
shareholders equal to the sum of (i) 98% of its ordinary income
for such year, (ii) 98% of its capital gain net income and
foreign currency gains for the twelve-month period ending on
October 31 of such year, and (iii) any ordinary income or capital
gain net income from the preceding calendar year that was not
distributed during such year. For this purpose, income or gain
retained by the Portfolio that is subject to corporate income tax
will be considered to have been distributed by the Portfolio by
year-end. For federal income and excise tax purposes, dividends
declared and payable to shareholders of record as of a date in
October, November or December but actually paid during the
following January will be treated as if paid by the Portfolio on
December 31 of such calendar year, and will be taxable to these
shareholders for the year declared, and not for the year in which
the shareholders actually receive the dividend.
The information set forth in the following discussion
relates solely to the significant United States federal income
tax consequences of dividends and distributions by the Portfolio
and of sales or redemptions of Portfolio shares, and assumes that
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the Portfolio qualifies to be taxed as a regulated investment
company. Investors should consult their own tax counsel with
respect to the specific tax consequences of their being
shareholders of the Portfolio, including the effect and
applicability of federal, state and local tax laws to their own
particular situation and the possible effects of changes therein.
DIVIDENDS AND DISTRIBUTIONS. The Portfolio intends to
make timely distributions of the Portfolio's taxable income
(including any net capital gain) so that the Portfolio will not
be subject to federal income and excise taxes. Dividends of the
Portfolio's net ordinary income and distributions of any net
realized short-term capital gain are taxable to shareholders as
ordinary income.
Distributions of net capital gain are taxable as long-
term capital gain, regardless of how long a shareholder has held
shares in the Fund. Any dividend or distribution received by a
shareholder on shares of the Portfolio 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 Portfolio.
After the end of the taxable year, the Portfolio will
notify shareholders of the federal income tax status of any
distributions made by the Portfolio to shareholders during such
year.
SALES AND REDEMPTIONS. Any gain or loss arising from a
sale or redemption of Portfolio shares generally will be capital
gain or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. If a shareholder has held shares in the
Portfolio 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 Portfolio will be disallowed to the extent the
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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.
BACKUP WITHHOLDING. The Portfolio may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Portfolio with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
types of shareholders specified in the Code are exempt from such
backup withholding. Backup withholding is not an additional tax;
any amounts so withheld may be credited against a shareholder's
United States federal income tax liability or
refunded.
UNITED STATES FEDERAL INCOME TAXATION OF THE FUND. The
following discussion relates to certain significant United States
federal income tax consequences to the Portfolio with respect to
the determination of its "investment company taxable income" each
year. This discussion assumes that the Portfolio will be taxed
as a regulated investment company for each of its taxable years.
PASSIVE FOREIGN INVESTMENT COMPANIES. Certain of the
Portfolio's investments in Structured Securities may constitute,
for federal income tax purposes, investments in shares of foreign
corporations. If the Portfolio owns shares in a foreign
corporation that constitutes a "passive foreign investment
company" (a "PFIC") for federal income tax purposes and the
Portfolio does not elect to treat the foreign corporation as a
"qualified electing fund" within the meaning of the Code, the
Portfolio may be subject to United States federal income taxation
on a portion of any "excess distribution" it receives from the
PFIC or any gain it derives from the disposition of such shares,
even if such income is distributed as a taxable dividend by the
Portfolio to its United States shareholders. The Portfolio may
also be subject to additional interest charges in respect of
deferred taxes arising from such distributions or gains. Any tax
paid by the Portfolio as a result of its ownership of shares in a
PFIC will not give rise to any deduction or credit to the
Portfolio or to any shareholder. A PFIC means any foreign
corporation if, for the taxable year involved, either (i) it
derives at least 75% of its gross income from "passive income"
(including, but not limited to, interest, dividends, royalties,
rents and annuities), or (ii) on average, at least 50% of the
value (or adjusted tax basis, if elected) of the assets held by
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the corporation produce "passive income." Pursuant to the
Taxpayer Relief Act of 1997, the Portfolio could elect for
taxable years beginning after 1997 to "mark-to-market" stock in a
PFIC. Under such an election, the Portfolio would include in
income each year an amount equal to the excess, if any, of the
fair market value of the PFIC stock as of the close of the
taxable year over the Portfolio's adjusted basis in the PFIC
stock. The Portfolio would be allowed a deduction for the
excess, if any, of the adjusted basis of the PFIC stock over the
fair market value of the PFIC stock as of the close of the
taxable year, but only to the extent of any net mark-to-market
gains included by the Portfolio for prior taxable years. The
Portfolio's adjusted basis in the PFIC stock would be adjusted to
reflect the amounts included in, or deducted from, income under
this election. Amounts included in income pursuant to this
election, as well as gain realized on the sale or other
disposition of the PFIC stock, would be treated as ordinary
income. The deductible portion of any mark-to-market loss, as
well as loss realized on the sale or other disposition of the
PFIC stock to the extent that such loss does not exceed the net
mark-to-market gains previously included by the Portfolio, would
be treated as ordinary loss. The Portfolio generally would not
be subject to the deferred tax and interest charge provisions
discussed above with respect to PFIC stock for which a mark-to-
market election has been made. If the Portfolio purchases shares
in a PFIC and the Portfolio does elect to treat the foreign
corporation as a "qualified electing fund" under the Code, the
Portfolio may be required to include in its income each year a
portion of the ordinary income and net capital gains of the
foreign corporation, even if this income is not distributed to
the Portfolio. Any such income would be subject to the 90% and
calendar year distribution requirements described above.
DISCOUNT OBLIGATIONS. Under current federal tax law,
the Portfolio will include in income interest each year, in
addition to stated interest received on obligations held by the
Portfolio, amounts attributable to the Portfolio from holding (i)
securities which were initially issued at discounts from their
face values ("Discount Obligations") and (ii) securities
(including many Brady Bonds) purchased by the Portfolio at a
price less than their stated face amount or, in the case of
Discount Obligations, at a price less than their issue price plus
the portion of "original issue discount" previously accrued
thereon, i.e., purchased at a "market discount." Current federal
tax law requires that a holder (such as the Portfolio) of a
Discount Obligation accrue as income each year a portion of the
discount at which the obligation was purchased by the Portfolio
even though the Portfolio does not receive interest payments in
cash on the security during the year which reflect the accrued
discount. The Portfolio will elect to likewise accrue and
include in income each year a portion of the market discount with
69
<PAGE>
respect to a Discount Obligation or other obligation even though
the Portfolio does not receive interest payments in cash on the
securities which reflect that accrued discount.
As a result of the applicable rules, in order to make
the distributions necessary for the Portfolio not to be subject
to federal income or excise taxes, the Portfolio may be required
to pay out as an income distribution each year an amount
significantly greater than the total amount of cash which the
Portfolio has actually received as interest during the year.
Such distributions will be made from the cash assets of the
Portfolio, from borrowings or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates
the liquidation of portfolio securities, the Investment Adviser
will select which securities to sell. The Portfolio may realize
a gain or loss from such sales. In the event the Portfolio
realizes net capital gains from such sales, its shareholders may
receive a larger capital gain distribution, if any, than they
would have in the absence of such sales.
OPTIONS. Certain listed options are considered "section
1256 contracts" for federal income tax purposes. Section 1256
contracts held by the Portfolio 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
Portfolio on section 1256 contracts generally will be considered
60% long-term and 40% short-term capital gain or loss.
With respect to options traded over-the-counter or on
certain foreign exchanges, gain or loss realized by the Portfolio
upon the lapse or sale of such options held by the Portfolio will
be either long-term or short-term capital gain or loss depending
upon the Portfolio'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 Portfolio will be treated as
short-term capital gain or loss. In general, if the Portfolio
exercises an option, or an option that the Portfolio 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.
TAX STRADDLES. Any option or other position entered
into or held by the Portfolio in conjunction with any other
position held by the Portfolio may constitute a "straddle" for
federal income tax purposes. In general, straddles are subject
to certain rules that may affect the character and timing of the
Portfolio's gains and losses with respect to straddle positions.
70
<PAGE>
CURRENCY FLUCTUATIONS. For Federal income tax purposes,
gains or losses attributable to fluctuations in exchange rates
which occur between the time the Portfolio accrues interest or
other receivables or accrues expenses or other liabilities
denominated in a foreign currency and the time the Portfolio
actually collects such receivables or pays such liabilities are
treated as ordinary income or ordinary loss. Similarly, gains or
losses from the disposition of debt securities denominated in a
foreign currency which are attributable to fluctuations in the
value of the foreign currency between the date of acquisition of
the asset and the date of disposition also are treated as
ordinary gain or loss.
OTHER TAXES. Income received by the Portfolio also may
be subject to state, local and foreign income taxes, including
taxes withheld at the source. The United States has entered into
tax treaties with many foreign countries which entitle the
Portfolio to a reduced rate of such taxes or exemption from taxes
on such income. It is impossible to determine the effective rate
of foreign tax in advance since the amount of the Portfolio's
assets to be invested within various countries is not known.
TAXATION OF FOREIGN STOCKHOLDERS. The foregoing
discussion relates only to U.S. Federal income tax law as it
affects shareholders who are U.S. residents or U.S. corporations.
The effects of Federal income tax law on shareholders who are
non-resident aliens or foreign corporations may be substantially
different. Foreign investors should consult their counsel for
further information as to the U.S. tax consequences of receipt of
income from the Fund.
____________________________________________________________
GENERAL INFORMATION
____________________________________________________________
The Portfolio is formally designated in the Charter of
the Fund as the Monthly Income Portfolio. Class A shares of the
Portfolio are classified in the Charter of the Fund as shares of
Monthly Income Portfolio Common Stock, Class B shares of the
Portfolio are classified in the Charter of the Fund as shares of
Monthly Income Portfolio Class B Common Stock and Class C shares
of the Portfolio are classified in the Charter of the Fund as
shares of Monthly Income Portfolio Class C Common Stock. The
Portfolio began conducting business as the Corporate Bond
Portfolio as of January 4, 1993.
CAPITALIZATION
All shares of each Portfolio participate equally in
dividends and distributions from that Portfolio, including any
71
<PAGE>
distributions in the event of a liquidation. Each share of the
Portfolio is entitled to one vote for all purposes. Shares of
both Portfolios vote for the election of Directors and on any
other matter that affects both Portfolios in substantially the
same manner as a single class, except as otherwise required by
law. 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 class. There are no conversion or preemptive rights in
connection with any shares of the Portfolio. All shares of the
Portfolio when duly issued will be fully paid and
non-assessable.
The authorized capital stock of the Fund consists of
1,800,000,000 shares of Common Stock having a par value of $.001
per share. The authorized capital stock of the Portfolio
currently consists of 250,000,000 shares of Class A Common Stock,
250,000,000 shares of Class B Common Stock, 250,000,000 shares of
Class C Common Stock, and 250,000,000 shares of Advisor Class
Common Stock, each having a par value of $.001 per share Class A,
Class B and Class C shares each represent interests in the assets
of the Portfolio and have identical voting, dividend, liquidation
and other rights on the same terms and conditions, except that
expenses related to the distribution of each class and transfer
agency expenses of each class are borne solely by each class and
each class of shares has exclusive voting rights with respect to
provisions of the Fund's Rule 12b-1 distribution plan which
pertain to a particular class and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of both the Class A
shareholders and the Class B shareholders an amendment to the
Rule 12b-1 distribution plan that would materially increase the
amount to be paid thereunder with respect to the Class A shares,
the Class A shareholders and the Class B shareholders will vote
separately by class.
The Fund's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but
unissued shares of the Portfolio's Class A, Class B, Class C and
Advisor Class Common Stock.
The Board of Directors is authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional series of
shares. Any issuance of shares of another series would be
governed by the 1940 Act and the laws of the State of Maryland.
If shares of another series were issued in connection with the
creation of a second portfolio, each share of either portfolio
72
<PAGE>
would normally be entitled to one vote for all purposes.
Generally, shares of both portfolios would vote as a single
series for the election of Directors and on any other matter that
affected both portfolios in substantially the same manner. As to
matters affecting each portfolio differently, such as approval of
the Investment Advisory Contract and changes in investment
policy, shares of each Portfolio would vote as separate series.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on October 9, 1998, there
were 102,001,405 shares of common stock of the Portfolio
outstanding. Of this amount, 36,617,484 shares were Class A,
49,629,021shares were Class B and 15,754,900shares were Class C
shares. To the knowledge of the Portfolio, the following persons
owned of record or beneficially, 5% or more of the outstanding
shares the Portfolio as of October 9, 1998:
NO. OF % of % of % of
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
Merrill Lynch 3,009,216 8.00%
Fund Admin
4800 Deer Lake Dr. East,
2nd Floor
Jacksonville, FL 32244-6484
Merrill Lynch 9,257,528 19.00%
Fund Admin
4800 Deer Lake Dr. East,
2nd Floor
Jacksonville, FL 32244-6484
Merrill Lynch 5,675,663 36.00%
Fund Admin
4800 Deer Lake Dr. East,
2nd Floor
Jacksonville, FL 32244-6484
73
<PAGE>
CUSTODIAN
State Street Bank and Trust Company "State Street," 225
Franklin Street, Boston, Massachusetts 02110, acts as the Funds
Custodian for the assets of the Fund but plays no part in
deciding on the purchase or sale of portfolio securities. Subject
to the supervision of the Fund's Directors, State Street may
enter into subcustodial agreements for the holding of the Fund's
foreign securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Portfolio. Under the Agreement,
the Fund has agreed to indemnify the Principal Underwriter, in
the absence of its willful misfeasance, bad faith, gross
negligence or reckless disregard of its obligations thereunder,
against certain civil liabilities, including liabilities under
the Securities Act.
COUNSEL
Legal matters in connection with the issuance of the
shares of the Fund offered hereby are passed upon by Seward &
Kissel, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Fund.
PERFORMANCE INFORMATION
From time to time, the Portfolio may advertise its
"yield," "actual distribution rate" and "total return." The
Portfolio will compute its yield, actual distribution rate and
total return separately for Class A, Class B, Class C and Advisor
Class shares. The Portfolio's yield for any 30-day (or
one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public
offering price per share on the last day of the period, and then
annualizing such 30-day (or one-month) yield in accordance with a
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Portfolio's "actual
distribution rate," which may be advertised in items of sales
literature, is computed in the same manner as yield except that
actual income dividends declared per share during the period in
74
<PAGE>
question is substituted for net investment income per share. The
actual distribution rate is compounded separately for each class
of shares. The Portfolio's total return for each such period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of such investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Portfolio are assumed
to have been reinvested when received and the maximum sales
charge applicable to purchases of the Portfolio shares is assumed
to have been paid.
The yield for the month ended June 30, 1998 for Class A
shares of the Portfolio was 6.63%, for Class B shares was 6.21%
and for Class C shares was 6.21%. The actual distribution rate
for such period for the Portfolio for Class A shares was 7.75%,
for Class B shares was 7.42% and for Class C shares was 7.42%.
The Portfolio's average annual total return for the one-year
period ended June 30, 1998, was 4.04%, for the five-year period
ended June 30, 1998, was 8.46% and for the ten-year period ended
June 30, 1998, was 11.34% for Class A shares of the Portfolio;
the average annual total return for the one-year period ended
June 30, 1998 was 4.95%, for the five-year period ended June 30,
1998 was 8.67% and for the period January 3, 1993 (commencement
of distribution) through June 30, 1998, was 11.15% for Class B
shares of the Portfolio; and the average annual total return for
the one-year period ended June 30, 1998, was 6.95%, for the five-
year period ended June 30, 1998 was 8.67% and for the period
May 3, 1993 (commencement of distribution) through June 30, 1998,
was 9.42% for Class C shares of the Portfolio.
The Portfolio's yield and total return are not fixed and
will fluctuate in response to prevailing market conditions or as
a function of the type and quality of the securities held by the
Portfolio, its average portfolio maturity and its expenses.
Yield and total return information is useful in reviewing the
Portfolio's performance and such information may provide a basis
for comparison with other investments. Such other investments
may include certificates of deposit, money market funds and
corporate debt securities. However, an investor should know that
investment return and principal value of an investment in the
Portfolio will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost. In
addition, the Portfolio's shares are not insured or guaranteed by
the U.S. Government. In comparison, certificates of deposit are
guaranteed and pay a fixed rate of return; money market funds
seek a stable net asset value; and corporate debt securities may
provide a higher yield than those available from the Portfolio.
75
<PAGE>
Advertisements quoting performance rankings or ratings
of the Fund's Portfolio as measured by financial publications or
by independent organizations such as Lipper Analytical Services,
Inc. ("Lipper") and Morningstar, Inc. and advertisements
presenting the historical record payments of income dividends by
the Portfolio 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. The Portfolio has been ranked by Lipper in
the category known as "corporate debt bonds BBB rated funds."
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the
shareholder's broker or other financial adviser 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.
76
00250123.AR2
<PAGE>
____________________________________________________________
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT AUDITORS
____________________________________________________________
77
00250123.AR2
<PAGE>
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
ANNUAL REPORT
JUNE 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS (A) (000) VALUE
- -------------------------------------------------------------------------
CORPORATE DEBT
OBLIGATIONS-71.3%
AUTOMOTIVE-2.4%
BB+ Federal Mogul Corp.
7.875%, 7/01/10 $ 35,000 $ 35,043,750
BANKING-3.0%
Baa3 FBOP Capital Trust I
10.20%, 2/06/27 (b)(c) 23,000 25,634,834
BB+ Northfork Capital Trust I
8.70%, 12/15/26 16,230 18,029,696
-------------
43,664,530
BROADCASTING/MEDIA-7.5%
BBB- News America, Inc.
7.30%, 4/30/28 (b) 55,000 56,755,160
Baa3 Time Warner, Inc.
6.95%, 1/15/28 (c) 50,000 50,845,550
-------------
107,600,710
COMMUNICATIONS-13.5%
BBB- Comcast Cable Communications
8.875%, 5/01/17 40,525 49,223,934
BB+ Paramount Communications, Inc.
7.50%, 7/15/23 31,176 31,273,144
BBB- TCI Communications, Inc.
6.875%, 2/15/06 32,000 33,172,992
7.875%, 2/15/26 26,820 30,208,761
A- U.S. West Capital Funding, Inc.
6.875%, 7/15/28 30,000 30,239,820
NR Winstar Communications, Inc.
10.00%, 3/15/08 (b) 9,500 9,476,250
11.00%, 3/15/08 (b) 10,000 9,997,000
-------------
193,591,901
FINANCIAL-16.6%
B- Advanta Capital Trust I
8.99%, 12/17/26 (b) 12,000 10,281,948
BB Dime Capital Trust I
Series A
9.33%, 5/06/27 36,075 40,901,474
A Nationsbank Corp.
6.80%, 3/15/28 47,700 48,923,505
BBB Renaissance Capital Trust
8.54%, 3/01/27 19,470 20,930,250
BBB- Selkirk Cogen Funding Corp.
8.98%, 6/26/12 30,000 34,632,000
BBB- Sumitomo Bank Treasury Co.
9.40%, 12/29/49 (b) 35,500 34,989,759
BB+ Tokai Capital, LLC
9.98%, 12/29/49 (b) 51,300 47,584,392
-------------
238,243,328
HEALTHCARE-1.6%
BBB Healthsouth Corp.
7.00%, 6/15/08 (b) 22,500 22,307,985
INDUSTRIAL-4.6%
B1 CSN Iron Brazil, SA
9.125%, 6/01/07 (b)(c) 42,500 34,106,250
BBB Raytheon Co.
7.20%, 8/15/27 30,000 32,600,070
66,706,320
INSURANCE-8.6%
BBB Arkwright CSN Trust
9.625%, 8/15/26 (b) 38,500 45,798,329
BBB- Delphi Funding LLC
Series A
9.31%, 3/25/27 25,000 27,921,225
A+ Liberty Mutual Insurance
7.697%, 10/15/97 (b) 45,000 49,752,405
-------------
123,471,959
PUBLIC UTILITIES-7.5%
BB+ CalEnergy Co., Inc.
7.63%, 10/15/07 46,000 46,193,430
A+ Consolidated Edison
Series 94-A
7.125%, 2/15/29 22,000 22,562,540
BB+ El Paso Electric Co.
8.90%, 2/01/06 19,000 21,280,000
BB- Niagara Mohawk Power Corp.
7.625%, 10/01/05 16,600 16,932,000
-------------
106,967,970
6
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS (A) (000) VALUE
- -------------------------------------------------------------------------
RETAIL-2.7%
BBB+ Dayton Hudson Corp.
6.75%, 1/01/28 $38,000 $ 38,570,304
TRANSPORTATION-3.3%
BBB United Airlines
9.56%, 10/19/18 37,716 47,956,460
Total Corporate Debt Obligations
(cost $1,002,307,910) 1,024,125,217
SOVEREIGN DEBT OBLIGATIONS-7.2%
BRAZIL-1.8%
BB- Republic of Brazil
9.375%, 4/07/08 10,000 8,870,000
10.125%, 5/15/27 20,000 17,240,000
-------------
26,110,000
MEXICO-2.0%
BBB United Mexican States
11.50%, 5/15/26 25,000 28,418,750
RUSSIA-3.4%
BB- Russian Ministry of Finance
12.75%, 6/24/28 (b) 20,000 17,875,000
NR Russian IAN
6.625%, 12/15/15 1,140 633,947
NR Russian Principal Loans FRN
6.625%, 12/15/20 (d) 65,000 30,283,500
-------------
48,792,447
Total Sovereign Debt Obligations
(cost $122,554,127) 103,321,197
YANKEES-14.9%
BANKING-1.3%
BBB Dao Heng Bank, Ltd.
7.75%, 1/24/07 (b) 23,500 19,032,462
COMMUNICATIONS-3.1%
BBB- Telefonica de Argentina, SA
9.125%, 5/07/08 (b) 29,000 27,405,000
11.875%, 11/01/04 15,220 16,361,500
-------------
43,766,500
FINANCIAL-2.1%
BBB MC Cuernavaca Trust
9.25%, 7/25/01 (b) 33,208 30,550,614
GAS-1.6%
BBB- Transgas de Occidental, SA
9.79%, 11/01/10 (b) 22,588 22,531,364
INDUSTRIAL-3.1%
C Grupo Mexicano de Desarrollo, SA
8.25%, 2/17/01 (c)(e) 29,200 5,840,000
BB+ Reliance Industries, Ltd.
9.375%, 6/24/26 (b) 40,000 38,700,000
-------------
44,540,000
REAL ESTATE-0.5%
BB Guangzhou Shenzhen
10.25%, 8/15/07 10,000 7,756,000
UTILITIES-3.2%
BB+ Empresa Electrica Del Norte, SA
7.75%, 3/15/06 (b) 38,240 32,379,720
BB+ Korea Electric Power Corp.
7.75%, 4/01/13 18,500 13,623,604
-------------
46,003,324
Total Yankees
(cost $245,298,178) 214,180,264
U.S. GOVERNMENT OBLIGATIONS-3.9%
AAA U.S. Treasury Bond
6.125%, 11/15/27 10,000 10,718,760
AAA U.S. Treasury Strip
Zero coupon, 5/15/20 160,000 46,011,360
Total U.S. Government Obligations
(cost $54,007,330) 56,730,120
7
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
SHARES OR
STANDARD & PRINCIPAL
POOR'S AMOUNT
RATINGS (A) (000) VALUE
- ------------------------------------------------------------------------
BBB+ NB Capital Corp.
8.35%
(cost $43,000,000) 43 $ 44,556,170
COMMERCIAL PAPER-1.0%
A-1+ General Electric Capital Corp.
5.60%, 7/01/98 (c)
(amortized cost $14,000,000) $14,000 14,000,000
PREFERRED STOCK-3.1%
FINANCIAL-3.1%
TOTAL INVESTMENTS-101.4%
(cost $1,481,167,545) 1,456,912,968
Other assets less liabilities-(1.4%) (19,611,724)
NET ASSETS-100% $1,437,301,244
(a) Unaudited
(b) Securities exempt from Registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified buyers. At June 30, 1998, these securities
amounted to $535,158,472 or 37.2% of net assets.
(c) Moody's Rating
(d) Coupon consists of 3.3125% cash payment and 3.3125% paid-in-kind of
Russian IAN's.
(e) Security is in default and is non-income producing.
Glossary of terms:
FRN - Floating Rate Note
IAN - Interest Arrears Note
See notes to financial statements.
8
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $1,481,167,545) $1,456,912,968
Cash 9,811,870
Interest receivable 23,655,707
Receivable for capital stock sold 9,848,924
Dividends receivable 897,625
Receivable for investment securities sold 88,442
Prepaid expenses 17,169
Total assets 1,501,232,705
LIABILITIES
Payable for investment securities purchased 52,873,578
Payable for capital stock redeemed 6,075,756
Dividends payable 3,039,993
Distribution fee payable 880,703
Advisory fee payable 637,400
Accrued expenses 424,031
Total liabilities 63,931,461
NET ASSETS $1,437,301,244
COMPOSITION OF NET ASSETS
Capital stock, at par $101,312
Additional paid-in capital 1,478,893,451
Undistributed net investment income 1,664,395
Accumulated net realized loss on investment transactions (19,103,337)
Net unrealized depreciation of investments (24,254,577)
$1,437,301,244
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($510,396,926/
35,972,098 shares of capital stock issued and outstanding) $14.19
Sales charge--4.25% of public offering price .63
Maximum offering price $14.82
CLASS B SHARES
Net asset value and offering price per share ($672,373,850/
47,399,813 shares of capital stock issued and outstanding) $14.19
CLASS C SHARES
Net asset value and offering price per share ($254,530,468/
17,940,039 shares of capital stock issued and outstanding) $14.19
See notes to financial statements.
9
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $101,360,629
Dividends 3,980,092
$105,340,721
EXPENSES
Advisory fee 6,774,012
Distribution fee - Class A 1,328,326
Distribution fee - Class B 5,773,033
Distribution fee - Class C 2,097,236
Transfer agency 1,635,082
Custodian 264,205
Printing 159,038
Audit and legal 122,270
Administrative 115,800
Registration 85,669
Taxes 69,761
Directors' fees 14,727
Miscellaneous 18,431
Total expenses 18,457,590
Net investment income 86,883,131
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investment transactions 17,411,629
Net realized gain on written options transactions 282,969
Net change in unrealized depreciation of investments (14,341,150)
Net gain on investments 3,353,448
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 90,236,579
See notes to financial statements.
10
STATEMENT OF CHANGES
IN NET ASSETS ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 86,883,131 $67,267,838
Net realized gain on investments and options
transactions 17,694,598 45,535,746
Net change in unrealized depreciation of
investments (14,341,150) 12,490,228
Net increase in net assets from operations 90,236,579 125,293,812
DIVIDENDS ANDDISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (32,980,257) (28,663,265)
Class B (39,538,622) (33,588,524)
Class C (14,364,252) (9,618,790)
Distributions in excess of net investment
income
Class A (3,979,895) -0-
Class B (4,771,327) -0-
Class C (1,733,407) -0-
CAPITAL STOCK TRANSACTIONS
Net increase 418,498,497 273,894,910
Total increase 411,367,316 327,318,143
NET ASSETS
Beginning of year 1,025,933,928 698,615,785
End of year (including undistributed net
investment income of $3,285,397 and
$1,077,850, respectively) $1,437,301,244 $1,025,933,928
See notes to financial statements.
11
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998 ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund, which is a Maryland corporation, operates as a series company
currently comprised of two portfolios: the Corporate Bond Portfolio and the
U.S. Government Portfolio. Each series is considered to be a separate entity
for financial reporting and tax purposes. The financial statements and notes
include the operations of the Corporate Bond Portfolio (the "Portfolio") only.
The Portfolio offers three classes of shares: Class A, Class B and Class C
shares. Class A shares are currently sold with a front-end sales charge of up
to 4.25% for purchases not exceeding $1,000,000. With respect to purchases of
$1,000,000 or more, Class A shares redeemed within one year of purchase will be
subject to a contingent deferred sales charge of 1%. Class B shares are sold
with a contingent deferred sales charge which declines from 3% to zero
depending on the period of time the shares are held. Class B shares will
automatically convert to Class A shares six years after the end of the calendar
month of purchase. Class C shares are subject to a contingent deferred sales
charge of 1% on redemptions made within the first year after purchase. All
three classes of shares have identical voting, dividend, liquidation and other
rights, except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan. The financial
statements have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and assumptions
that affect the reported amounts of assets and liabilities in the financial
statements and amounts of income and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies followed by the Portfolio.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange or on a foreign
securities exchange (other than foreign securities exchanges whose operations
are similar to those of the United States over-the-counter market) are
generally valued at the last reported sale price, or if there was no sale on
such day, the last bid price quoted on such day. If no bid prices are quoted,
then the security is valued at the mean of the bid and asked prices as obtained
on that day from one or more dealers regularly making a market in that
security. Securities traded on the over-the-counter market, securities listed
on a foreign securities exchange whose operations are similar to the United
States over-the-counter market, and securities listed on a national securities
exchange whose primary market is believed to be over-the-counter are valued at
the mean of the closing bid and asked prices provided by two or more dealers
regularly making a market in such securities. U.S. government securities and
other debt securities which mature in 60 days or less are valued at amortized
cost unless this method does not represent fair value. Securities for which
market quotations are not readily available are valued at fair value as
determined in good faith by, or in accordance with procedures approved by, the
Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. TAXES
It is the Portfolio's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Dividend income is recorded on ex-dividend date. Interest income is accrued
daily. Investment transactions are accounted for on the date securities are
purchased or sold. The Portfolio accretes discounts as adjustments to interest
income. Investment gains and losses are determined on the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Portfolio are borne on a
pro-rata basis by each settled class of shares, based on the proportionate
interest in the Portfolio represented by the net assets of such class, except
that the Portfolio's Class B and Class C shares bear higher distribution and
transfer agent fees than Class A shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
12
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification.
During the current fiscal year, permanent differences, primarily due to
distributions in excess of net investment income, resulted in a net increase in
undistributed net investment income and accumulated net realized loss on
investment transactions and a corresponding decrease in additional paid-in
capital. This reclassification had no effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays
Alliance Capital Management L.P. (the "Adviser"), an advisory fee at a annual
rate of .625 of 1% of the first $500 million and .50 of 1% in excess of $500
million of the Portfolio's average daily net assets. The fee is accrued daily
and paid monthly.
Pursuant to the advisory agreement, the Portfolio paid $115,800 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the year ended June 30, 1998.
The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned
subsidiary of the Adviser, under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $1,186,735 for the year ended June 30, 1998.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Portfolio's shares. The
Distributor received front-end sales charges of $211,204 from the sales of
Class A shares and $21,508, $570,591 and $77,109 in contingent deferred sales
charges imposed upon redemptions by shareholders of Class A, Class B and Class
C shares, respectively, for the year ended June 30, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Portfolio has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Portfolio pays a distribution fee to the Distributor at an
annual rate of up to .30 of 1% of the Portfolio's average daily net assets
attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Portfolio in the amount of $13,555,599 and $2,876,562
for Class B and Class C shares, respectively; such costs may be recovered from
the Portfolio in future periods as long as the Agreement is in effect. In
accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $2,556,792,168 and $2,075,519,447,
respectively, for the year ended June 30, 1998. There were purchases of
$912,437,537 and sales of $930,383,796 of U.S. government and government agency
obligations for the year ended June 30, 1998.
At June 30, 1998, the cost of investments for federal income tax purposes was
$1,487,349,000. Accordingly, gross unrealized appreciation of investments was
13
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
$42,368,803 and gross unrealized depreciation of investments was $72,804,835
resulting in net unrealized depreciation of $30,436,032.
At June 30, 1998, the Portfolio had a net capital loss carryforward for federal
income tax purposes of $6,334,555, of which $2,817,216 expires in the year 2003
and $3,517,339 expires in the year 2004.
1. OPTIONS TRANSACTIONS
For hedging and investment purposes, the Portfolio purchases and writes (sells)
put and call options on debt securities that are traded on U.S. and foreign
securities exchanges and over-the-counter markets.
The risk associated with purchasing an option is that the Portfolio pays a
premium whether or not the option is exercised. Additionally, the Portfolio
bears the risk of loss of premium and change in market value should the
counterparty not perform under the contract. Put and call options purchased are
accounted for in the same manner as portfolio securities. The cost of
securities acquired through the exercise of call options is increased by
premiums paid. The proceeds from securities sold through the exercise of put
options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is
recorded as a liability and is subsequently adjusted to the current market
value of the option written. Premiums received from writing options which
expire unexercised are recorded by the Portfolio on the expiration date as
realized gains from option transactions. The difference between the premium
received and the amount paid on effecting a closing purchase transaction,
including brokerage commissions, is also treated as a realized gain, or if the
premium received is less than the amount paid for the closing purchase
transaction, as a realized loss. If a call option is exercised, the premium
received is added to the proceeds from the sale of the underlying security in
determining whether the Portfolio has realized a gain or loss. If a put option
is exercised, the premium received reduces the cost basis of the security
purchased by the Portfolio. In writing an option, the Portfolio bears the
market risk of an unfavorable change in the price of the security underlying
the written option. Exercise of an option written by the Portfolio could result
in the Portfolio selling or buying a security at a price different from the
current market value.
Transactions in written options for the year ended June 30, 1998 were as
follows:
NUMBER OF
CONTRACTS PREMIUMS
--------- --------
Options oustanding at beginning of year -0- $ -0-
Options written 130,000 1,808,422
Options terminated in closing purchase transactions (65,000) (1,001,000)
Options expired -0- -0-
Options exercised (65,000) (807,422)
Options outstanding at June 30, 1998 -0- $ -0-
14
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 750,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 250,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 13,329,444 7,284,369 $191,806,767 $100,560,914
Shares issued in
reinvestment of
dividends and
distributions 1,434,669 1,088,659 20,673,923 15,092,550
Shares converted from
Class B 1,245,638 882,859 17,903,380 12,218,491
Shares redeemed (6,171,084) (3,997,163) (88,725,044) (55,154,472)
Net increase 9,838,667 5,258,724 $141,659,026 $72,717,483
CLASS B
Shares sold 19,913,781 13,809,148 $286,380,021 $190,717,837
Shares issued in
reinvestment of
dividends and
distributions 1,579,489 1,108,727 22,757,300 15,370,487
Shares converted to
Class A (1,245,638) (882,859) (17,903,380) (12,218,491)
Shares redeemed (6,696,392) (5,635,584) (96,372,328) (77,903,904)
Net increase 13,551,240 8,399,432 $194,861,613 $115,965,929
CLASS C
Shares sold 11,907,869 9,879,749 $171,701,245 $137,855,734
Shares issued in
reinvestment of
dividends and
distributions 773,490 356,660 11,154,530 4,970,992
Shares redeemed (7,056,779) (4,174,633) (100,877,917) (57,615,228)
Net increase 5,624,580 6,061,776 $81,977,858 $85,211,498
15
FINANCIAL HIGHLIGHTS ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.19 $13.29 $12.92 $12.51 $14.15
INCOME FROM INVESTMENT OPERATIONS
Net investment income 1.08(a) 1.15(a) 1.26 1.19 1.11
Net realized and unrealized gain (loss)
on investment transactions .12 .97 .27 .36 (1.36)
Net increase (decrease) in net asset
value from operations 1.20 2.12 1.53 1.55 (.25)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (1.08) (1.22) (1.16) (1.14) (1.11)
Distributions in excess of net investment
income (.12) -0- -0- -0- (.03)
Distributions from net realized gains -0- -0- -0- -0- (.25)
Total dividends and distributions (1.20) (1.22) (1.16) (1.14) (1.39)
Net asset value, end of year $14.19 $14.19 $13.29 $12.92 $12.51
TOTAL RETURN
Total investment return based on net
asset value (b) 8.66% 16.59% 12.14% 13.26% (2.58)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $510,397 $370,845 $277,369 $230,750 $219,182
Ratio of expenses to average net assets 1.05% 1.12% 1.20% 1.24% 1.30%
Ratio of net investment income to average
net assets 7.52% 8.34% 9.46% 9.70% 7.76%
Portfolio turnover rate 244% 307% 389% 387% 372%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------
YEAR ENDED JUNE 30,
------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.19 $13.29 $12.92 $12.50 $14.15
INCOME FROM INVESTMENT OPERATIONS
Net investment income .98(a) 1.05(a) 1.15 1.11 1.02
Net realized and unrealized gain (loss)
on investment transactions .13 .98 .29 .36 (1.37)
Net increase (decrease) in net asset
value from operations 1.11 2.03 1.44 1.47 (.35)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.98) (1.13) (1.07) (1.05) (1.04)
Distributions in excess of net investment
income (.13) -0- -0- -0- (.01)
Distribution from net realized gains -0- -0- -0- -0- (.25)
Total dividends and distributions (1.11) (1.13) (1.07) (1.05) (1.30)
Net asset value, end of year $14.19 $14.19 $13.29 $12.92 $12.50
TOTAL RETURN
Total investment return based on net
asset value (b) 7.95% 15.80% 11.38% 12.54% (3.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $672,374 $480,326 $338,152 $241,393 $184,129
Ratio of expenses to average net assets 1.75% 1.82% 1.90% 1.99% 2.00%
Ratio of net investment income to average
net assets 6.80% 7.62% 8.75% 9.07% 7.03%
Portfolio turnover rate 244% 307% 389% 387% 372%
</TABLE>
See footnote summary on page 18.
17
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
-------------------------------------------------------------
YEAR ENDED JUNE 30,
-------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $14.19 $13.29 $12.93 $12.50 $14.15
INCOME FROM INVESTMENT OPERATIONS
Net investment income .99(a) 1.04(a) 1.14 1.10 1.02
Net realized and unrealized gain (loss)
on investment transactions .12 .99 .29 .38 (1.37)
Net increase (decrease) in net asset
value from operations 1.11 2.03 1.43 1.48 (.35)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.99) (1.13) (1.07) (1.05) (1.05)
Distributions in excess of net investment
income (.12) -0- -0- -0- -0-
Distribution from net realized gains -0- -0- -0- -0- (.25)
Total dividends and distributions (1.11) (1.13) (1.07) (1.05) (1.30)
Net asset value, end of year $14.19 $14.19 $13.29 $12.93 $12.50
TOTAL RETURN
Total investment return based on net
asset value (b) 7.95% 15.80% 11.30% 12.62% (3.27)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $254,530 $174,762 $83,095 $51,028 $50,860
Ratio of expenses to average net assets 1.75% 1.82% 1.90% 1.84% 1.99%
Ratio of net investment income to average
net assets 6.83% 7.61% 8.74% 8.95% 6.98%
Portfolio turnover rate 244% 307% 389% 387% 372%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charge are not reflected in the calculation of total investment
return. Total investment return calculated for a period less than one year is
not annualized.
18
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE BOND FUND CORPORATE BOND PORTFOLIO
We have audited the accompanying statement of assets and liabilities of
Alliance Bond Fund Corporate Bond Portfolio (one of the portfolios comprising
the Alliance Bond Fund, Inc.), including the portfolio of investments, as of
June 30, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Bond Fund Corporate Bond Portfolio at June 30, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
August 4, 1998
19
<PAGE>
____________________________________________________________
APPENDIX A:
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
A-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to a contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth above
under "Purchase of Shares" and "Redemption and Repurchase of
Shares."
A-2
<PAGE>
(LOGO) ALLIANCE BOND FUND, INC. -
U.S. GOVERNMENT 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
November 2, 1998
_______________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the U.S. Government Portfolio (the "Portfolio") of
the Alliance Bond Fund, Inc. (the "Fund") that offers Class A,
Class B and Class C shares of the Portfolio and, if the
Portfolios begins to offer Advisor Class shares, the Prospectus
that offers the Advisor Class shares of the Portfolio (the
"Advisor Class Prospectus" and, together with any Prospectus that
offers the Class A, Class B, and Class C shares, the
"Prospectus(es)"). Copies of the Prospectus(es) of the Portfolio
may be obtained by contacting Alliance Fund Services, Inc., at
the address or the "For Literature" telephone number shown above.
The Portfolio currently does not offer Advisor Class shares.
TABLE OF CONTENTS
Page
Description of the Portfolio..........................
Management of the Fund................................
Expenses of the Fund..................................
Purchase of Shares....................................
Redemption and Repurchase of Shares...................
Shareholder Services..................................
Net Asset Value.......................................
Portfolio Transactions................................
Taxes.................................................
General Information...................................
Financial Statements and Report of Independent
Auditors............................................
Appendix A: Certain Employee Benefit Plans............ A-1
<PAGE>
________________________________
(R) This is a registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_______________________________________________________________
DESCRIPTION OF THE PORTFOLIO
_______________________________________________________________
INTRODUCTION TO THE FUND
The Fund is an open-end management investment company
whose shares are offered in separate series referred to as
Portfolios. Each portfolio is a separate pool of assets
constituting, in effect, a separate fund with its own investment
objective policies. A shareholder in the portfolio will be
entitled to his or her pro-rata share of all dividends and
distributions arising from that portfolio's assets and, upon
redeeming shares of that portfolio, the shareholder will receive
the then current net asset value of that portfolio represented by
the redeemed shares. (See "Purchase of Shares" and "Redemption
and Repurchase of Shares," in the Portfolio's Prospectus.) The
Fund is empowered to establish, without shareholder approval,
additional portfolios which may have different investment
objectives.
The Fund currently has two portfolios: the U.S.
Government Portfolio (the "Portfolio"), which is described in
this Statement of Additional Information, and the Corporate Bond
Portfolio, which is described in a separate Statement of
Additional Information. Copies of the Corporate Bond Portfolio's
Prospectus and Statement of Additional 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.
THE U.S. GOVERNMENT PORTFOLIO
Except as otherwise indicated, the Fund's investment
policies are not designated "fundamental policies" and,
therefore, may be changed by the Board of Directors without a
shareholder vote. However, the Fund will not change its
investment policies without contemporaneous written notice to its
shareholders. The Fund's investment objective may not be changed
without shareholder approval. There can be, of course, no
assurance that the Portfolio will achieve its investment
objective.
INVESTMENT OBJECTIVE
The investment objective of the Portfolio is to seek as
high a level of current income as is consistent with safety of
principal. As a matter of fundamental policy, which cannot be
changed without approval of the Portfolio's shareholders, the
Portfolio pursues its objective by investing solely in securities
2
<PAGE>
that are issued or guaranteed by the U.S. Government or its
instrumentalities and backed by the full faith and credit of the
United States ("U.S. Government Securities").
The Board of Directors of the Fund has approved, and has
recommended to the Shareholders of the Portfolio for their
approval, changes to the Portfolio's investment objectives and
policies. These proposed changes are more fully described in the
Prospectus.
HOW THE PORTFOLIO PURSUES ITS OBJECTIVE
The Portfolio pursues its investment objective by
investing in U.S. Government Securities.
U.S. Government securities include: (i) U.S. Treasury
obligations, which differ only in their interest rates,
maturities and times of issuance as follows: U.S. Treasury bills
(maturity of one year or less), U.S. Treasury notes (maturities
of one to ten years) and U.S. Treasury bonds (generally
maturities of greater than ten years); and (ii) obligations
issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit
of the United States (such as securities issued by the Farmers
Home Administration, the Government National Mortgage Association
("GNMA"), the Department of Housing and Urban Development, the
Export-Import Bank, the General Services Administration and the
Maritime Administration and certain securities issued by the
Federal Housing Administration and the Small Business
Administration). The maturities of U.S. Government securities
usually range from three months to 30 years.
Securities issued by GNMA ("GNMA Certificates") differ
in certain respects from other U.S. Government securities, which
normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call
dates. GNMA Certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These
loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan-associations -- are either insured by
the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled
and, after being approved by GNMA, is offered to investors
through securities dealers. Once approved by GNMA, the timely
payment of interest and principal on each mortgage is guaranteed
by the full faith and credit of the United States. GNMA
Certificates also differ from other U.S. Government securities in
that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA
Certificates are called "pass-through" securities because both
interest and principal payments (including pre-payments) are
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<PAGE>
passed through to the holder of the Certificate. Upon receipt,
principal payments are used by the Portfolio to purchase
additional U.S. Government securities.
The Portfolio may invest in zero coupon Treasury
securities, which consist of Treasury bills or the principal
components of U.S. Treasury bonds or notes. The Portfolio may
also invest in zero coupon securities issued by U.S. Government
agencies or instrumentalities that are supported by the full
faith and credit of the United States, which consist of the
principal components of securities of U.S. Government agencies or
instrumentalities. A zero coupon security pays no interest to
its holder during its life. An investor acquires a zero coupon
security at a price which is generally an amount based upon its
present value, and which, depending upon the time remaining until
maturity, may be significantly less than its face value
(sometimes referred to as a "deep discount" price). Upon
maturity of the zero coupon security, the investor receives the
face value of the security.
Currently, the only U.S. Treasury security issued
without coupons is the Treasury bill. The zero coupon securities
purchased by the Portfolio may consist of principal components
held in STRIPS form issued through the U.S. Treasury's STRIPS
program, which permits the beneficial ownership of the component
to be recorded directly in the Treasury book-entry system. In
addition, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions
("corpus") from the coupon portions of the U.S. Treasury bonds
and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a
custodial or trust account). The staff of the Securities and
Exchange Commission (the "Commission") has indicated that, in its
view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm involved and,
therefore, unlike those obligations issued under the U.S.
Treasury's STRIPS program, should not be included in the Fund's
categorization of U.S. Government Securities. The Fund disagrees
with the staff's interpretation but has undertaken that it will
not invest in such securities until final resolution of the
issue. However, if such securities are deemed to be U.S.
Government Securities, the Portfolio will not be subject to any
limitations on their purchase.
Zero coupon securities do not entitle the holder to any
periodic payments of interest prior to maturity. Accordingly,
such securities usually trade at a deep discount from their face
or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt
4
<PAGE>
obligations of comparable maturities which make periodic
distributions of interest.
Current federal tax law requires that a holder (such as
the Portfolio) of a zero coupon security accrue a portion of the
discount at which the security was purchased as income each year
even though the holder receives no interest payment in cash on
the security during the year. As a result, in order to make the
distributions necessary for the Portfolio not to be subject to
federal income or excise taxes, the Portfolio might be required
to pay out as an income distribution each year an amount,
obtained by liquidation of portfolio securities or borrowings if
necessary, greater than the total amount of cash that the
Portfolio has actually received as interest during the year. The
Portfolio believes, however, that it is highly unlikely that it
would be necessary to liquidate portfolio securities or borrow
money in order to make such required distributions or to meet its
investment objective.
The Portfolio may invest in stripped mortgage-related
securities ("SMRS") which are derivative multi-class mortgage-
related securities. The Portfolio will only invest in SMRS that
are issued by the U.S. Government, its agencies or
instrumentalities and supported by the full faith and credit of
the United States. SMRS in which the Portfolio may invest are
usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool
of GNMA Certificates ("Mortgage Assets"). A common type of SMRS
will have one class receiving some of the interest and most of
the principal from the Mortgage Assets, while the other class
will receive most of the interest and the remainder of the
principal. In the most extreme case, one class will receive all
of the interest (the interest-only or "IO" class), while the
other class will receive all of the principal (the principal-only
or "PO" class). The yield to maturity on an IO class is
extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying Mortgage Assets, and a
rapid rate of principal prepayments may have a material adverse
effect on the yield to maturity of the IO class. The rate of
principal prepayment will change as the general level of interest
rates fluctuates. If the underlying Mortgage Assets experience
greater than anticipated principal prepayments, the Portfolio may
fail to fully recoup its initial investment in these securities.
Due to their structure and underlying cash flows, SMRS, may be
more volatile than mortgage-related securities that are not
stripped.
In addition, other U.S. Government agencies and
instrumentalities have issued stripped securities that are
similar to SMRS. Such securities include those that are issued
with an IO class and a PO class. Although these stripped
5
<PAGE>
securities are purchased and sold by institutional investors
through several investment banking firms acting as brokers or
dealers, these securities were only recently developed. As a
result, established trading markets have not yet developed and,
accordingly, these securities may be illiquid. However, these
securities will be treated as liquid provided they are so
determined by, or under procedures approved by, the Board of
Directors.
ILLIQUID SECURITIES. The Fund will not invest in
illiquid securities if immediately after such investment more
than 15% of the Fund's total assets (taken at market value) would
be invested in such securities. In addition, the Fund will not
maintain more than 15% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others,
(a) direct placements or other securities which are subject to
legal or contractual restrictions on resale or for which there is
no readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (b) options
purchased by the Fund over-the-counter and the cover for options
written by the Fund over-the-counter, and (c) repurchase
agreements not terminable within seven days. See "Additional
Investment Policies and Practices," below. Securities that have
legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid for purposes of this
limitation.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
6
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In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, which is an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc. (NASD).
Alliance Capital Management L.P., the Fund's investment
adviser (the "Investment Adviser"), acting under the supervision
of the Board of Directors, will monitor the liquidity of
restricted securities in the Fund's portfolio that are eligible
for resale pursuant to Rule 144A. In reaching liquidity
decisions, the Investment Adviser will consider, among others,
the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential
purchasers of the security; (4) the number of dealers undertaking
to make a market in the security; (5) the nature of the security
(including its unregistered nature) and the nature of the
marketplace for the security (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics
of the transfer); and (6) any applicable Commission
interpretation or position with respect to such type of
securities.
PORTFOLIO TURNOVER. Because the Portfolio will actively
use trading to benefit from yield disparities among different
issues of U.S. Government Securities or otherwise to achieve its
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<PAGE>
investment objective and policies, the Portfolio may be subject
to a greater degree of turnover and, thus, a higher incidence of
short-term capital gains taxable as ordinary income than might be
expected from investment companies which invest substantially all
of their funds on a long-term basis, and correspondingly larger
mark-up charges can be expected to be borne by the Portfolio.
Management anticipates that the annual turnover in the Portfolio
may be in excess of 400% in future years (but is not expected to
exceed 500%). An annual turnover rate of 400% occurs, for
example, when all of the securities in the Portfolio are replaced
four times in a period of one year. The portfolio turnover rates
for the fiscal years ended June 30, 1997 and 1998 were 330% and
153%, respectively.
The value of the Portfolio's shares will be influenced
by the factors which generally affect securities, such as the
economic and political outlook, earnings, dividends and the
supply and demand for various classes of securities. There can
be, of course, no assurance that the Portfolio's investment
objective will be achieved.
FUNDAMENTAL INVESTMENT POLICIES
The following restrictions supplement those set forth in
the Prospectus for the Portfolio. These restrictions may not be
changed without shareholder approval which means the vote of (1)
67% or more of the shares of the Portfolio represented at a
meeting at which more than 50% of the outstanding shares are
represented or (2) more than 50% of the outstanding shares of the
Portfolio, whichever is less.
The following restrictions provide that the Portfolio
may not:
1. Invest in companies for the purpose of
exercising control of management;
2. Issue any senior securities as defined in the
Investment Company Act of 1940, as amended (the "1940
Act"), (except to the extent that when-issued securities
transactions, forward commitments or stand- by
commitments may be considered senior securities);
3. Participate on a joint or a joint and several
basis in any trading account in securities;
4. Effect a short sale of any security;
5. Purchase securities on margin, but it may
obtain such short-term credits as may be necessary for
the clearance of purchase and sales of securities;
8
<PAGE>
6. Invest in the securities of any other
investment company except in connection with a merger,
consolidation, acquisition of assets or other
reorganization approved by the Fund's shareholders; or
7. Write, purchase or sell puts, calls or
combinations thereof;
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, the Portfolio
may not: (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of
the value of its total assets at the time the borrowing is made;
(ii) make loans to other persons; (iii) effect a short sale of
any security; (iv) purchase securities on margin, but it may
obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; or (v) write,
purchase or sell puts, calls or combinations thereof.
In addition to the restrictions set forth above in
connection with the qualification of its shares for sale in
certain states, the following restrictions apply and provide that
the Portfolio may not:
1. Invest more than 15% of average net assets at
the time of purchase in securities which are not readily
marketable including restricted securities;
2. Invest in warrants (other than warrants
acquired by the Portfolio as a part of a unit or
attached to securities at the time of purchase) if, as a
result such warrants valued at the lower of cost or
market would exceed 5% of the value of the Portfolio's
net assets provided that not more than 2% of the
Portfolio's net assets may be in warrants not listed on
the New York or American Stock Exchanges;
3. Engage in the purchase of real estate
(including limited partnership interests) excluding
readily marketable interests in real estate investment
trusts or readily marketable securities of companies
which invest in real estate;
4. Invest in oil, gas or other mineral leases; or
5. Invest more than 15% of the Portfolio's total
assets in securities of issuers which together with any
predecessors have a record of less than three years
continuous operation or securities of issuers which are
restricted as to disposition.
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The foregoing percentage limitations will apply at the
time of the purchase of a security and shall not be considered
violated unless an excess or deficiency occurs or exists
immediately after and as a result of an acquisition of such
security.
_______________________________________________________________
MANAGEMENT OF THE FUND
_______________________________________________________________
DIRECTORS AND OFFICERS
The Directors and officers of the Fund, their ages and
their principal occupations during the past five years are set
forth below. Each such Director and officer is also a trustee,
director or officer of other registered investment companies
sponsored by the Investment Adviser. Unless otherwise specified,
the address of each such person is 1345 Avenue of the Americas,
New York, New York 10105.
DIRECTORS
JOHN D. CARIFA,** 53, Chairman of the Board, is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
____________________
** An "interested person" of the Fund as defined in the 1940
Act.
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DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
JOHN D. CARIFA,*** 53, Chairman of the Board, is the
President, Chief Operating Officer and a Director of Alliance
Capital Management Corporation ("ACMC"), with which he has been
associated since prior to 1993.
RUTH BLOCK, 67, 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 Amoco Corporation (oil and
gas). Her address is P.O. Box 4623, Stamford, Connecticut 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
____________________
*** An "interested person" of the Fund as defined in the 1940
Act.
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DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1993. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT (see biography,
above).
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 56, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1992.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 38, is an
Executive Vice President of ACMC, with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Department since
prior to 1993.
PATRICIA J. YOUNG, SENIOR VICE PRESIDENT, 43, is a
Senior Vice President of ACMC, with which she has been associated
since 1993.
JEFFREY S. PHLEGAR, VICE PRESIDENT, 31, is a Vice
President of ACMC with which he has been associated since prior
to 1993.
EDMUND P. BERGAN, JR., SECRETARY, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") with which
he has been associated since prior to 1993.
DOMENICK PUGLIESE, ASSISTANT SECRETARY, 37, is a Vice
President and Assistant General Counsel of AFD, with which he has
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<PAGE>
been associated since May 1995. Prior thereto, he was a Vice
President and Counsel of Concord Financial Holding Corporation
since 1994, Vice President and Associate General Counsel of
Prudential Securities since prior to 1993.
ANDREW L. GANGOLF, ASSISTANT SECRETARY, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc.
EMILIE D. WRAPP, ASSISTANT SECRETARY, 42, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993.
MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
48, is a Senior Vice President of Alliance Fund Services, Inc.
("AFS"), with which he has been associated since prior to 1993.
JUAN RODRIGUEZ, CONTROLLER, 40, is an Assistant Vice
President of AFS, with which he has been associated since prior
to 1993.
CARLA LaROSE, ASSISTANT CONTROLLER, 34, is a Manager
of AFS, with which she has been associated since prior to 1993.
JOSEPH J. MANTINEO, ASSISTANT CONTROLLER, 38, is a Vice
President of AFS, with which he has been associated since prior
to 1993.
VINCENT S. NOTO, CONTROLLER, 33, is a Vice President
of AFS, with which he has been associated since prior to 1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended June 30, 1998, the
aggregate compensation paid to each of the Directors during
calendar year 1997 by all of the funds to which the Investment
Adviser provides investment advisory services (collectively, the
"Alliance Fund Complex"), and the total number of registered
investment companies (and separate investment portfolios within
the companies) in the Alliance Fund Complex with respect to which
each of the Directors serves as a director or trustee are set
forth below. Neither the Fund nor any other fund in the Alliance
Fund Complex provides compensation in the form of 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 companies in the Alliance Fund Complex.
13
<PAGE>
Total Number
Total Number of Investment
of Funds in Portfolios
Total the Alliance Within the
Compensation Fund Complex, Funds,
From the Including the Including the
Alliance Fund, as to Fund, as to
Fund which the which the
Aggregate Complex, Director is a Director is a
Compensation Including Director or Director or
Name of Director from the Fund the Fund Trustee Trustee
________________ _____________ ____________ _____________ _____________
John D. Carifa $ -0- $ -0- 53 118
Ruth Block $1,777 $164,500 40 81
David H. Dievler $1,777 $188,500 46 83
John H. Dobkin $ 963 $126,500 43 80
William H. Foulk, Jr. $ 960 $149,145 48 113
Dr. James M. Hester $1,771 $156,500 40 77
Clifford L. Michel $1,771 $194,500 41 93
Donald J. Robinson $1,758 $217,358 44 107
As of October 9, 1998, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
INVESTMENT ADVISER
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the Americas,
New York, New York 10105, has been retained under an investment
advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and
investment program of the Fund under the supervision of the Fund's
Board of Directors (see "Management of the Fund" in the
Prospectus).
The Investment Adviser is a leading international
investment manager supervising client accounts with assets as of
June 30, 1998, totaling more than $262 billion (of which more than
$107 billion represented the assets of investment companies). The
Investment Adviser's clients are primarily major corporate
employee benefit funds, public employee retirement systems,
investment companies, foundations and endowment funds. The 58
registered investment companies managed by the Investment Adviser,
comprising 123 separate investment portfolios, currently have more
than 3.5 million shareholders. As of September 30, 1998, the
Investment Adviser and its subsidiaries employed approximately
2,000 employees who operate out of domestic offices and the
offices of subsidiaries in Bahrain, Bangalore, Cairo, Chennai,
Hong Kong, Istanbul, Johannesburg, London, Luxembourg, Madrid,
Moscow, Mumbai, New Delhi, Paris, Pune, Sao Paolo, Seoul,
14
<PAGE>
Singapore, Sydney, Tokyo, Toronto, Vienna and Warsaw. As of June
30, 1998, the Investment Adviser was retained as an investment
manager for employee benefit plan assets of 32 of the FORTUNE 100
companies.
ACMC, the sole general partner of, and the owner of a 1%
general partnership interest in the Investment Adviser, is an
indirect wholly-owned subsidiary of the Equitable Life Assurance
Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States and a wholly-owned
subsidiary of the Equitable Companies Incorporated ("ECI"). ECI
is a holding company controlled by AXA-UAP ("AXA") a French
insurance holding company which at March 1, 1998, beneficially
owned approximately 59% of the outstanding voting shares of ECI.
As of June 30, 1998, ACMC, Inc. and Equitable Capital Management
Corporation, each a wholly-owned direct or indirect subsidiary of
Equitable, together with Equitable, owned in the aggregate
approximately 57% of the issued and outstanding units representing
assignments of beneficial ownership of limited partnership
interests in the Investment Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities principally
in Western Europe, North America and the Asia/Pacific area. AXA
is also engaged in asset management, investment banking,
securities trading, brokerage, real estate and other financial
services activities principally in the United States, as well as
in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting as
a group, the Mutuelles AXA control AXA and FINAXA.
Under the Investment Advisory Contract, the Investment
Adviser provides investment advisory services and order placement
facilities for the Fund and pays all compensation of Directors and
officers of the Fund who are affiliated persons of the Investment
Adviser. The Investment Adviser or its affiliates also furnishes
the Fund, without charge, management supervision and assistance
and office facilities and provides persons satisfactory to the
Fund's Board of Directors to serve as the Fund's officers.
15
<PAGE>
The Investment Adviser is, under the Investment Advisory
Contract, responsible for certain expenses incurred by the Fund,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the promotional
expenses borne by the Fund in accordance with an effective plan
pursuant to Rule 12b-1 under the 1940 Act, and the costs of
printing Fund prospectuses and other reports to shareholders and
fees related to registration with the Commission and with state
regulatory authorities).
The Fund has, under the Investment Advisory Contract,
assumed the obligation for payment of all of its other expenses.
As to the obtaining of services other than those specifically
provided to the Fund by the Investment Adviser, the Fund may
utilize personnel employed by the Investment Adviser or by other
subsidiaries of Equitable. The Fund may employ its own personnel
or contract for services to be provided to the Fund at cost and
the payments specifically approved by the Fund's Board of
Directors. The Fund paid to the Investment Adviser a total of
$116,256 in respect of such services during the fiscal year of the
Fund ended in 1998.
For the fiscal years ended June 30, 1996, 1997 and 1998,
the Investment Adviser received under the advisory agreement,
$7,041,367, $5,646,070 and $4,949,100, respectively, as advisory
fees from the Portfolio.
The Investment Advisory Contract became effective on
July 22, 1992. The Investment Advisory Contract continues in
effect for successive twelve-month periods computed from each
July 1, provided that such continuance is specifically approved at
least annually by a vote of a majority of the Portfolio's
outstanding voting securities or by the Fund's Board of Directors,
and in either case, by a majority of the Directors who are not
parties to the Investment Advisory Contract or interested persons
of any such party. Most recently, continuance of the Investment
Advisory Contract until June 30, 1999 was approved by vote, cast
in person, by the Board of Directors, including a majority of the
Directors who are not "interested persons" as defined in the 1940
Act, at their meeting held on March 28, 1998.
The Investment Advisory Contract is terminable without
penalty on 60 days' written notice, by a vote of a majority of the
Fund's outstanding voting securities or by a vote of a majority of
the Fund's Directors or by the Investment Adviser on 60 days'
written notice, and will automatically terminate in the event of
its assignment. The Investment Advisory Contract provides that in
the absence of willful misfeasance, bad faith or gross negligence
on the part of the Investment Adviser, or of reckless disregard of
its obligations thereunder, the Investment Adviser shall not be
16
<PAGE>
liable for any action or failure to act in accordance with its
duties thereunder.
Certain other clients of the Investment Adviser may have
investment objectives and policies similar to those of the Fund.
The Investment 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 Investment
Adviser to allocate advisory recommendations and the placing of
orders in a manner which is deemed equitable by the Investment
Adviser to the accounts involved, including the Fund. When two or
more of the clients of the Investment 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 Investment Adviser may act as an investment adviser
to other persons, firms or corporations, including investment
companies, and is the investment adviser to the following
registered investment companies: Alliance Institutional Reserves,
Inc., AFD Exchange Reserves, The Alliance Fund, Inc., Alliance
All-Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Capital Reserves, Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance Global
Small Cap Fund, Inc., Alliance Global Strategic Income Trust,
Inc., Alliance Government Reserves, Alliance Greater China '97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance High
Yield Fund, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., Alliance Institutional
Funds, Inc., Alliance Limited Maturity Government Fund, Inc.,
Alliance Money Market Fund, Alliance Mortgage Securities Income
Fund, Inc., Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund II,
Alliance Municipal Trust, Alliance New Europe Fund, Inc., Alliance
North American Government Income Trust, Inc., Alliance Premier
Growth Fund, Inc., Alliance Quasar Fund, Inc., Alliance Real
Estate Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Select Investor Series, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Portfolios and The Hudson
River Trust, all registered open-end investment companies; and to
ACM Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance World
17
<PAGE>
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 Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors, Inc.,
the Fund's principal underwriter (the "Principal Underwriter"), to
permit the Principal Underwriter to distribute the Portfolio's
shares and to permit the Fund to pay distribution services fees to
defray expenses associated with the distribution of its Class A
shares, Class B shares and Class C shares in accordance with a
plan of distribution which is included in the Agreement and has
been duly adopted and approved in accordance with Rule 12b-1
adopted by the Commission under the 1940 Act (the "Rule 12b-1
Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Portfolio 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 distribution
services fee on the Class B shares and Class C shares are the same
as those of the initial sales charge and distribution services fee
with respect to the Class A shares in that in each case the sales
charge and distribution services fee provide for the financing of
the distribution of the relevant class of the Portfolio's shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of disinterested
Directors (as defined in the 1940 Act) are committed to the
discretion of such disinterested Directors then in office.
The Agreement became effective on July 22, 1992 with
respect to Class A and Class B shares, and was amended as of
April 30, 1993 to permit the distribution of Class C shares and
18
<PAGE>
September 30, 1996 to permit the distribution of Advisor Class
shares.
In approving the Agreement, the Directors of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.
Information with respect to distribution services fees and other
revenues and expenses of the Principal Underwriter will be
presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the
Agreement. In their review of the Agreement, the Directors will
be asked to take into consideration separately with respect to
each class the distribution expenses incurred with respect to such
class. 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 Investment 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.
During the Portfolio's fiscal year ended June 30, l998,
with respect to Class A shares, the distribution services fees for
expenditure payable to the Principal Underwriter amounted to
$1,061,547, which constituted .30 of 1.00% of the Portfolio's
average daily net assets attributable to Class A shares during the
fiscal year, and the Investment Adviser made payments from its own
resources aggregating $453,091. Of the $1,514,638 paid by the
Portfolio and the Investment Adviser under the Plan with respect
to Class A shares, $68,403 was spent on advertising, $11,830 on
the printing and mailing of prospectuses for persons other than
current shareholders, $1,021,799 for compensation to broker-
dealers and other financial intermediaries (including $147,956 to
the Fund's Principal Underwriter), $93,719 for compensation to
sales personnel, and $318,887 was spent on printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses.
During the Portfolio's fiscal year ended June 30, 1998
with respect to Class B shares, the distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$4,316,412, which constituted 1% of the Portfolio's average daily
net assets attributable to Class B shares during the fiscal year,
and the Investment Adviser made payments from its own resources
aggregating $-0-. Of the $2,928,267 paid by the Portfolio and the
Investment Adviser under the Plan with respect to Class B shares,
$85,374 was spent on advertising, $13,007 on the printing and
mailing of prospectuses for persons other than current
19
<PAGE>
shareholders, $2,043,341 for compensation to broker- dealers and
other financial intermediaries (including $190,377 to the Fund's
Principal Underwriter), $71,465 for compensation paid to sales
personnel, $265,680 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses, $449,400 was spent on the financing of interest relating
to Class B shares, and $1,388,145 was used to offset the
distribution service fees paid in prior years.
During the Portfolio's fiscal year ended June 30, 1998,
with respect to Class C shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$1,161,590, which constituted 1% of the Portfolio's average daily
net assets attributable to Class C shares during the fiscal year,
and the Investment Adviser made payments from its own resources
aggregating $590,824. Of the $1,752,414 paid by the Portfolio and
the Investment Adviser under the Plan with respect to Class C
shares, $65,262 was spent on advertising, $10,530 on the printing
and mailing of prospectuses for persons other than current
shareholders, $1,333,292 for compensation to broker-dealers and
other financial intermediaries (including $126,483 to the Fund's
Principal Underwriter), $46,440 for compensation paid to sales
personnel, $175,003 was spent on printing of sales literature,
travel, entertainment, due diligence, other promotional expenses,
and $121,887 was spent on the financing of interest relating to
Class C shares.
The Agreement will continue in effect for successive
twelve-month periods (computed from each July 1) with respect to
each class of the Fund, provided, however, that such continuance
is specifically approved at least annually by the Directors of the
Fund or by vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of that class, and
in either case, by a majority of the Directors of the Fund who are
not parties to this Agreement or interested persons, as defined in
the 1940 Act, of any such party (other than as directors of the
Fund) and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related thereto.
Most recently the Directors approved the continuance of the
Agreement until June 30, 1999 at their meeting held on March 28,
1998.
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
20
<PAGE>
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be approved
by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast in
person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Portfolio may bear pursuant
to the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the Portfolio or the class or
classes of the Portfolio affected. The Agreement may be
terminated (a) by the Fund without penalty at any time by a
majority vote of the holders of the outstanding voting securities,
of the Portfolio, voting separately by class, or by a majority
vote of the disinterested Directors, or (b) by the Principal
Underwriter. To terminate the Agreement, any party must give the
other party 60 days' written notice; to terminate the Rule 12b-1
Plan only, the Fund is not required to give prior written notice
to the Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Investment Adviser, receives a transfer agency
fee per account holder for each of the Class A, Class B, Class C
shares and Advisor Class shares of the Portfolio, plus
reimbursement for out-of-pocket expenses. The transfer agency fee
with respect to the Class B shares and Class C shares is higher
than the transfer agency fee with respect to the Class A shares
and Advisor Class shares. For the fiscal year ended June 30,
1998, the Fund paid Alliance Fund Services, Inc. $820,628 for
transfer agency services.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under "Purchase and Sale of Shares -- How to
Buy Shares."
GENERAL
Shares of the Portfolio are offered on a continuous basis
at a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
21
<PAGE>
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge ("Class
C shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset- based
sales charge, in each case as described below. Shares of the
Portfolio that are offered subject to a sales charge are offered
through (i) investment dealers that are members of NASD and have
entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions and
other financial intermediaries or their affiliates, that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents") and (iii) the Principal
Underwriter.
Advisor Class shares of the Portfolio may be purchased
and held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers or
other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through
(iv) below under "--Sales at Net Asset Value" (other than
officers, directors and present and full-time employees of
selected dealers or agents, or relatives of such person, or any
trust, individual retirement account or retirement plan account
for the benefit of such relative, none of whom is eligible on the
basis solely of such status to purchase and hold Advisor Class
shares), or (iv) by directors and present or retired full-time
employees of CB Richard Ellis, Inc. Generally, a fee-based
program must charge an asset- based or other similar fee and must
invest at least $250,000 in Advisor Class shares of the Fund in
order to be approved by the Principal Underwriter for investment
in Advisor Class shares.
Investors may purchase shares of the Portfolio either
through selected broker-dealers, agents, financial intermediaries
or other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Portfolio, including requirements as to the minimum initial
and subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's Portfolio shares may
receive differing compensation for selling Class A, Class B,
Class C or Advisor Class shares.
22
<PAGE>
The Portfolio may refuse any order for the purchase of
shares. The Portfolio reserves the right to suspend the sale of
the Portfolio's shares to the public in response to conditions in
the securities markets or for other reasons.
The public offering price of shares of the Portfolio 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 Portfolio invests might materially
affect the value of Portfolio shares, the per share net asset
value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently
4:00 p.m. Eastern time) by dividing the value of the Portfolio's
total assets, less its liabilities, by the total number of its
shares then outstanding. A Fund business day is any day on which
the Exchange is open for trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset values of the Class A shares
and Advisor Class shares as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for 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 so
determined, but only if the selected dealer, agent or financial
representative receives the order prior to the close of regular
trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. The selected dealer,
agent or financial representative, as applicable, is responsible
for transmitting such orders by 5:00 p.m. Eastern time (certain
23
<PAGE>
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the selected
dealer, agent or financial representative fails to do so, the
investor's right to that day's closing price must be settled
between the investor and the selected dealer, agent or financial
representative, as applicable. If the selected dealer, agent or
financial representative, as applicable, receives the order after
the close of regular trading on the Exchange, the price will be
based on the net asset value determined as of the close of regular
trading on the Exchange on the next day it is open for trading.
Following the initial purchase of Portfolio shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate portion
of the Subscription Application or an "Autobuy" application
obtained by calling the "For Literature" telephone number shown on
the cover of this Statement of Additional Information. Except
with respect to certain omnibus accounts, telephone purchase
orders may not exceed $500,000. Payment for shares purchased by
telephone can be made only by electronic funds transfer from a
bank account maintained by the shareholder at a bank that is a
member of the National Automated Clearing House Association
("NACHA"). If a shareholder's telephone purchase request is
received before 3:00 p.m. Eastern time on a Fund business day, the
order to purchase shares is automatically placed the following
Fund business day, and the applicable public offering price will
be the public offering price determined as of the close of
business on such following business day.
Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense to
the Fund, stock certificates representing shares of the Fund are
not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to dealers
or agents, the Principal Underwriter from time to time pays
additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Portfolio. Such
additional amounts may be utilized, in whole or in part, to
provide additional compensation to registered representatives who
sell shares of the Portfolio. On some occasions, cash or other
incentives will be conditioned upon the sale of a specified
24
<PAGE>
minimum dollar amount of the shares of the Portfolio and/or other
Alliance Mutual Funds, as defined below, during a specific period
of time. On some occasions, such cash or other incentives may
take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel taken
by persons associated with a dealer or agent to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount in
lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Portfolio, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of the
deferred sales charge, (ii) Class B shares and Class C shares each
bear the expense of a higher distribution services fee than that
borne by Class A shares, and Advisor Class shares do not bear such
a fee, (iii) Class B and Class C shares bear higher transfer
agency costs than that borne by Class A and Advisor Class shares,
(iv) each of Class A, Class B and Class C shares has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid and other
matters for which separate class voting is appropriate under
applicable law, provided that, if the Portfolio submits to a vote
of the Class A shareholders, an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder
with respect to the Class A shares, then such amendment will also
be submitted to the Class B and Advisor Class shareholders, and
the Class A shareholders, the Class B shareholders and the Advisor
Class shareholders will vote separately by class, and (v) Class B
and Advisor Class shares are subject to a conversion feature.
Each class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A, Class
B, Class C and Advisor Class shares. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
ALTERNATIVE RETAIL PURCHASE ARRANGEMENTS -- CLASS A, CLASS B AND
CLASS C SHARES****
____________________
**** Advisor Class shares are sold only to investors described
above in this section under "-- General".
25
<PAGE>
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 Portfolio, the
accumulated distribution services fee and contingent deferred
sales charges on Class B shares prior to conversion, or the
accumulated distribution services fee and contingent deferred
sales charges on Class C shares, would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time, and to what extent such
differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans and certain employee benefit
plans) for more than $250,000 for Class B shares. (See Appendix A
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 three-
year and one-year period, respectively. For example, based on
26
<PAGE>
current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Portfolio shares for
the three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended June 30, 1998, 1997
and 1996, the aggregate amount of underwriting commission payable
with respect to shares of the Portfolio in each year was $836,243,
$693,220, and $534,472 , respectively. Of that amount, the
Principal Underwriter received amounts of $21,924, $32,721,
and $26,128 , respectively, representing that portion of the sales
charges paid on shares of the Portfolio sold during the year which
was not reallowed to selected dealers (and was, accordingly,
retained by the Principal Underwriter). During the Fund's fiscal
years ended in 1998, 1997 and 1996, the Principal Underwriter
received contingent deferred sales charges of $10,096, $-0- and $-
0-, respectively, on Class A shares, $291,831, $478,593 and
$1,113,832, respectively, on Class B shares, and $31,629, $19,275
and $-0-, respectively, on Class C shares.
CLASS A SHARES
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
Less than
$100,000....... 4.44% 4.25% 4.00%
$100,000 but
27
<PAGE>
less than
$250,000 ...... 3.36 3.25 3.00
$250,000 but
less than
$500,000....... 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*.... 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the time
they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to the
Principal Underwriter and are used by the Principal Underwriter to
defray the expenses of the Principal Underwriter related to
providing distribution-related services to the Fund in connection
with the sales of Class A shares, such as the payment of
compensation to selected dealers or agents for selling Class A
shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Investment Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
.25 of 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
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defined under Combined Purchase Privilege below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves (AFDER) that
were purchased for cash without the payment of an initial sales
charge and without being subject to a contingent deferred sales
charge or (iii) upon the automatic conversion of Class B shares or
Advisor Class shares as described below under "--Class B Shares-
- -Conversion Feature" and "--Conversion of Advisor Class Shares to
Class A Shares." The Portfolio 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.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Portfolio aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of the
Portfolio on June 30, 1998.
Net Asset Value per Class A Share
at June 30, 1998 $7.57
Per Share Sales Charge - 4.25%
of offering price (4.44% .34
of net asset value per share) _____
Class A Per Share Offering Price
to the Public $7.91
=====
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may qualify
for the sales charge reductions indicated in the schedule of such
charges above by combining purchases of shares of the Portfolio
into a single "purchase," if the resulting "purchase" totals at
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<PAGE>
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 Portfolio 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 Portfolio or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Premier Growth Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
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-Pennsylvania Portfolio
-Virginia Portfolio
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York 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 Worldwide Privatization 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 Portfolio
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all shares of the Portfolio
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 Portfolio 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 Portfolio, rather than the
3.25% rate.
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<PAGE>
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or agent
must provide the Principal Underwriter with sufficient information
to verify that each purchase qualifies for the privilege or
discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by means
of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Portfolio or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction of
the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Portfolio or any other Alliance Mutual Fund made
not more than 90 days prior to the date that the investor signs a
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at least
$100,000 in Class A shares of the Portfolio, the investor and the
investor's spouse each purchase shares of the Portfolio worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in shares
of the Portfolio or any other Alliance Mutual Fund, to qualify for
the 3.25% sales charge on the total amount being invested (the
sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5% of
such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Portfolio 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
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<PAGE>
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 Portfolio
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 Portfolio 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
Portfolio 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 Portfolio will be that
normally applicable, under the schedule of the sales charges set
forth in this Statement of Additional Information, to an
investment 13 times larger than such initial purchase. The sales
charge applicable to each succeeding monthly purchase will be that
normally applicable, under such schedule, to an investment equal
to the sum of (i) the total purchase previously made during the
13-month period and (ii) the current month's purchase multiplied
by the number of months (including the current month) remaining in
the 13-month period. Sales charges previously paid during such
period will not be retroactively adjusted on the basis of later
purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the
Portfolio to be redeemed or repurchased may reinvest all or any
portion of the redemption or repurchase proceeds in Class A shares
of the Portfolio 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 Portfolio within 30
calendar days after the redemption or repurchase transaction.
Investors may exercise the reinstatement privilege by written
33
<PAGE>
request sent to the Fund at the address shown on the cover of this
Statement of Additional Information.
SALES AT NET ASSET VALUE. The Portfolio 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 Investment Adviser or its affiliates; (ii) officers
and present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Investment Adviser; present or retired full-time employees of
the Investment Adviser, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; officers and directors of
ACMC, the Principal Underwriter, Alliance Fund Services, Inc. and
their affiliates; officers, directors and present and 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 purchase for investment purposes (such shares may not
be resold except to the Fund); (iii) the Investment Adviser,
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; certain employee benefit plans for employees of the
Investment Adviser, the Principal Underwriter, Alliance Fund
Services, Inc. and their affiliates; (iv) registered investment
advisers or other financial intermediaries who charge a
management, consulting or other fee for their service and who
purchase shares through a broker or agent approved by the
Principal Underwriter and clients of such registered investment
advisers or financial intermediaries whose accounts are linked to
the master account of such investment adviser or financial
intermediary on the books of such approved broker or agent;
(v) persons participating in a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial
intermediary and approved by the Principal Underwriter, pursuant
to which such persons pay an asset-based fee to such broker-dealer
or financial intermediary, or its affiliate or agent, for services
in the nature of investment advisory or administrative services;
(vi) persons who establish to the Principal Underwriter's
satisfaction that they are investing, within such time period as
may be designated by the Principal Underwriter, proceeds of
redemption of shares of such other registered investment companies
as may be designated from time to time by the Principal
Underwriter; and (vii) employer-sponsored qualified pension or
profit-sharing plans (including Section 401(k) plans), custodial
accounts maintained pursuant to Section 403(b)(7) retirement plans
and individual retirement accounts (including individual
retirement accounts to which simplified employee pension ("SEP")
contributions are made), if such plans or accounts are established
or administered under programs sponsored by administrators or
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<PAGE>
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 Portfolio 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 Portfolio 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 Portfolio 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 three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase as set forth
below).
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<PAGE>
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales
Year Charge as a % of Dollar
Since Purchase Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services--Systematic Withdrawal Plan" below).
CONVERSION FEATURE. Six 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.
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<PAGE>
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time any
Class B shares in the shareholder's account (other than those in
the sub-account) convert to Class A, an equal pro-rata portion of
the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel to
the effect that the conversion of Class B shares to Class A shares
does not constitute a taxable event under federal income tax law.
The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee for
an indefinite period which may extend beyond the period ending six
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
Portfolio will receive the full amount of the investor's purchase
payment and, as long as the shares are held for one year or more,
without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution
services fee enables the Portfolio to sell Class C shares without
either an initial or contingent deferred sales charge, as long as
the shares are held one year or more. Class C shares do not
convert to any other class of shares of the Portfolio and incur
higher distribution services fees and transfer agency costs than
Class A shares and Advisor Class shares, and will thus have a
higher expense ratio and pay correspondingly lower dividends than
Class A shares and Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase
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<PAGE>
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
Portfolio 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 Portfolio to sell the Class C shares without a sales charge
being deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
CONVERSION OF ADVISOR CLASS SHARES TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Investment Adviser and its affiliates or the
Fund. If (i) a holder of Advisor Class shares ceases to
participate in a fee-based program or plan, or to be associated
with the investment adviser or financial intermediary that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice contained
in the Advisor Class Prospectus and this Statement of Additional
Information, to Class A shares of the Fund during the calendar
month following the month in which the Fund is informed of the
occurrence of the Conversion Event. The failure of a shareholder
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<PAGE>
or a fee-based program to satisfy the minimum investment
requirements to purchase Advisor Class shares will not constitute
a Conversion Event. The conversion would occur on the basis of
the relative net asset values of the two classes and without the
imposition of any sales load, fee or other charge. Class A shares
currently bear a .30% distribution services fee and have a higher
expense ratio than Advisor Class shares. As a result, Class A
shares may pay correspondingly lower dividends and have a lower
net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to Class
A shares does not constitute a taxable event under federal income
tax law. The conversion of Advisor Class shares to Class A shares
may be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Advisor
Class shareholder would be required to redeem his or her Advisor
Class shares, which would constitute a taxable event under federal
income tax law.
_______________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Portfolio's Prospectus(es) under "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Portfolio that are different from those described herein.
A transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares of the Portfolio tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. Except for any contingent deferred sales charge which may
be applicable to Class A shares, Class B shares or Class C shares,
there is no redemption charge. Payment of the redemption price
will be made within seven days after the Fund's receipt of such
tender for redemption. If a shareholder is in doubt about what
documents are required by his or her fee-based program or employee
39
<PAGE>
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 Portfolio of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Portfolio 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 Portfolio.
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 Portfolio'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 (either in cash or in portfolio securities) received
by a shareholder upon redemption or repurchase of his or her
shares, assuming the shares constitute capital assets in his or
her hands, will result in long-term or short-term capital gains
(or loss) depending upon the shareholder's holding period and
basis in respect of the shares redeemed.
To redeem shares of the Portfolio for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Portfolio 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 Portfolio 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 Portfolio 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,
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<PAGE>
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
Portfolio shareholder is entitled to request redemption by
electronic funds transfer of shares for which no share
certificates have been issued by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance Fund
Services, Inc. A telephone redemption by electronic funds
transfer may not exceed $100,000 (except for certain omnibus
accounts), and must be made by 4:00 p.m. Eastern time on a Fund
business day as defined above. Proceeds of telephone redemptions
will be sent by Electronic Funds Transfer to a shareholder's
designated bank account at a bank selected by the shareholder that
is a member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Portfolio
shareholder is eligible to request redemption by check of
Portfolio shares for which no stock certificates have been issued
by telephone at (800) 221-5672 before 4:00 p.m. Eastern time on a
Fund business day in an amount not exceeding $50,000. Proceeds of
such redemptions are remitted by check to the shareholder's
address of record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
TELEPHONE REDEMPTIONS - GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Investment Adviser, the Principal
Underwriter or Alliance Fund Services, Inc. will be responsible
for the authenticity of telephone requests for redemptions that
the Fund reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
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for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
REPURCHASE
The Portfolio may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected dealers
or agents. The repurchase price will be the net asset value next
determined after the Principal Underwriter receives the request
(less the contingent deferred sales charge, if any, with respect
to the Class A, Class B and Class C shares), except that requests
placed through selected dealers or agents before the close of
regular trading on the Exchange on any day will be executed at the
net asset value determined as of such close of regular trading on
that day if received by the Principal Underwriter prior to its
close of business on that day (normally 5:00 p.m. Eastern time).
The financial intermediary or selected dealer or agent is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. Eastern time (certain selected dealers,
agents or financial representatives may enter into operating
agreements permitting them to transmit purchase information to the
Principal Underwriter after 5:00 p.m. Eastern time and receive
that day's net asset value). If the financial intermediary or
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Portfolio 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 Portfolio
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 Portfolio as described above is a voluntary service of the
Fund and the Fund may suspend or terminate this practice at any
time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days written notice to increase the
account value before the account is closed. No contingent
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deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Portfolio 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 Portfolio's Prospectus(es) under "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Portfolio that are different from those described herein.
A transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Portfolio through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives the
proceeds from the investor's bank. In electronic form, drafts can
be made on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Investment
Adviser). In addition, (i) present officers and full-time
employees of the Investment Adviser, (ii) present Directors or
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Trustees of any Alliance Mutual Fund and (iii) certain employee
benefit plans for employees of the Investment Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates may, on a tax-free basis, exchange Class A shares of
the Fund for Advisor Class shares of the Fund. Exchanges of
shares are made at the net asset value next determined and without
sales or service charges. Exchanges may be made by telephone or
written request. Telephone exchange requests must be received by
Alliance Fund Services, Inc. by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request. Call
Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Portfolio for Advisor Class shares of the
Portfolio, exchanges of shares as described above in this section
are taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose shares
have been tendered for exchange is reasonably assured that the
check has cleared, normally up to 15 calendar days following the
purchase date. Exchanges of shares of Alliance Mutual Funds will
generally result in the realization of a capital gain or loss for
federal income tax purposes.
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Each Portfolio shareholder, and the shareholder's
selected dealer, agent or financial representative, as applicable,
are authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc. receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should
telephone Alliance Fund Services, Inc. with their account number
and other details of the exchange, at (800) 221-5672 before
4:00 p.m., Eastern time, on a Fund business day as defined above.
Telephone requests for exchange received before 4:00 p.m. Eastern
time on a Fund business day will be processed as of the close of
business on that day. During periods of drastic economic or
market developments, such as the market break of October 1987, it
is possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares of
another Alliance Mutual Fund. Auto Exchange transactions normally
occur on the 12th day of each month, or the Fund business day
prior thereto.
None of the Alliance Mutual Funds, the Investment
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 Funds being acquired may be legally
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sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Portfolio 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 Portfolio has available
forms of such plans pursuant to which investments can be made in
the Portfolio 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, N.J. 07096-1520
INDIVIDUAL RETIREMENT ACCOUNT ("IRA"). Individuals who
receive compensation, including earnings from self-employment, are
entitled to establish and make contributions to an IRA. Taxation
of the income and gains paid to an IRA by the Portfolio is
deferred until distribution from the IRA. An individual's
eligible contributions 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 the qualified plan reaches $1
million on or before December 15 in any year, all Class B or Class
C shares of the Portfolio held by the plan can be exchanged at the
plan's request, without any sales charge, for Class A shares of
the Portfolio.
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SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP under
which they make annual tax-deductible contributions to an IRA
established by each eligible employee within prescribed limits
based on employee compensation.
403(B)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation, minimum $25 per pay period,
may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the Fund,
charges certain nominal fees for establishing an account and for
annual maintenance. A portion of these fees is remitted to
Alliance Fund Services, Inc. as compensation for its services to
the retirement plan accounts maintained with the Portfolio.
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.
SYSTEMATIC WITHDRAWAL PLAN
GENERAL. Any shareholder who owns or purchases shares of
the Portfolio 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
Portfolio automatically reinvested in additional shares of the
Portfolio.
Shares of the Portfolio owned by a participant in the
Fund's systematic withdrawal plan will be redeemed as necessary to
meet withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Portfolio.
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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
Portfolio'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 shareholder 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 Portfolio should complete the appropriate portion of
the Subscription Application found in the Prospectus, while
current Portfolio 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 these limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Portfolio
accounts, Class A, Class B, Class C or Advisor Class accounts with
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<PAGE>
one or more other Alliance Mutual Funds may direct that income
dividends and/or capital gains paid on his or her Class A,
Class B, Class C or Advisor Class Portfolio 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.
STATEMENTS AND REPORTS
Each shareholder of the Portfolio receives semi-annual
and annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a monthly cumulative dividend statement and a confirmation
of each purchase and redemption. By contacting his or her broker
or Alliance Fund Services, Inc., a shareholder can arrange for
copies of his or her account statements to be sent to another
person.
CHECKWRITING
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against Class A
or Class C shares of the Portfolio redeemed from the investor's
account. Under this service, checks may be made payable to any
payee in any amount not less than $500 and not more than 90% of
the net asset value of the Class A or Class C shares in the
investor's account (excluding for this purpose the current month's
accumulated dividends and shares for which certificates have been
issued). A Class A or Class C shareholder wishing to establish
this checkwriting service subsequent to the opening of his or her
Portfolio account should contact the Portfolio by telephone or
mail. Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Portfolio and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge to
the shareholder for the initiation and maintenance of this service
or for the clearance of any checks.
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When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Portfolio in the shareholder's
account to cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented to
the Bank for payment.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (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 Investment Adviser certain
of the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange are valued,
except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business day
as of which such value is being determined. If there has been no
sale on such day, the securities are valued at the quoted bid
prices on such day. If no bid prices are quoted on such day, then
the security is valued at the mean of the bid and asked prices at
the close of the Exchange on such day as obtained from one or more
dealers regularly making a market in such security. Where a bid
and asked price can be obtained from only one such dealer, such
security is valued at the mean of the bid and asked price obtained
from such dealer unless it is determined that such price does not
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represent current market value, in which case the security shall
be valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Securities for
which no bid and asked price quotations are readily available are
valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange but listed on
other national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more other national
securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.
Readily marketable securities traded only in the over-
the-counter market, and debt securities listed on a U.S. national
securities exchange whose primary market is believed to be over-
the-counter, are valued at the mean of the bid and asked prices at
the close of the Exchange on such day as obtained from two or more
dealers regularly making a market in such security. Where a bid
and asked price can be obtained from only one such dealer, such
security is valued at the mean of the bid and asked price obtained
from such dealer unless it is determined that such price does not
represent current market value, in which case the security shall
be valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be Valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be valued
using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last available
closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that this
method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices
provided by a pricing service take into account many factors,
including institutional size trading in similar groups-of
securities and any developments related to specific securities.
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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.
The Board of Directors may suspend the determination of
the Fund's net asset value (and the offering and sales of shares),
subject to the rules of the SEC 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 SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid-and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, 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.
______________________________________________________________
PORTFOLIO TRANSACTIONS
______________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Investment Adviser is responsible for
the investment decisions and the placing of the orders for
portfolio transactions for the Portfolio. The Portfolio's
portfolio transactions occur primarily with issuers, underwriters
or major dealers acting as principals. Such transactions are
normally on a net basis which do not involve payment of brokerage
commissions. The cost of securities purchased from an underwriter
usually includes a commission paid by the issuer to the
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underwriter; transactions with dealers normally reflect the spread
between bid and asked prices. Premiums are paid with respect to
options purchased by the Portfolio, and brokerage commissions are
payable with respect to transactions in exchange- traded interest
rate futures contracts.
The Investment Adviser makes the decisions for the
Portfolio and determines the broker or dealer to be used in each
specific transaction. Most transactions for the Portfolio,
including transactions in listed securities, are executed in the
over-the-counter market by approximately fifteen (15) principal
market maker dealers with whom the Investment Adviser maintains
regular contact. Most transactions made by the Portfolio will be
principal transactions at net prices and the Portfolio will incur
little or no brokerage costs. Where possible, securities will be
purchased directly from the issuer or from an underwriter or
market maker for the securities unless the Investment Adviser
believes a better price and execution is available elsewhere.
Purchases from underwriters of newly-issued securities for
inclusion in the Portfolio usually will include a concession paid
to the underwriter by the issuer and purchases from dealers
serving as market makers will include the spread between the bid
and asked price.
The Portfolio has no obligation to enter into
transactions in securities with any broker, dealer, issuer,
underwriter or other entity. In placing orders, it is the policy
of the Fund to obtain the best price and execution for its
transactions. Where best price and execution may be obtained from
more than one broker or dealer, the Investment Adviser may, in its
discretion, purchase and sell securities through brokers and
dealers who provide research, statistical and other information to
the Investment Adviser. Such services may be used by the
Investment Adviser for all of its investment advisory accounts
and, accordingly, not all such services may be used by the
Investment Adviser in connection with the Portfolio. There may be
occasions where the transaction cost charged by a broker may be
greater than that which another broker may charge if the Fund
determines in good faith that the amount of such transaction cost
is reasonable in relationship to the value of the brokerage and
research and statistical services provided by the executing
broker. During the fiscal years ended June 30, 1996, 1997 and
1998, the Portfolio incurred no brokerage commissions.
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______________________________________________________________
TAXES
______________________________________________________________
The Fund advises the Portfolio's shareholders annually as
to the Federal income tax status of dividends and distributions
made to a Portfolio's shareholders during each calendar year.
GENERAL. The Portfolio intends for each taxable year to
qualify as a "regulated investment company" under the Code. To so
qualify, the Portfolio must, among other things, (i) derive at
least 90% of its gross income in each taxable year from dividends,
interest, payments with respect to securities loans, gains from
the sale or other disposition of stock or securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in stock, securities or
currency; and (ii) diversify its holdings so that, at the end of
each quarter of its taxable year, the following two conditions are
met: (a) at least 50% of the value of the Portfolio's assets is
represented by cash, cash items, U.S. Government Securities,
securities of other regulated investment companies and other
securities with respect to which the Portfolio's investment is
limited, in respect of any one issuer, to an amount not greater
than 5% of the Portfolio's total assets and 10% of the outstanding
voting securities of such issuer and (b) not more than 25% of the
value of the Portfolio's assets is invested in securities of any
one issuer (other than U.S. Government Securities or securities of
other regulated investment companies). These requirements, among
other things, may limit the Portfolio's ability to write and
purchase options, to enter into interest rate swaps and to
purchase or sell interest rate caps or floors.
If the Portfolio qualifies as a regulated investment
company for any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e., the
excess of its net long-term capital gain over its net short-term
capital loss), it will not be subject to federal income tax on the
portion of its taxable income for the year (including any net
capital gain) that it distributes to shareholders.
The Portfolio will also avoid the 4% federal excise tax
that would otherwise apply to certain undistributed income for a
given calendar year if it makes timely distributions to
shareholders equal to the sum of (i) 98% of its ordinary income
for such year, (ii) 98% of its capital gain net income and foreign
currency gains for the twelve-month period ending on October 31 of
such year, and (iii) any ordinary income or capital gain net
income from the preceding calendar year that was not distributed
54
<PAGE>
during such year. For this purpose, income or gain retained by
the Portfolio that is subject to corporate income tax will be
considered to have been distributed by the Portfolio by year-end.
For federal income and excise tax purposes, dividends declared and
payable to shareholders of record as of a date in October,
November or December but actually paid during the following
January will be treated as if paid by the Portfolio on December 31
of such calendar year, and will be taxable to these shareholders
for the year declared, and not for the year in which the
shareholders actually receive the dividend.
The information set forth in the following discussion
relates solely to the significant United States federal income tax
consequences of dividends and distributions by the Portfolio and
of sales or redemptions of Portfolio shares, and assumes that the
Portfolio qualifies to be taxed as a regulated investment company.
Investors should consult their own tax counsel with respect to the
specific tax consequences of their being shareholders of the
Portfolio, including the effect and applicability of federal,
state and local tax laws to their own particular situation and the
possible effects of changes therein.
DIVIDENDS AND DISTRIBUTIONS. The Portfolio intends to
make timely distributions of the Portfolio's taxable income
(including any net capital gain) so that the Portfolio will not be
subject to federal income and excise taxes. Dividends of the
Portfolio's net ordinary income and distributions of any net
realized short-term capital gain are taxable to shareholders as
ordinary income.
Distributions of net capital gain are taxable as long-
term capital gain, regardless of how long a shareholder has held
shares in the Fund. Any dividend or distribution received by a
shareholder on shares of the Portfolio 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 Portfolio.
Since the Portfolio expects to derive substantially all
of its gross income (exclusive of capital gains) from sources
other than dividends, it is expected that none of the Portfolio's
dividends or distributions will qualify for the dividends-received
deduction for corporations.
A dividend or capital gains distribution with respect to
shares of the Portfolio held by a tax-deferred or qualified
55
<PAGE>
retirement plan, such as an IRA, 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.
After the end of the taxable year, the Portfolio will
notify shareholders of the federal income tax status of any
distributions made by the Portfolio to shareholders during such
year.
SALES AND REDEMPTIONS. Any gain or loss arising from a
sale or redemption of Portfolio shares generally will be capital
gain or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. If a shareholder has held shares in the
Portfolio 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 Portfolio 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.
BACKUP WITHHOLDING. The Portfolio may be required to
withhold United States federal income tax at the rate of 31% of
all taxable distributions payable to shareholders who fail to
provide the Portfolio with their correct taxpayer identification
numbers or to make required certifications, or who have been
notified by the Internal Revenue Service that they are subject to
backup withholding. Corporate shareholders and certain other
types of shareholders specified in the Code are exempt from such
backup withholding. Backup withholding is not an additional tax;
any amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
ZERO COUPON TREASURY SECURITIES. Under current federal
tax law, the Portfolio will receive net investment income in the
56
<PAGE>
form of interest by virtue of holding Treasury bills, notes and
bonds, and will recognize interest attributable to it under the
original issue discount rules of the Code from holding zero coupon
Treasury securities. Current federal tax law requires that a
holder (such as the Portfolio) of a zero coupon security accrue a
portion of the discount at which the security was purchased as
income each year even though the Portfolio receives no interest
payment in cash on the security during the year. Accordingly, the
Portfolio may be required to pay out as an income distribution
each year an amount which is greater than the total amount of cash
interest the Portfolio actually received. Such distributions will
be made from the cash assets of the Portfolio or by liquidation of
portfolio securities, if necessary. If a distribution of cash
necessitates the liquidation of portfolio securities, the
Investment Adviser will select which securities to sell. The
Portfolio may realize a gain or loss from such sales. In the
event the Portfolio realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain
distribution, if any, than they would have in the absence of such
transactions.
STRIPPED MORTGAGE-RELATED SECURITIES. Certain classes of
SMRS which are issued at a discount, the payments of which are
subject to acceleration by reason of prepayments of the underlying
Mortgage Assets securing such classes, are subject to special
rules for determining the portion of the discount at which the
class was issued which must be accrued as income each year. Under
Code section 1272(a)(6), a principal-only class or a class which
receives a portion of the interest and a portion of the principal
from the underlying Mortgage Assets is subject to rules which
require accrual of interest to be calculated and included in the
income of a holder (such as the Portfolio) based on the increase
in the present value of the payments remaining on the class,
taking into account payments includable in the class' stated
redemption price at maturity which are received during the accrual
period. For this purpose, the present value calculation is made at
the beginning of each accrual period (i) using the yield to
maturity determined for the class at the time of its issuance
(determined on the basis of compounding at the close of each
accrual period and properly adjusted for the length of the accrual
period), calculated on the assumption that certain prepayments
will occur, and (ii) taking into account any prepayments that have
occurred before the close of the accrual period. Since interest
included in the Portfolio's income as a result of these rules will
have been accrued and not actually paid, the Portfolio may be
required to pay out as an income distribution each year an amount
which is greater than the total amount of cash interest the
Portfolio actually received, with possible results as described
above.
57
<PAGE>
TAXATION OF FOREIGN STOCKHOLDERS. The foregoing
discussion relates only to U.S. Federal income tax law as it
affects shareholders who are U.S. residents or U.S. corporations.
The effects of Federal income tax law on shareholders who are non-
resident aliens or foreign corporations may be substantially
different. Foreign investors should consult their counsel for
further information as to the U.S. tax consequences of receipt of
income from the Fund.
_______________________________________________________________
GENERAL INFORMATION
_______________________________________________________________
CAPITALIZATION
The authorized capital stock of the Fund consists of
1,800,000,000 shares of Common Stock having a par value of $.001
per share. All shares of each Portfolio participate equally in
dividends and distributions from that Portfolio, including any
distributions in the event of a liquidation. Each share of the
Portfolio is entitled to one vote for all purposes. Shares of
both Portfolios vote for the election of Directors and on any
other matter that affects both Portfolios in substantially the
same manner as a single class, except as otherwise required by
law. 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 class. There are no conversion or preemptive rights in
connection with any shares of the Portfolio. All shares of the
Portfolio when duly issued will be fully paid and non-assessable.
The authorized capital stock of the Portfolio currently
consists of 200,000,000 shares of Class A Common Stock,
200,000,000 shares of Class B Common Stock, and 200,000,000 shares
of Class C Common Stock, and 200,000,000 shares of Advisor Class
Common Stock, each having a par value of $.001 per share.
Class A, Class B and Class C shares each represent interests in
the assets of the Portfolio and have identical voting, dividend,
liquidation and other rights on the same terms and conditions,
except that expenses related to the distribution of each class and
transfer agency expenses of each class are borne solely by each
class and each class of shares has exclusive voting rights with
respect to provisions of the Fund's Rule 12b-1 distribution plan
which pertain to a particular class and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of both the Class A
shareholders and the Class B shareholders an amendment to the Rule
12b-1 distribution plan that would materially increase the amount
to be paid thereunder with respect to the Class A shares, the
58
<PAGE>
Class A shareholders and the Class B shareholders will vote
separately by class.
The Fund's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but
unissued shares of the Portfolio's Class A, Class B, Class C and
Advisor Class Common Stock.
The Board of Directors is authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional series of shares.
Any issuance of shares of another series would be governed by the
1940 Act and the laws of the State of Maryland. If shares of
another series were issued in connection with the creation of a
second portfolio, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series for the election of
Directors and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Investment Advisory
Contract and changes in investment policy, shares of each
Portfolio would vote as separate series.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on October 9, l998, there
were 126,029,973 shares of common stock of the Portfolio
outstanding. Of this amount, 50,776,074 shares were Class A
shares, 55,773,400 shares were Class B shares and
19,480,499 shares were Class C shares. To the knowledge of the
Portfolio, the following persons owned of record, or beneficially,
5% or more of the outstanding shares of the Portfolio as of
October 9, 1998:
59
<PAGE>
No of % of % of % of
Name and Address Shares Class A Class B Class C
Merrill Lynch 5,568,465 11.00%
Fund Administration
4800 Deer Lake Dr. East,
2nd Floor
Jacksonville, FL 32244-6484
Merrill Lynch 12,797,402 23.00%
Fund Administration
4800 Deer Lake Dr. East,
2nd Floor
Jacksonville, FL 32244-6484
Merrill Lynch 7,879,480 41.00%
Fund Administration
4800 Deer Lake Dr. East,
2nd Floor
Jacksonville, FL 32244-6484
Ho Chunk Nation 1,103,010 6.0%
P.O. Box 640
Black River Falls, WI 54615-0640
CUSTODIAN
State Street Bank and Trust Company ("State Street"),
225 Franklin Street, Boston, Massachusetts 02110, acts as the
Fund's Custodian for the assets of the Fund but plays no part in
deciding on the purchase or sale of portfolio securities. Subject
to the supervision of the Fund's Directors, State Street may enter
into subcustodial agreements for the holding of the Fund's foreign
securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's Principal
Underwriter, and as such may solicit orders from the public to
purchase shares of the Portfolio. Under the Distribution Services
Agreement, the Fund has agreed to indemnify the Principal
Underwriter, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
60
<PAGE>
COUNSEL
Legal matters in connection with the issuance of the
shares of the Portfolio offered hereby are passed upon by Seward &
Kissel, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Fund.
PERFORMANCE INFORMATION
From time to time, the Portfolio advertises its "yield,"
"actual distribution rate" and "total return." The Portfolio will
compute its yield, actual distribution rate and total return
separately for Class A, Class B and Class C shares. The Portfolio
will compute its yield, actual distribution rate and total return
separately for Class A, Class B and Class C. The Portfolio's
yield for any 30-day (or one-month) period is computed by dividing
the net investment income per share earned during such period by
the maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one-month) yield in
accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis. The Portfolio's
"actual distribution rate," which may be advertised in items of
sales literature, is computed in the same manner as yield except
that actual income dividends declared per share during the period
in question is substituted for net investment income per share.
The actual distribution rate is computed separately for each class
of shares. Advertisements of the Portfolio's total return
disclose the Portfolio's average annual compounded total return
for its most recently completed one, five and ten year periods
(or, if shorter, the period since the Portfolio's inception). The
Portfolio's total return for each such period is computed by
finding, through the use of a formula prescribed by the
Commission, the average annual compounded rate of return over the
period that would equate an assumed initial amount invested to the
value of such investment at the end of the period. For purposes
of computing total return, income dividends and capital gains
distributions paid on shares of the Portfolio are assumed to have
been reinvested when received and the maximum sales charge
applicable to purchases of the Portfolio's shares is assumed to
have been paid.
The yield for the month ended June 30, 1998 for the
Class A shares of the Portfolio was 6.09%, for Class B shares was
5.66% and for Class C shares was 5.66%. The actual distribution
rate for such period for the Portfolio for Class A shares was
61
<PAGE>
6.86%, for Class B shares was 6.42% and for Class C shares was
6.42%. The Portfolio's average annual total return for the one-
year period ended June 30, 1998 was 5.33%, for the five-year
period ended June 30, 1998 was 4.32% and for the ten-year period
ended June 30, 1998 was 7.26% for Class A shares of the Portfolio;
the average annual total return for the one-year period ended
June 30, 1998 was 6.20%, for the five-year period ended June 30,
1998 was 4.45% and for the period September 30, 1991 (commencement
of distribution) through June 30, 1998, was 6.12% for Class B
shares of the Portfolio; and the average annual total return for
the one-year period ended June 30, 1998, was 8.21%, for the five-
year period ended June 30, 1998 was 4.45% and for the period May
3, 1993 (commencement of distribution) through June 30, 1998 was
4.73% for Class C shares of the Portfolio.
Yield and total return are computed separately for the
Portfolio's Class A, Class B, Class C and Advisor Class shares.
The Portfolio's yield and total return are not fixed and will
fluctuate in response to prevailing market conditions or as a
function of the type and quality of the securities held by the
Portfolio, its average portfolio maturity and its expenses. Yield
and total return information is useful in reviewing the
Portfolio's performance and such information may provide a basis
for comparison with other investments. Such other investments may
include certificates of deposit, money market funds and corporate
debt securities. However, an investor should know that investment
return and principal value of an investment in the Portfolio will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. In addition, the
Portfolio's shares are not insured or guaranteed by the U.S.
Government. In comparison, certificates of deposit are guaranteed
and pay a fixed rate of return; money market funds seek a stable
net asset value; and corporate debt securities may provide a
higher yield than those available from the Portfolio.
Advertisements quoting performance rankings or ratings of
the Fund's Portfolio as measured by financial publications or by
independent organizations such as Lipper Analytical Services, Inc.
("Lipper") and Morningstar, Inc. and advertisements presenting the
historical record payments of income dividends by the Portfolio
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. The Portfolio has been ranked by Lipper in the category
known as "U.S. Government bond funds".
62
<PAGE>
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the
shareholder's broker or other financial adviser 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.
63
<PAGE>
____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT AUDITORS
____________________________________________________________
64
<PAGE>
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
ANNUAL REPORT
JUNE 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-98.8%
U.S. TREASURY SECURITIES-70.4%
U.S. TREASURY BONDS-65.7%
8.00%, 11/15/21 $ 56,400 $ 72,683,808
8.125%, 5/15/21 34,100 44,399,223
8.875%, 8/15/17 39,000 53,167,920
11.625%, 11/15/02 11,500 14,173,750
12.00%, 8/15/13 71,085 105,394,886
12.50%, 8/15/14 65,150 101,471,125
14.00%, 11/15/11 110,900 172,051,369
-------------
563,342,081
U.S. TREASURY NOTE-4.6%
8.75%, 8/15/00 36,800 39,146,000
U.S. TREASURY BILL-0.1%
4.50%, 7/09/98 825 824,175
Total U.S. Treasury Securities
(cost $589,798,040) 603,312,256
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-19.8%
Collateralized Mortgage Obligations
Series 1997-8
7.00%, 9/16/21 16,000 16,090,080
Series 1997-10 Cl.C
9.50%, 4/16/25 26,250 28,629,037
Series 1997-11 Cl.C
9.50%, 10/20/25 28,052 30,537,127
-------------
75,256,244
Mobile Homes
8.00%, 8/15/16 583 604,410
8.25%, 6/15/05-3/15/16 4,177 4,349,930
8.50%, 5/15/08-1/15/12 899 941,134
8.75%, 11/15/00-1/15/12 3,043 3,195,380
9.00%, 10/15/11-1/15/12 1,054 1,105,944
9.25%, 1/15/13 243 259,620
9.75%, 5/15/99-1/15/13 4,857 5,178,353
10.25%, 2/15/03-6/15/13 4,500 4,799,652
-------------
20,434,423
Project Loans
8.50%, 11/15/12-11/15/31 14,438 15,146,739
Single Family Homes
7.50%, 9/15/21-9/15/24 1,476 1,529,860
8.00%, 3/15/12 49,094 50,950,198
9.00%, 7/20/24-9/20/24 6,008 6,393,371
-------------
58,873,429
Total Government National Mortgage Association
(cost $172,864,327) 169,710,835
FEDERAL AGENCY SECURITIES-8.6%
Financial Assistance Corp.
9.45%, 11/21/03 26,000 26,346,580
9.50%, 4/16/04 31,506 32,441,413
United States Agency for
International Development
7.11%, 2/01/12 14,000 15,190,000
Total Federal Agency Securities
(cost $81,483,529) 73,977,993
TOTAL INVESTMENTS-98.8%
(cost $844,145,896) 847,001,084
Other assets less liabilities-1.2% 10,393,411
NET ASSETS-100% $857,394,495
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $844,145,896) $ 847,001,084
Cash 4,282
Interest receivable 14,321,861
Receivable for capital stock sold 4,243,795
Total assets 865,571,022
LIABILITIES
Payable for capital stock redeemed 4,856,468
Dividends payable 1,603,541
Advisory fee payable 1,196,743
Distribution fee payable 117,808
Accrued expenses 401,967
Total liabilities 8,176,527
NET ASSETS $ 857,394,495
COMPOSITION OF NET ASSETS
Capital stock, at par $ 113,214
Additional paid-in capital 1,065,882,616
Distributions in excess of net investment income (1,603,541)
Accumulated net realized loss on investment transactions (209,847,930)
Net unrealized appreciation of investments and other assets 2,850,136
$ 857,394,495
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($352,748,821/
46,592,789 shares of capital stock issued and outstanding) $7.57
Sales charge--4.25% of public offering price .34
Maximum offering price $7.91
CLASS B SHARES
Net asset value and offering price per share ($390,253,252/
51,518,944 shares of capital
stock issued and outstanding) $7.57
CLASS C SHARES
Net asset value and offering price per share ($114,392,422/
15,101,775 shares of capital stock issued and outstanding) $7.57
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $73,317,122
EXPENSES
Advisory fee $4,949,100
Distribution fee - Class A 1,061,547
Distribution fee - Class B 4,316,412
Distribution fee - Class C 1,161,590
Transfer agency 1,169,281
Custodian 212,134
Printing 141,221
Administrative 116,256
Audit and legal 81,258
Taxes 73,971
Registration 51,061
Directors' fees 12,225
Miscellaneous 10,342
Total expenses 13,356,398
Net investment income 59,960,724
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 4,547,564
Net change in unrealized depreciation of
investments and other assets 17,676,067
Net gain on investment transactions 22,223,631
NET INCREASE IN NET ASSETS FROM OPERATIONS $82,184,355
See notes to financial statements.
7
STATEMENT OF CHANGES
IN NET ASSETS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 59,960,724 $ 76,613,835
Net realized gain (loss) on investment
transactions 4,547,564 (17,906,339)
Net change in unrealized appreciation
(depreciation) of investmentsand other assets 17,676,067 4,101,240
Net increase in net assets from operations 82,184,355 62,808,736
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (25,072,563) (28,676,683)
Class B (27,489,182) (38,040,411)
Class C (7,398,979) (9,425,145)
Tax return of capital
Class A (1,242,637) (537,368)
Class B (1,362,408) (712,834)
Class C (366,705) (176,616)
CAPITAL STOCK TRANSACTIONS
Net decrease (104,135,594) (235,558,940)
Total decrease (84,883,713) (250,319,261)
NET ASSETS
Beginning of year 942,278,208 1,192,597,469
End of year $ 857,394,495 $ 942,278,208
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund, which is a Maryland corporation, operates as a series company
currently comprised of two portfolios: the Corporate Bond Portfolio and the
U.S. Government Portfolio. Each series is considered to be a separate entity
for financial reporting and tax purposes. The financial statements and notes
include the operations of the U.S. Government Portfolio (the "Portfolio") only.
The Portfolio offers Class A, Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge of 1%. Class B shares are currently sold with a contingent
deferred sales charge which declines from 3% to zero depending on the period of
time the shares are held. Class B shares will automatically convert to Class A
shares six years after the end of the calendar month of purchase. Class C
shares are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights, except that each
class bears different distribution expenses and has exclusive voting rights
with respect to its distribution plan. The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Portfolio.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last reported sale price on such exchange on the day of valuation or, if there
was no sale on such day, the last bid price quoted on such day. If no bid
prices are quoted, then the security is valued at the mean of the bid and asked
prices as obtained on that day from one or more dealers regularly making a
market in that security. Securities traded on the over-the-counter market are
valued at the mean of the closing bid and asked prices provided by two or more
dealers regularly making a market in such securities. U.S. government
securities and other debt securities which mature in 60 days or less are valued
at amortized cost unless this method does not represent fair value. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by, or in accordance with procedures approved by,
the Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. TAXES
It is the Portfolio's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Portfolio amortizes premiums and
accretes discounts as adjustments to interest income. Investment gains and
losses are determined on the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Portfolio are borne on a
pro-rata basis by each settled class of shares, based on the proportionate
interest in the Portfolio represented by the net assets of such class, except
that the Portfolio's Class B and Class C shares bear higher distribution and
transfer agent fees than Class A shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclas sified within the capital accounts based
on their federal tax basis treatment; temporary differences do not require such
reclassification.
9
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
During the current fiscal year, permanent differences, primarily due to
expiration of capital loss carryforwards and return of capital distributions,
resulted in a net decrease in accumulated net realized loss on investment
transactions and a corresponding decrease in additional paid-in capital and
distributions in excess of net investment income. This reclassification had no
effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays
Alliance Capital Management L.P. (the "Adviser"), an advisory fee at a
quarterly rate of .15 of 1% (approximately .60 of 1% on an annual basis) of the
first $500 million of the Portfolio's net assets and .125 of 1% (approximately
.50 of 1% on an annual basis) of its net assets over $500 million, valued on
the last business day of the previous quarter.
Pursuant to the advisory agreement, the Portfolio paid $116,256 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the year ended June 30, 1998.
The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned
subsidiary of the Adviser, under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $820,628 for the year ended June 30, 1998.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Portfolio's shares. The
Distributor received front-end sales charges of $21,924 from the sale of Class
A shares and $10,096, $291,831 and $31,629 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class A, Class B and Class C
shares, respectively, for the year ended June 30, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Portfolio has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Portfolio pays a distribution fee to the Distributor at an
annual rate of up to .30% of the Portfolio's average daily net assets
attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Portfolio in the amount of $7,204,946, and $4,179,954
for Class B and Class C shares, respectively; such costs may be recovered from
the Portfolio in future periods as long as the Agreement is in effect. In
accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $21,304,290 and $20,870,217,
respectively, for the year ended June 30, 1998. Purchases and sales of U.S.
government obligations aggregated $1,364,538,957 and $1,517,667,848,
respectively, for the year ended June 30, 1998.
At June 30, 1998, the cost of investments for federal income tax purposes was
$845,609,579. Accordingly, gross unrealized appreciation of investments was
$15,889,181 and gross unrealized depreciation of investments was $14,497,676,
resulting in net unrealized appreciation of $1,391,505.
10
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
At June 30, 1998, the Portfolio had a capital loss carryforward for federal
income tax purposes of $208,384,247, of which $8,257,319 expires in the year
1999; $83,016,947 expires in the year 2003; $61,544,081 expires in the year
2004; $51,829,521 expires in the year 2005 and $3,736,379 expires in the year
2006.
NOTE E: CAPITAL STOCK
There are 600,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 200,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------- ------------ -------------- --------------
CLASS A
Shares sold 10,804,046 7,330,644 $ 81,364,926 $ 54,720,782
Shares issued in
reinvestment of
dividends and
distributions 1,651,986 1,852,073 12,448,223 13,859,387
Shares converted
from Class B 2,908,590 2,400,559 21,971,601 17,892,778
Shares redeemed (16,621,353) (16,635,865) (125,182,615) (124,255,277)
Net decrease (1,256,731) (5,052,589) $ (9,397,865) $ (37,782,330)
CLASS B
Shares sold 6,931,240 5,813,050 $ 52,278,662 $ 43,483,332
Shares issued in
reinvestment of
dividends and
distributions 1,813,058 2,166,310 13,660,347 16,211,718
Shares converted
to Class A (2,908,590) (2,400,559) (21,971,601) (17,892,778)
Shares redeemed (17,960,112) (25,514,220) (135,276,839) (190,768,847)
Net decrease (12,124,404) (19,935,419) $ (91,309,431) $(148,966,575)
CLASS C
Shares sold 4,489,582 3,571,988 $ 34,077,964 $ 26,694,306
Shares issued in
reinvestment of
dividends and
distributions 651,004 544,818 4,904,415 4,070,889
Shares redeemed (5,630,703) (10,605,329) (42,410,677) (79,575,230)
Net decrease (490,117) (6,488,523) $ (3,428,298) $ (48,810,035)
11
FINANCIAL HIGHLIGHTS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .54(a) .57(a) .58 .64 .65
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .72 .47 .14 .77 (.15)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.54) (.57) (.58) (.65) (.65)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.56) (.58) (.58) (.65) (.65)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on
net asset value (b) 10.02% 6.49% 1.74% 10.37% (1.93)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $352,749 $354,782 $397,894 $463,660 $482,595
Ratio of expenses to average net assets 1.06% 1.02% 1.01% 1.01% 1.02%
Ratio of net investment income to
average net assets 7.08% 7.66% 7.38% 8.27% 7.76%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 14.
12
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .66 .42 .08 .71 (.21)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.52) (.59) (.59)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.50) (.53) (.52) (.59) (.59)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on net
asset value (b) 9.20% 5.69% 1.01% 9.52% (2.63)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $390,253 $471,889 $628,628 $774,097 $756,282
Ratio of expenses to average net assets 1.76% 1.73% 1.72% 1.72% 1.72%
Ratio of net investment income to
average net assets 6.37% 6.95% 6.67% 7.57% 7.04%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 14.
13
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.83 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .14 (.81)
Net increase (decrease) in net asset
value from operations .66 .42 .08 .72 (.22)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.52) (.59) (.59)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.50) (.53) (.52) (.59) (.59)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.83
TOTAL RETURN
Total investment return based on net
asset value (b) 9.21% 5.69% 1.01% 9.67% (2.75)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $114,392 $115,607 $166,075 $181,948 $231,859
Ratio of expenses to average net assets 1.76% 1.72% 1.71% 1.71% 1.70%
Ratio of net investment income to
average net assets 6.38% 6.96% 6.68% 7.59% 6.97%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period less than one year is
not annualized.
14
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
We have audited the accompanying statement of assets and liabilities of
Alliance Bond Fund U.S. Government Portfolio (one of the portfolios comprising
the Alliance Bond Fund, Inc.), including the portfolio of investments, as of
June 30, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned as of June 30, 1998, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Bond Fund U.S. Government Portfolio at June 30, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
August 4, 1998
15
<PAGE>
____________________________________________________________
APPENDIX A:
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
A-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to a contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth above
under "Purchase of Shares" and "Redemption and Repurchase of
Shares."
A-2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
Included in each Prospectus:
Financial Highlights
Included in the Statement of Additional Information:
Portfolios of Investments - June 30, 1998.
- Corporate Bond Portfolio
- U.S. Government Portfolio
Statements of Assets and Liabilities - June 30, 1998.
Statements of Operations - year ended June 30, 1998.
Statements of Changes in Net Assets - years ended
June 30, 1998 and June 30, 1997.
Notes to Financial Statements - June 30, 1998.
Financial Highlights.
Report of Independent Auditors.
Included in Part C of the Registration Statement:
All other schedules are either inapplicable, or the
required information is contained in the financial
statements.
(b) EXHIBITS:
(1) (a) Articles of Incorporation of the Registrant -
Incorporated by reference to Exhibit 1(a) to Post-
Effective Amendment No. 65 of the Registrant's
Registration Statement on Form N-1A (File
Nos. 2-48227 and 811-2383) filed with the
Securities and Exchange Commission on October 31,
1997.
(b) Articles of Amendment of the Articles of
Incorporation of the Registrant dated December 15,
1989 and filed December 19, 1989 - Filed herewith.
(c) Articles Supplementary to the Articles of
Incorporation of the Registrant dated and filed
August 28, 1991 - Incorporated by reference to
Exhibit 1(b) to Post-Effective Amendment No. 65 of
the Registrant's Registration Statement on Form
N-1A (File Nos. 2-48227 and 811-2383) filed with
C-1
<PAGE>
the Securities and Exchange Commission on
October 31, 1997.
(d) Articles Supplementary to the Articles of
Incorporation of the Registrant dated March 25,
1992 and filed March 26, 1992 - Incorporated by
reference to Exhibit 1(d) to Post-Effective
Amendment No. 65 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-48227 and
811-2383) filed with the Securities and Exchange
Commission on October 31, 1997.
(e) Articles of Amendment to the Articles of
Incorporation of the Registrant dated October 27,
1992 and filed November 2, 1992 - Filed herewith.
(f) Articles Supplementary to the Articles of
Incorporation of the Registrant dated December 30,
1992 and filed December 31, 1992 - Filed herewith.
(g) Articles of Amendment to the Articles of
Incorporation of the Registrant dated January 7,
1993 and filed January 8, 1993 - Incorporated by
reference to Exhibit 1(e) to Post-Effective
Amendment No. 65 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-48227 and
811-2383) filed with the Securities and Exchange
Commission on October 31, 1997.
(h) Articles Supplementary to the Articles of
Incorporation of the Registrant dated April 29,
1993 and filed April 30, 1993 - Filed herewith.
(i) Articles Supplementary to the Articles of
Incorporation of the Registrant dated
September 30, 1996 and filed October 2, 1996
-Incorporated by reference to Exhibit 1(e) to
Post-Effective Amendment No. 64 of the
Registrant's Registration Statement on Form N-1A
(File Nos. 2-48227 and 811-2383) filed with the
Securities and Exchange Commission on October 31,
1996.
(j) Articles Supplementary to the Articles of
Incorporation of the Registrant dated March 31,
1998 and filed April 6, 1998 - Filed herewith.
(2) By-Laws of the Registrant - Incorporated by reference
to Exhibit 2 to Post-Effective Amendment No. 65 of the
Registrant's Registration Statement on Form N-1A (File
C-2
<PAGE>
Nos. 2-48227 and 811-2383) filed with the Securities
and Exchange Commission on October 31, 1997.
(3) Not applicable.
(4) Not applicable.
(5) Investment Advisory Contract between the Registrant and
Alliance Capital Management L.P. - Incorporated by
reference to Exhibit 5 to Post-Effective Amendment
No. 65 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383) filed with
the Securities and Exchange Commission on October 31,
1997.
(6) (a) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc. -
Incorporated by reference as Exhibit 6(a) to Post-
Effective Amendment No. 65 of the Registrant's
Registration Statement on Form N-1A (File
Nos. 2-48227 and 811-2383) filed with the
Securities and Exchange Commission on October 31,
1997.
(b) Amendment to the Distribution Services Agreement
between the Registrant and Alliance Fund
Distributors, Inc. - Incorporated by reference as
Exhibit 6(e) to Post-Effective Amendment No. 64 of
the Registrant's Registration Statement on Form
N-1A (File Nos. 2-48227 and 811-2383), filed with
the Securities and Exchange Commission on
October 31, 1996.
(c) Selected Dealer Agreement between Alliance Fund
Distributors, Inc. and selected dealers offering
shares of Registrant - Incorporated by reference
as Exhibit 6(c) to Post-Effective Amendment No. 65
of the Registrant's Registration Statement on Form
N-1A (File Nos. 2-48227 and 811-2383) filed with
the Securities and Exchange Commission on
October 31, 1997.
(d) Selected Agent Agreement between Alliance Fund
Distributors, Inc. and selected agents making
available shares of Registrant - Incorporated by
reference as Exhibit 6(d) to Post-Effective
Amendment No. 65 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-48227 and
811-2383) filed with the Securities and Exchange
Commission on October 31, 1997.
C-3
<PAGE>
(7) Not applicable.
(8) (a) Custodian Contract between the Registrant and
State Street Bank and Trust Company - Incorporated
by reference to Exhibit 8(a) to Post-Effective
Amendment No. 65 of the Registrant's Registration
Statement on Form N-1A (File Nos. 2-48227 and
811-2383) filed with the Securities and Exchange
Commission with the Securities and Exchange
Commission on October 31, 1997.
(b) Amendment to the Custodian Contract between the
Registrant and State Street Bank and Trust
Company - Incorporated by reference to
Exhibit 8(a) to Post-Effective Amendment No. 64 of
the Registrant's Registration Statement on Form
N-1A (File Nos. 2-48227 and 811-2383) filed with
the Securities and Exchange Commission on
October 31, 1996.
(9) Transfer Agency Agreement between Registrant and
Alliance Fund Services, Inc. - Incorporated by
reference to Exhibit 9 to Post-Effective Amendment
No. 65 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383) filed with
the Securities and Exchange Commission on October 31,
1997.
(10) Opinion and Consent of Seward & Kissel - Incorporated
by reference to Exhibit 10 to Post-Effective Amendment
No. 63 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383) filed with
the Securities and Exchange Commission on September 5,
1996.
(11) Consent of Independent Auditors - Filed herewith.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) (a) Rule 12b-1 Plan - See Exhibit 6(a) above.
(b) Amended Rule 12b-1 Plan - See Exhibit 6(b) above.
(16) Not applicable.
(17) Financial Data Schedule - Filed herewith.
C-4
<PAGE>
(18) Amended and Restated Rule 18f-3 Plan - Incorporated by
reference to Exhibit 18(a) to Post-Effective Amendment
No. 64 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-48227 and 811-2383) filed with
the Securities and Exchange Commission on October 31,
1996.
Other Exhibits:
Powers of Attorney of Ruth S. Block, John D. Carifa,
David H. Dievler, John H. Dobkin, William H. Foulk,
Jr., James M. Hester, Clifford L. Michel and Donald J.
Robinson - Filed herewith.
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
ITEM 26. Number of Holders of Securities.
Not applicable.
ITEM 27. Indemnification.
It is the Registrants policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland and as set
forth in Article EIGHTH of Registrants Articles of
Incorporation as set forth below and Section 10(a) of
the Distribution Services Agreement filed as Exhibit 6
as set forth below.
The liability of the Registrants directors and officers
is dealt with in Article SEVENTH, Section (f) of
Registrants Articles of Incorporation, as set forth
below. The Investment Advisers liability for any loss
suffered by the Registrant or its shareholders is set
forth in Section 4 of the Investment Advisory Contract
filed as Exhibit 5 as set forth below.
SECTION 2-418 OF THE MARYLAND GENERAL CORPORATION LAW
READS AS FOLLOWS:
2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meaning indicated.
(1) "Directors" means any person who is or
was a director of a corporation and any person
C-5
<PAGE>
who, while a director of a corporation, is or was
serving at the request of the corporation as a
director, officer, partner, trustee, employee, or
agent of another foreign or domestic corporation,
partnership, joint venture, trust, other
enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or
foreign predecessor entity of a corporation in a
merger, consolidation, or other transaction in
which the predecessors existence ceased upon
consummation of the transaction.
(3) "Expenses" include attorneys fees.
(4) "Official capacity" means the following
(i) When used with respect to a
director, the office of director in the
corporation; and
(ii) When used with respect to a person
other than a director as contemplated in
subsection (j), the elective or appointive office
in the corporation held by the officer, or the
employment or agency relationship undertaken by
the employee or agent in behalf of the
corporation.
(iii) "Official capacity" does not
include service for any other foreign or domestic
corporation or any partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(5) "Party" includes a person who was, is,
or is threatened to be made a named defendant or
respondent in a proceeding.
(6) "Proceeding" means any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or
investigative.
(b)(1) A corporation may indemnify any
director made a party to any proceeding by reason
of service in that capacity unless it is
established that:
(i) The act or omission of the director was
material to the cause of action adjudicated in the
proceeding; and
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1. Was committed in bad faith; or
2. Was the result of active and deliberate
dishonesty; or
(ii) The director actually received an
improper personal benefit in money, property, or
services; or
(iii) In the case of any criminal proceeding,
the director had reasonable cause to believe that
the act or omission was unlawful.
(2)(i) Indemnification may be against
judgments, penalties, fines, settlements, and
reasonable expenses actually incurred by the
director in connection with the proceeding.
(ii) However, if the proceeding was one by
or in the right of the corporation,
indemnification may not be made in respect of any
proceeding in which the director shall have been
adjudged to be liable to the corporation.
(3)(i) The termination of any proceeding by
judgment, order or settlement does not create a
presumption that the director did not meet the
requisite standard of conduct set forth in this
subsection.
(ii) The termination of any proceeding
by conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation
prior to judgment, creates a rebuttable
presumption that the director did not meet that
standard of conduct.
(c) A director may not be indemnified under
subsection (b) of this section in respect of any
proceeding charging improper personal benefit to
the director, whether or not involving action in
the directors official capacity, in which the
director was adjudged to be liable on the basis
that personal benefit was improperly received.
(d) Unless limited by the charter:
(1) A director who has been successful, on
the merits or otherwise, in the defense of any
proceeding referred to in subsection (b) of this
section shall be indemnified against reasonable
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expenses incurred by the director in connection
with the proceeding.
(2) A court of appropriate jurisdiction upon
application of a director and such notice as the
court shall require, may order indemnification in
the following circumstances:
(i) If it determines a director is
entitled to reimbursement under paragraph (1) of
this subsection, the court shall order
indemnification, in which case the director shall
be entitled to recover the expenses of securing
such reimbursement; or
(ii) If it determines that the director
is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not the director has met
the standards of conduct set forth in subsection
(b) of this section or has been adjudged liable
under the circumstances described in subsection
(c) of this section, the court may order such
indemnification as the court shall deem proper.
However, indemnification with respect to any
proceeding by or in the right of the corporation
or in which liability shall have been adjudged in
the circumstances described in subsection (c)
shall be limited to expenses.
(3) A court of appropriate jurisdiction may
be the same court in which the proceeding
involving the directors liability took place.
(e)(1) Indemnification under subsection (b)
of this section may not be made by the corporation
unless authorized for a specific proceeding after
a determination has been made that indemnification
of the director is permissible in the
circumstances because the director has met the
standard of conduct set forth in subsection (b) of
this section.
(2) Such determination shall be made:
(i) By the board of directors by a
majority vote of a quorum consisting of directors
not, at the time, parties to the proceeding, or,
if such a quorum cannot be obtained, then by a
majority vote of a committee of the board
consisting solely of two or more directors not, at
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the time, parties to such proceeding and who were
duly designated to act in the matter by a majority
vote of the full board in which the designated
directors who are parties may participate;
(ii) By special legal counsel selected
by the board or a committee of the board by vote
as set forth in subparagraph (i) of this
paragraph, or, if the requisite quorum of the full
board cannot be obtained therefor and the
committee cannot be established, by a majority
vote of the full board in which directors who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification and
determination as to reasonableness of expenses
shall be made in the same manner as the
determination that indemnification is permissible.
However, if the determination that indemnification
is permissible is made by special legal counsel,
authorization of indemnification and determination
as to reasonableness of expenses shall be made in
the manner specified in subparagraph (ii) of
paragraph (2) of this subsection for selection of
such counsel.
(4) Shares held by directors who are parties
to the proceeding may not be voted on the subject
matter under this subsection.
(f)(1) Reasonable expenses incurred by a
director who is a party to a proceeding may be
paid or reimbursed by the corporation in advance
of the final disposition of the proceeding, upon
receipt by the corporation of:
(i) A written affirmation by the
director of the directors good faith belief that
the standard of conduct necessary for
indemnification by the corporation as authorized
in this section has been met; and
(ii) A written undertaking by or on
behalf of the director to repay the amount if it
shall ultimately be determined that the standard
of conduct has not been met.
(2) The undertaking required by subparagraph
(ii) of paragraph (1) of this subsection shall be
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an unlimited general obligation of the director
but need not be secured and may be accepted
without reference to financial ability to make the
repayment.
(3) Payments under this subsection shall be
made as provided by the charter, bylaws, or
contract or as specified in subsection (e) of this
section.
(g) The indemnification and advancement of
expenses provided or authorized by this section
may not be deemed exclusive of any other rights,
by indemnification or otherwise, to which a
director may be entitled under the charter, the
bylaws, a resolution of stockholders or directors,
an agreement or otherwise, both as to action in an
official capacity and as to action in another
capacity while holding such office.
(h) This section does not limit the
corporations power to pay or reimburse expenses
incurred by a director in connection with an
appearance as a witness in a proceeding at a time
when the director has not been made a named
defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit
plan where the performance of the directors duties
to the corporation also imposes duties on, or
otherwise involves services by, the director to
the plan or participants or beneficiaries of the
plan:
(2) Excise taxes assessed on a director with
respect to an employee benefit plan pursuant to
applicable law shall be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit plan in the
performance of the directors duties for a purpose
reasonably believed by the director to be in the
interest of the participants and beneficiaries of
the plan shall be deemed to be for a purpose which
is not opposed to the best interests of the
corporation.
(j) Unless limited by the charter:
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(1) An officer of the corporation shall be
indemnified as and to the extent provided in
subsection (d) of this section for a director and
shall be entitled, to the same extent as a
director, to seek indemnification pursuant to the
provisions of subsection (d);
(2) A corporation may indemnify and advance
expenses to an officer, employee, or agent of the
corporation to the same extent that it may
indemnify directors under this section; and
(3) A corporation, in addition, may
indemnify and advance expenses to an officer,
employee, or agent who is not a director to such
further extent, consistent with law, as may be
provided by its charter, bylaws, general or
specific action of its board of directors or
contract.
(k)(1) A corporation may purchase and
maintain insurance on behalf of any person who is
or was a director, officer, employee, or agent of
the corporation, or who, while a director,
officer, employee, or agent of the corporation, is
or was serving at the request, of the corporation
as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust,
other enterprise, or employee benefit plan against
any liability asserted against and incurred by
such person in any such capacity or arising out of
such persons position, whether or not the
corporation would have the power to indemnify
against liability under the provisions of this
section.
(2) A corporation may provide similar
protection, including a trust fund, letter of
credit, or surety bond, not inconsistent with this
section.
(3) The insurance or similar protection
may be provided by a subsidiary or an affiliate of
the corporation.
(l) Any indemnification of, or advance of
expenses to, a director in accordance with this
section, if arising out of a proceeding by or in
the right of the corporation, shall be reported in
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writing to the stockholders with the notice of the
next stockholders meeting or prior to the meeting.
ARTICLE EIGHTH OF THE REGISTRANTS ARTICLES OF INCORPORATION READS
AS FOLLOWS:
EIGHTH: To the maximum extent permitted by the General
Corporation Law of the State of Maryland as from time
to time amended, the Corporation shall indemnify its
currently acting and its former directors and officers
and those persons who, at the request of the
Corporation, serve or have served another corporation,
partnership, joint venture, trust or other enterprise
in one or more of such capacities.
Section 10(a) of the Distribution Services Agreement reads as
follows:
Section 10. Indemnification.
(a) The Fund agrees to indemnify, defend and hold
the Underwriter, and any person who controls the
Underwriter within the meaning of Section 15 of the
Securities Act, free and harmless form and against any
and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees
incurred in connection therewith) which the Underwriter
or any such controlling person may incur, under the
Securities Act, or under common law or otherwise,
arising out of or based upon any alleged untrue
statements of a material fact contained in the Fund's
Registration Statement or Prospectus or Statement of
Additional Information in effect form time to time
under the Securities Act or arising out of or based
upon any alleged omission to state a material fact
required to be stated in either thereof or necessary to
make the statements in either thereof not misleading;
provided, however, that in no event shall anything
therein contained by so construed as to protect the
Underwriter against any liability to the Fund or its
security holders to which the Underwriter would
otherwise be subject by reason of willful misfeasance,
bad faith or gross negligence in the performance of its
duties, or by reason of the Underwriter's reckless
disregard of its obligations and duties under this
agreement. The Fund's agreement to indemnify the
Underwriter or any such controlling person, such
notification to be given by letter or by telegram
addressed to the Fund at its principal office in New
York, New York, and sent to the Fund by the person
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against whom such action is brought within ten days
after the summons or other first legal process shall
have been served. The failure so to notify the Fund of
the commencement of any such action shall not relieve
the Fund from any liability which it may have to the
person against whom such action is brought by reason of
any such alleged untrue statement or omission otherwise
than on account of the indemnity agreement contained in
this Section 10. The Fund will be entitled to assume
the defense of any such suit brought to enforce any
such claim, and to retain counsel of good standing
chosen by the Fund and approved by the Underwriter. In
the event the Fund does elect to assume the defense of
any such suit and retain counsel of good standing
approved by the Underwriter, the defendant or
defendants in such suit shall bear the fees and
expenses of any additional counsel retained by any of
them; but in case the Fund does not elect to assume the
defense of any such suit, or in case the Underwriter
does not approve of counsel chosen by the Fund, the
Fund will reimburse the Underwriter or the controlling
person or persons named as defendant or defendants in
such suit, for the fees and expenses of any counsel
retained by the Underwriter or such persons. The
indemnification agreement contained in this Section 10
shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of
the Underwriter or any controlling person and shall
survive the sale of any of the Fund's shares made
pursuant to subscriptions obtained by the Underwriter.
This agreement of indemnity will inure exclusively to
the benefit of the Underwriter, to the benefit of its
successors and assigns, and to the benefit of any
controlling persons and their successors and assigns.
The Fund agrees promptly to notify the Underwriter of
the commencement of any litigation or proceeding
against the Fund in connection with the issue and sale
of any of its shares.
Article SEVENTH, Section (f) of the Registrant's Articles of
Incorporation reads as follows:
(f) Specifically and without limitation of
subsection (e) of this Article Seventh but subject to
the exception therein prescribed, the Corporation may
enter into management or advisory, underwriting,
distribution and administration contracts, and may
otherwise do business, with Alliance Capital Management
Corporation, and any parent, subsidiary or affiliate of
such firm or any affiliate of any such affiliate, or
the stockholders, directors, officers and employees
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thereof, and may deal freely with one another
notwithstanding that the Board of Directors of the
Corporation may be composed in part of directors,
officers or employees of such firm and/or its parents,
subsidiaries or affiliates shall be invalidated or in
any way affected thereby, nor shall any director or
officer of the Corporation be liable to the Corporation
or to any stockholder or creditor thereof or to any
person for any loss incurred by it or him under or by
reason of such contract or transaction; provided that
nothing herein shall protect any director or officer of
the Corporation against any liability to the
Corporation or to its security holders to which he
would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office; and provided always that such contract or
transaction shall have been on terms that were not
unfair to the Corporation at the time at which it was
entered into.
Section 4 of the Investment Advisory Contract reads as follows:
4. We shall expect of you, and you will give us
the benefit of, your best judgment and efforts in
rendering these services to us, and we agree as an
inducement to your undertaking these services that you
shall not be liable hereunder for any mistake of
judgment or in any event whatsoever, except for lack of
good faith, provided that nothing herein shall be
deemed to protect, or purport to protect, you against
any liability to us or to our security holders to which
you would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of
your reckless disregard of your obligations and duties
hereunder.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Securities Act")
may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of
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<PAGE>
any action, suit or proceeding) is asserted by such
director, officer of controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
In accordance with Release No. IC-11330
(September 2, 1980), the Registrant will indemnify its
directors, officers, investment manager and principal
underwriters only if (1) a final decision on the merits
was issued by the court or other body before whom the
proceeding was brought that the person to be
indemnified (the "indemnitee") was not liable by reason
or willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the
conduct of his office ("disabling conduct") or (2) a
reasonable determination is made, based upon a review
of the facts, that the indemnitee was not liable by
reason of disabling conduct, by (a) the vote of a
majority of a quorum of the directors who are neither
"interested persons" of the Registrant as defined in
section 2(a)(19) of the Investment Company Act of 1940
nor parties to the proceeding ("disinterested, non-
party directors"), or (b) an independent legal counsel
in a written opinion. The Registrant will advance
attorneys fees or other expenses incurred by its
directors, officers, investment adviser or principal
underwriters in defending a proceeding, upon the
undertaking by or on behalf of the indemnitee to repay
the advance unless it is ultimately determined that he
is entitled to indemnification and, as a condition to
the advance, (1) the indemnitee shall provide a
security for his undertaking, (2) the Registrant shall
be insured against losses arising by reason of any
lawful advances, or (3) a majority of a quorum of
disinterested, non-party directors of the Registrant,
or an independent legal counsel in a written opinion,
shall determine, based on a review of readily available
facts (as opposed to a full trial-type inquiry), that
there is reason to believe that the indemnitee
ultimately will be found entitled to indemnification.
The Registrant participates in a joint directors
and officers liability insurance policy issued by the
ICI Mutual Insurance Company. Coverage under this
policy has been extended to directors, trustees and
officers of the investment companies managed by
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<PAGE>
Alliance Capital Management L.P. Under this policy,
outside trustees and directors would be covered up to
the limits specified for any claim against them for
acts committed in their capacities as trustee or
director. A pro rata share of the premium for this
coverage is charged to each investment company and to
the Investment Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectuses and in the Statements of Additional
Information constituting Parts A and B, respectively,
of this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation,
the general partner of Alliance Capital Management
L.P., set forth in Alliance Capital Management L.P.'s
Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and
amended through the date hereof, is incorporated by
reference.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the
Registrants Principal Underwriter in connection with
the sale of shares of the Registrant. Alliance Fund
Distributors, Inc. also acts as Principal Underwriter
or Distributor for the following investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Institutional Reserves, Inc.
Alliance Institutional Funds, Inc.
Alliance Limited Maturity Government Fund, Inc.
C-16
<PAGE>
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund,
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust,
Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and officers
of Alliance Fund Distributors, Inc., the principal
place of business of which is 1345 Avenue of the
Americas, New York, New York, 10105.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director & Chairman
John D. Carifa Director
Robert L. Errico Director & President
Geoffrey L. Hyde Director & Senior
Vice President
Dave H. Williams Director
David C. Conine Executive Vice President
Richard K. Saccullo Executive Vice President
Edmund P. Bergan, Jr. Senior Vice President,
General Counsel
& Secretary
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<PAGE>
Richard A. Davies Senior Vice President,
Managing Director
Robert H. Joseph, Jr. Senior Vice President
& Chief Financial
Officer
Anne S. Drennan Senior Vice President
& Treasurer
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Ryne A. Nishimi Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
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<PAGE>
Gerard J. Friscia Vice President &
Controller
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Andrew L. Gangolf Vice President,
Assistant General
Counsel & Assistant
Secretary
Mark D. Gersten Vice President,
Treasurer &
Chief Financial
Officer
Joseph W. Gibson Vice President
John Grambone Vice President
George C. Grant Vice President
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Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Scott F. Heyer Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
Gwen M. Kessler Vice President
Donna M. Lamback Vice President
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Christopher W. Moore Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
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<PAGE>
Domenick Pugliese Vice President,
Assistant General
Counsel & Assistant
Secretary
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Elizabeth M. Smith Vice President
Martine H. Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
Thomas J. Vaughn Vice President
Martha D. Volcker Vice President
Patricia E. Walsh Vice President
Mark E. Westmorland Vice President
William C. White Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President,
Assistant General
Counsel & Assistant
Secretary
Patrick Look Assistant Vice
President &
Assistant Treasurer
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<PAGE>
Michael W. Alexander Assistant Vice
President
Richard J. Appalucio Assistant Vice
President
Charles M. Barrett Assistant Vice
President
Robert F. Brendli Assistant Vice
President
Maria L. Carreras Assistant Vice President
John P. Chase Assistant Vice President
Russell R. Corby Assistant Vice President
Jean A. Cronin Assistant Vice President
John W. Cronin Assistant Vice President
Terri J. Daly Assistant Vice President
Ralph A. DiMeglio Assistant Vice President
Faith C. Deutsch Assistant Vice President
John E. English Assistant Vice President
Duff C. Ferguson Assistant Vice President
James J. Hill Assistant Vice President
Theresa Iosca Assistant Vice President
Erik A. Jorgensen Assistant Vice President
Eric G. Kalender Assistant Vice President
Edward W. Kelly Assistant Vice President
Michael Laino Assistant Vice President
Nicholas J. Lapi Assistant Vice President
Kristine J. Luisi Assistant Vice President
Kathryn Austin Masters Assistant Vice President
Richard F. Meier Assistant Vice President
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<PAGE>
Mary K. Moore Assistant Vice President
Richard J. Olszewski Assistant Vice President
Catherine N. Peterson Assistant Vice President
Rizwan A. Raja Assistant Vice President
Carol H. Rappa Assistant Vice President
Clara Sierra Assistant Vice President
Gayle S. Stamer Assistant Vice President
Eileen Stauber Assistant Vice President
Vincent T. Strangio Assistant Vice President
Marie R. Vogel Assistant Vice President
Wesley S. Williams Assistant Vice President
Matthew Witschel Assistant Vice President
Christopher J. Zingaro Assistant Vice President
Mark R. Manley Assistant Secretary
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the Rules thereunder are maintained as
follows: journals, ledgers, securities records and other original
records are maintained principally at the offices of Alliance
Fund Services, Inc., 500 Plaza Drive, Secaucus, New Jersey 07094,
and at the offices of State Street Bank and Trust Company, the
Registrants Custodian, 225 Franklin Street, Boston, Massachusetts
02110. All other records so required to be maintained are
maintained at the offices of Alliance Capital Management L.P.,
1345 Avenue of the Americas, New York, New York 10105.
ITEM 31. Management Services.
Not applicable.
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<PAGE>
ITEM 32. Undertakings.
The Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrants latest
report to shareholders, upon request and without charge.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of any
Director of the Fund in accordance with Section 16 of the
Investment Company Act of 1940.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all requirements
for effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York, on the 29th day of
October, 1998.
ALLIANCE BOND FUND, INC.
By /s/ John D. Carifa
___________________________
John D. Carifa
Chairman
Pursuant to the requirements of the Securities Act of
1933 this Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated:
Signature Title Date
1) Principal
Executive Officer
/s/ John D. Carifa Chairman and
________________________ President October 29, 1998
John D. Carifa
2) Principal Financial
and Accounting Officer
/s/ Mark D. Gersten Treasurer and
__________________________ Chief Financial
Mark D. Gersten Officer October 29, 1998
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<PAGE>
3) All of the Directors
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Donald J. Robinson
By /s/ Edmund P. Bergan, Jr. October 29, 1998
_________________________
Edmund P. Bergan, Jr.
(Attorney-in-fact)
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INDEX TO EXHIBITS
PAGE
1(b) Articles of Amendment of the Articles of
Incorporation
1(e) Articles of Amendment of the Articles of
Incorporation
1(f) Articles Supplementary to the Articles of
Incorporation
1(h) Articles Supplementary to the Articles of
Incorporation
1(j) Articles Supplementary to the Articles of
Incorporation
11 Consent of Independent Auditors
17 Financial Data Schedule
Powers of Attorney
C-27
00250123.AS1
<PAGE>
ALLIANCE BOND FUND, INC.
ARTICLES OF AMENDMENT
ALLIANCE BOND FUND, INC., a Maryland corporation having
its principal office in the City of Baltimore (hereinafter called
the "Corporation"), certifies that:
FIRST: The charter of the Corporation is amended by
reclassifying all of the shares of High-Grade Portfolio Common
Stock as shares of Monthly Income Portfolio Common Stock.
SECOND: Upon effectiveness of this amendment to the
Charter:
(a) All of the existing assets and liabilities of
the High-Grade Portfolio shall be conveyed, transferred and
delivered to the Monthly Income Portfolio and shall become assets
and liabilities belonging to the Monthly Income Portfolio;
(b) All of the outstanding shares of the High-
Grade Portfolio Common Stock will be reclassified into that
number of full and fractional shares of Monthly income Portfolio
Common Stock, par value $.10 per share, determined by multiplying
each share of High-Grade Portfolio Common stock by the exchange
ratio computed as set forth below, the product of such
multiplication to be rounded to the nearest one thousand of a
full share. The exchange ratio shall be the number determined by
dividing the net asset value per share of High-Grade Portfolio
Common Stock by the net asset value per share of the Monthly
Income Portfolio Common Stock, in each case determined as of the
<PAGE>
close of business on the last business day preceding the
effectiveness of this amendment. Such exchange ratio shall be
rounded to the nearest ten thousandth;
(c) Open accounts on the share records of the
Monthly Income Portfolio in the name of each stockholder of High-
Grade Portfolio Common Stock shall be established representing
the appropriate number of shares of Monthly Income Portfolio
Common Stock deemed to be owned by each such stockholder as a
result of the reclassification.
THIRD: This amendment shall not increase the
authorized capital stock of the Corporation. The amendment
reclassifies the 10,000,000 authorized shares of High-Grade
Portfolio Common Stock as 10,000,000 additional shares of Monthly
Income Portfolio Common Stock but does not amend the description
of any class of stock as set forth in the Charter.
FOURTH: The amendment to the charter of the
Corporation as hereinabove set forth has been duly advised by the
Board of Directors and approved by the stockholders of the
Corporation.
FIFTH: The effective date of these Articles of
Amendment shall be December 27, 1989.
IN WITNESS WHEREOF, ALLIANCE BOND FUND, INC. has caused
these Articles of Amendment to be signed in its name and on its
behalf by its President, and attested by its Secretary, on the
15th day of December, 1989.
2
<PAGE>
The President acknowledges these Articles of Amendment
to be the corporate act of the Corporation and states that to the
best of his or her knowledge, information and belief the matters
and facts set forth therein with respect to the authorization and
approval thereof are true in all material respects and that this
statement is made under the penalties of perjury.
ATTEST: ALLIANCE BOND FUND, INC.
/s/ Edmund P. Bergan, Jr. By: /s/ Aiden E., Hatton, Jr.
_________________________ __________________________
Edmund P. Bergan, Jr. Aiden E. Hatton, Jr.
Secretary President
3
00250123.AR9
<PAGE>
ALLIANCE BOND FUND, INC.
ARTICLES OF AMENDMENT
ALLIANCE BOND FUND, INC., a Maryland corporation
having its principal office in the City of Baltimore (the
"Corporation"), certifies that:
FIRST: The Articles Supplementary of the
Corporation filed with the Maryland State Department of
Assessments and Taxation on August 28, 1991 are hereby
amended by striking out Paragraph (5)(a) of Article SECOND
and inserting in lieu thereof the following:
(5)(a) Each share of the U.S. Government
Portfolio Class B Common Stock, other than a
share purchased through the automatic
reinvestment of a dividend or a distribution
with respect to the U.S. Government Portfolio
Class B Common Stock, shall be converted
automatically, and without any action or
choice on the part of the holder thereof, into
shares of the U.S. Government Portfolio Class
A Common Stock on the Conversion Date. The
term "Conversion Date" when used herein shall
mean either (i) the date that is the first
Corporation business day in the month
following the month in which the sixth
anniversary date of the date of issuance of
the share falls, or (ii) any such other date
as may be determined by the Board of Directors
and set forth in the Corporation's prospectus,
as such prospectus may be amended from time to
time, provided that any such date determined
by the Board of Directors shall be a date that
will occur prior to the date set forth in
clause (i) and any other date theretofore
determined by the Board of Directors pursuant
to this clause (ii).
SECOND: The amendment to the aforesaid Articles
Supplementary of the Corporation as hereinabove set forth
<PAGE>
has been duly advised by the Board of Directors and approved
by the stockholders of the Corporation.
The President of the Corporation who signed these
Articles of Amendment acknowledges these Articles of
Amendment to be the corporate act of the Corporation and
states that to the best of his knowledge, information and
belief the matters and facts set forth herein with respect
to the authorization and approval hereof are true in all
material respects and that this statement is made under the
penalties of perjury.
IN WITNESS WHEREOF, ALLIANCE BOND FUND, INC. has
caused these Articles of Amendment to be signed in its name
and on its behalf by its President, and attested by its
Secretary, on the day of October, 1992.
ATTEST: ALLIANCE BOND FUND, INC.
/s/ Edmund P. Bergan, Jr. /s/ David H. Dievler
________________________ By: ________________________
Edmund P. Bergan, Jr. David H. Dievler
Secretary President
2
00250123.AD4
<PAGE>
ALLIANCE BOND FUND, INC.
ARTICLES SUPPLEMENTARY
ALLIANCE BOND FUND, INC., a Maryland corporation having
its principal office in the City of Baltimore (hereinafter called
the "Corporation"), certifies that:
FIRST: The Corporation's Board of Directors has
reclassified Fifty Million (50,000,000) unissued shares of
Monthly Income Portfolio Common Stock, par value $.001 per share,
as Fifty Million (50,000,000) shares of Monthly Income Portfolio
Class B Common Stock, par value $.001 per share, by setting or
changing the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, or terms or conditions of redemption thereof as
hereinafter set forth.
SECOND: The shares of Monthly Income Portfolio Class B
Common Stock as so reclassified by the Corporation's Board of
Directors shall have the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption set forth
in Article FIFTH, Section 3, of the Corporation's Articles of
Incorporation and shall be subject to all provisions of the
Articles of Incorporation relating to stock of the Corporation
generally, and those set forth as follows:
(1) The assets belonging to the Monthly
Income Portfolio Class B Common Stock shall be
invested in the same investment portfolio of the
Corporation as the assets belonging to the Monthly
Income Portfolio Common Stock.
(2) The dividends and distributions of
investment income and capital gains with respect to
the Monthly Income Portfolio Class B Common Stock
shall be in such amount as may be declared from
time to time by the Board of Directors, and such
dividends and distributions may vary from dividends
and distributions of investment income and capital
gains with respect to the Monthly Income Portfolio
Common Stock to reflect differing allocations of
the expenses of the Corporation between the holders
of the two classes and any resultant differences
between the net asset value per share of the two
classes, to such extent and for such purposes as
the Board of Directors may deem appropriate. The
allocation of investment income or capital gains
and expenses and liabilities of the Corporation
<PAGE>
between the Monthly Income Portfolio Common Stock
and the Monthly Income Portfolio Class B Common
Stock shall be determined by the Board of Directors
in a manner that is consistent with the order dated
January 8, 1990 (Investment Company Act of 1940
Release No. 17295) issued by the Securities and
Exchange Commission in connection with the
application for exemption filed by Alliance Capital
Management L.P., et al., and any amendment to such
order or any rule or interpretation under the
Investment Company Act of 1940 that modifies or
supersedes such order.
(3) The proceeds of the redemption of a share
of the Monthly Income Portfolio Class B Common
Stock (including a fractional share) shall be
reduced by the amount of any contingent deferred
sales charge payable on such redemption pursuant to
the terms of issuance of such share.
(4) The holders of the Monthly Income
Portfolio Class B Common Stock shall have
(i) exclusive voting rights with respect to any
matter submitted to a vote of stockholders that
affects only holders of the Monthly Income
Portfolio Class B Common Stock, including without
limitation, the provisions of any distribution plan
adopted by the Corporation pursuant to Rule 12b-1
under the Investment Company Act of 1940 (a "Plan")
applicable to the Monthly Income Portfolio Class B
Common Stock and (ii) no voting rights with respect
to provisions of any Plan applicable to the Monthly
Income Portfolio Common Stock or with regard to any
other matter submitted to a vote of stockholders
which does not affect holders of the Monthly Income
Portfolio Class B Common Stock.
(5)(a) Each share of the Monthly Income
Portfolio Class B Common Stock, other than a share
purchased through the automatic reinvestment of a
dividend or a distribution with respect to the
Monthly Income Portfolio Class B Common Stock,
shall be converted automatically, and without any
action or choice on the part of the holder thereof,
into shares of the Monthly Income Portfolio Common
Stock on the Conversion Date. The term "Conversion
Date" when used herein shall mean either (i) the
date that is the first Corporation business day in
the month following the month in which the sixth
anniversary date of the date of issuance of the
share falls, or (ii) any such other date as may be
2
<PAGE>
determined by the Board of Directors and set forth
in the Corporation's prospectus, as such prospectus
may be amended from time to time, provided that any
such date determined by the Board of Directors
shall be a date that will occur prior to the date
set forth in clause (i) and any other date
theretofore determined by the Board of Directors
pursuant to this clause (ii).
(b) Each share of Monthly Income Portfolio
Class B Common Stock purchased through the
automatic reinvestment of a dividend or a
distribution with respect to the Monthly Income
Portfolio Class B Common Stock shall be segregated
in a separate sub-account on the stock records of
the Corporation for each of the holders of record
thereof. On any Conversion Date, a number of the
shares held in the sub-account of the holder of
record of the share or shares being converted,
calculated in accordance with the next following
sentence, shall be converted automatically, and
without any action or choice on the part of the
holder, into shares of the Monthly Income Portfolio
Common Stock. The number of shares in the holder's
sub-account so converted shall bear the same
relation to the total number of shares maintained
in the sub-account on the Conversion Date
(immediately prior to conversion) as the number of
shares of the holder converted on the Conversion
Date pursuant to paragraph (5)(a) hereof bears to
to the total number of shares of the Monthly Income
Portfolio Class B Common Stock of the holder on the
Conversion Date (immediately prior to conversion)
not purchased through the automatic reinvestment of
dividends or distributions with respect to the
Monthly Income Portfolio Class B Common Stock.
(c) The number of shares of the Monthly
Income Portfolio Common Stock into which a share of
the Monthly Income Portfolio Class B Common Stock
is converted pursuant to paragraphs (5)(a) and
(5)(b) hereof shall equal the number (including for
this purpose fractions of a share) obtained by
dividing the net asset value per share of the
Monthly Income Portfolio Class B Common Stock for
purposes of sales and redemptions thereof on the
Conversion Date by the net asset value per share of
the Monthly Income Portfolio Common Stock for
purposes of sales and redemptions thereof on the
Conversion Date.
3
<PAGE>
(d) On the Conversion Date, the shares of the
Monthly Income Portfolio Class B Common Stock
converted into shares of the Monthly Income
Portfolio Common Stock will cease to accrue
dividends and will no longer be deemed outstanding
and the rights of the holders thereof (except the
right to receive the number of shares of Monthly
Income Portfolio Common Stock into which the shares
of Monthly Income Portfolio Class B Common Stock
have been converted and declared but unpaid
dividends to the Conversion Date) will cease.
Certificates representing shares of the Monthly
Income Portfolio Common Stock resulting from the
conversion need not be issued until certificates
representing shares of the Monthly Income Portfolio
Class B Common Stock converted, if issued, have
been received by the Corporation or its agent duly
endorsed for transfer.
THIRD: The shares aforesaid have been duly
reclassified by the Corporation's Board of Directors
pursuant to authority and power contained in the
Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, Alliance Bond Fund, Inc. has
caused these Articles Supplementary to be executed by its
President and attested by its Secretary and its corporate
seal to be affixed on this 30th day of December, 1992. The
President of the Corporation who signed these Articles
Supplementary acknowledges them to be the act of the
Corporation and states under the penalties of perjury that
to the best of his knowledge, information and belief the
matters and facts relating to approval hereof are true in
all material respects.
ALLIANCE BOND FUND, INC.
[CORPORATE SEAL] By: /s/ David H. Dievler
____________________
President
Attested: /s/ Edmund P. Bergan, Jr.
_________________________
Secretary
4
00250015.AB3
<PAGE>
ALLIANCE BOND FUND, INC.
ARTICLES SUPPLEMENTARY
ALLIANCE BOND FUND, INC., a Maryland corporation having
its principal office in the City of Baltimore (hereinafter called
the "Corporation"), certifies that:
FIRST: The Board of Directors of the Corporation hereby
increases the aggregate number of shares of capital stock that
the Corporation has authority to issue by 250,000,000 shares.
SECOND: The Corporation's Board of Directors has
classified that number of unissued shares of the Common Stock,
par value $.001 per share, of the Corporation as shares of Class
C Common Stock ("Class C Common Stock") of each of the
Corporation's portfolios (individually, a "Portfolio") set forth
opposite the Portfolio's name below by setting or changing the
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications, or
terms or conditions of redemption thereof as hereinafter set
forth:
Number of Unissued Shares
of Common Stock Classified
as Class C Common Stock of
Name of Portfolio Each Portfolio
U.S. Government Portfolio 200,000,000
Monthly Income Portfolio 50,000,000
THIRD: The shares of the Class C Common Stock of each
Portfolio as so classified by the Corporation's Board of
Directors shall have the preferences, conversion and other
rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption set forth
in Article FIFTH, Section 3, of the Corporation's Articles of
Incorporation and shall be subject to all provisions of the
Articles of Incorporation relating to stock of the Corporation
generally, and those set forth as follows:
(1) The assets belonging to the Class C Common
Stock of a Portfolio shall be invested in the same
investment portfolio of the Corporation as the assets
belonging to the Common Stock and Class B Common Stock
of that Portfolio.
(2) The dividends and distributions of investment
income and capital gains with respect to the Class C
Common Stock of a Portfolio shall be in such amount as
<PAGE>
may be declared from time to time by the Board of
Directors, and such dividends and distributions may vary
from dividends and distributions of investment income
and capital gains with respect to the Common Stock and
Class B Common Stock of that Portfolio to reflect
differing allocations of the expenses of the Corporation
among the holders of the three classes and any resultant
differences among the net asset values per share of the
three classes of that Portfolio, to such extent and for
such purposes as the Board of Directors may deem
appropriate. The allocation of investment income or
capital gains and expenses and liabilities of the
Corporation among the Common Stock of a Portfolio, the
Class B Common Stock of that Portfolio, and the Class C
Common Stock of that Portfolio shall be determined by
the Board of Directors in a manner that is consistent
with the order dated January 8, 1990 (Investment Company
Act of 1940 Release No. 17295) issued by the Securities
and Exchange Commission in connection with the
application for exemption filed by Alliance Capital
Management L.P., et al., and any existing or future
amendment to such order or any rule or interpretation
under the Investment Company Act of 1940 that modifies
or supersedes such order.
(3) Except as may otherwise be required by law
pursuant to any applicable order, rule or interpretation
issued by the Securities and Exchange Commission, or
otherwise, the holders of the Class C Common Stock of a
Portfolio shall have (i) exclusive voting rights with
respect to any matter submitted to a vote of
stockholders that affects only holders of the Class C
Common Stock of that Portfolio, including without
limitation, the provisions of any distribution plan
adopted by the Corporation pursuant to Rule 12b-1 under
the Investment Company Act of 1940 (a "Plan") applicable
to the Class C Common Stock of that Portfolio and
(ii) no voting rights with respect to the provisions of
any Plan applicable to the Common Stock or Class B
Common Stock of that Portfolio or with regard to any
other matter submitted to a vote of stockholders which
does not affect holders of the Class C Common Stock of
that Portfolio.
(4) The proceeds of the redemption of a share
(including a fractional share) of Class C Common Stock
of a Portfolio shall be reduced by the amount of any
contingent deferred sales charge payable on such
redemption pursuant to the terms of issuance of such
share.
<PAGE>
FOURTH: A. Immediately before the increase in
authorized capital stock provided for herein, the total number of
shares of stock of all classes which the Corporation had
authority to issue was 700,000,000 shares, the par value of each
class of stock being $.001 per share, with an aggregate par value
of $700,000, classified as follows:
Common Class B Class C
Name of Portfolio Stock Common Stock Common Stock
U.S. Government
Portfolio 200,000,000 200,000,000 0
Monthly Income Portfolio 250,000,000 50,000,000 0
B. Immediately after the increase in
authorized capital stock provided for herein, the total number of
shares of stock of all classes which the Corporation has
authority to issue is 950,000,000 shares, the par value of each
class of stock being $.001 per share, with an aggregate par value
of $950,000, classified as follows:
Common Class B Class C
Name of Portfolio Stock Common Stock Common Stock
U.S. Government
Portfolio 200,000,000 200,000,000 200,000,000
Monthly Income Portfolio 250,000,000 50,000,000 50,000,000
FIFTH: The Corporation is registered as an open-end
company under the Investment Company Act of 1940.
SIXTH: The total number of shares that the Corporation
has authority to issue has been increased by the Board of
Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
SEVENTH: The shares aforesaid have been duly classified
by the Corporation's Board of Directors pursuant to authority and
power contained in the Corporation's Articles of Incorporation.
<PAGE>
IN WITNESS WHEREOF, Alliance Bond Fund, Inc. has caused
these Articles Supplementary to be executed by its Chairman of
the Board and attested by its Secretary and its corporate seal to
be affixed on this 27th day of April, 1993. The Chairman of the
Board of the Corporation who signed these Articles Supplementary
acknowledges them to be the act of the Corporation and states
under the penalties of perjury that, to the best of his
knowledge, information and belief, the matters and facts set
forth herein relating to authorization and approval hereof are
true in all material respects.
ALLIANCE BOND FUND, INC.
[CORPORATE SEAL] By: /s/ David H. Dievler
_____________________________
David H. Dievler, Chairman of
the Board
Attested: /s/ Edmund P. Bergan, Jr.
__________________________
Edmund P. Bergan, Jr.,
Secretary
4
00250123.AR8
<PAGE>
ALLIANCE BOND FUND, INC.
ARTICLES SUPPLEMENTARY
Alliance Bond Fund, Inc., a Maryland corporation having
its principal office in the City of Baltimore (hereinafter called
the "Corporation"), certifies that:
FIRST: The Board of Directors of the Corporation hereby
increases the aggregate number of shares of capital stock that
the Corporation has authority to issue by 400,000,000 shares and
hereby classifies 200,000,000 of such shares as "Class B Common
Stock" of the Corporate Bond Portfolio and 200,000,000 of such
shares as "Class C Common Stock" of the Corporate Bond Portfolio.
SECOND: The Class B Common Stock and the Class C Common
Stock, respectively, of the Corporate Bond Portfolio as
classified herein shall have the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms or conditions of redemption as
currently set forth in the Charter of the Corporation with
respect to the Class B Common Stock and the Class C Common Stock,
respectively, of the Corporate Bond Portfolio.
THIRD: A. Immediately before the increase in
authorized capital stock provided for herein, the total number of
shares of stock of all classes which the Corporation had
authority to issue was 1,400,000,000 shares, the par value of
each class of stock being $.001 per share, with an aggregate par
value of $1,400,000, classified as follows:
Class B Class C Advisor Class
Name of Portfolio Common Stock Common Stock Common Stock Common Stock
U.S. Government 200,000,000 200,000,000 200,000,000 200,000,000
Portfolio
Corporate Bond 250,000,000 250,000,000 50,000,000 50,000,000
Portfolio
B. Immediately after the increase in
authorized capital stock provided for herein, the total number of
shares of stock of all classes which the Corporation has
authority to issue is 1,800,000,000 the par value of each class
of stock being $.001 per share, with an aggregate par value of
$1,800,000, classified as follows:
<PAGE>
Class B Class C Advisor Class
Name of Portfolio Common Stock Common Stock Common Stock Common Stock
U.S. Government 200,000,000 200,000,000 200,000,000 200,000,000
Portfolio
Corporate Bond 250,000,000 250,000,000 250,000,000 250,000,000
Portfolio
FOURTH: The Corporation is registered as an open-end
company under the Investment Company Act of 1940.
FIFTH: The total number of shares that the Corporation
has authority to issue has been increased by the Board of
Directors in accordance with Section 2-105(c) of the Maryland
General Corporation Law.
SIXTH: The shares aforesaid have been duly classified
by the Corporation's Board of Directors pursuant to authority and
power contained in the Corporation's Articles of Incorporation.
IN WITNESS WHEREOF, Alliance Bond Fund, Inc. has caused
these Articles Supplementary to be executed by its Chairman of
the Board and attested by its Secretary and its corporate seal to
be affixed on this ____ day of March, 1998. The Chairman of the
Board of the Corporation who signed these Articles Supplementary
acknowledges them to be the act of the Corporation and states
under the penalties of perjury that, to the best of his
knowledge, information and belief, the matters and facts set
forth herein relating to authorization and approval hereof are
true in all material respects.
ALLIANCE BOND FUND, INC.
[CORPORATE SEAL] By: /s/ John D. Carifa
________________________
John D. Carifa
Chairman
Attested: /s/ Edmund P. Bergan, Jr.
__________________________
Edmund P. Bergan, Jr.,
Secretary
2
00250123.AS0
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Shareholders Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated August 4, 1998 included in this
Registration Statement (Form N-1A Nos. 2-48227 and 811-2383) of
Alliance Bond Fund Corporate Bond Portfolio.
/s/ERNST & YOUNG LLP
New York, New York
October 27, 1998
00250123.AS5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights," "Shareholders Services - Statements and
Reports" and "General Information - Independent Auditors" and to
the use of our report dated August 4, 1998 included in this
Registration Statement (Form N-1A Nos. 2-48227 and 811-2383) of
Alliance Bond Fund U.S. Government Portfolio.
/s/ERNST & YOUNG LLP
New York, New York
October 27, 1998
00250123.AS6
<PAGE>
[ARTICLE] 6
[CIK] 0000003794
[NAME] ALLIANCE BOND FUND, INC.
[SERIES]
[NUMBER] 011
[NAME] ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JUL-01-1997
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 844,145,896
[INVESTMENTS-AT-VALUE] 847,001,084
[RECEIVABLES] 18,565,656
[ASSETS-OTHER] 4,282
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 865,571,022
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,176,527
[TOTAL-LIABILITIES] 8,176,527
[SENIOR-EQUITY] 113,214
[PAID-IN-CAPITAL-COMMON] 1,065,882,616
[SHARES-COMMON-STOCK] 46,592,789
[SHARES-COMMON-PRIOR] 47,849,520
[ACCUMULATED-NII-CURRENT] (1,603,541)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (209,847,930)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,850,136
[NET-ASSETS] 857,394,495
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 73,317,122
[OTHER-INCOME] 0
[EXPENSES-NET] (13,356,398)
[NET-INVESTMENT-INCOME] 59,960,724
[REALIZED-GAINS-CURRENT] 4,547,564
[APPREC-INCREASE-CURRENT] 17,676,067
[NET-CHANGE-FROM-OPS] 82,184,355
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (26,315,200)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 13,712,636
[NUMBER-OF-SHARES-REDEEMED] (16,621,353)
[SHARES-REINVESTED] 1,651,986
[NET-CHANGE-IN-ASSETS] (84,883,713)
[ACCUMULATED-NII-PRIOR] (1,930,953)
[ACCUMULATED-GAINS-PRIOR] (234,240,593)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4,949,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13,356,000
[AVERAGE-NET-ASSETS] 353,848,895
[PER-SHARE-NAV-BEGIN] 7.41
[PER-SHARE-NII] 0.54
[PER-SHARE-GAIN-APPREC] 0.18
[PER-SHARE-DIVIDEND] (0.54)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] (0.02)
[PER-SHARE-NAV-END] 7.57
[EXPENSE-RATIO] 1.06
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250123.AR5
<PAGE>
[ARTICLE] 6
[CIK] 0000003794
[NAME] ALLIANCE BOND FUND, INC.
[SERIES]
[NUMBER] 012
[NAME] ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JUL-01-1997
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 844,145,896
[INVESTMENTS-AT-VALUE] 847,001,084
[RECEIVABLES] 18,565,656
[ASSETS-OTHER] 4,282
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 865,571,022
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,176,527
[TOTAL-LIABILITIES] 8,176,527
[SENIOR-EQUITY] 113,214
[PAID-IN-CAPITAL-COMMON] 1,065,882,616
[SHARES-COMMON-STOCK] 51,518,944
[SHARES-COMMON-PRIOR] 63,643,348
[ACCUMULATED-NII-CURRENT] (1,603,541)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (209,847,930)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,850,136
[NET-ASSETS] 857,394,495
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 73,317,122
[OTHER-INCOME] 0
[EXPENSES-NET] (13,356,398)
[NET-INVESTMENT-INCOME] 59,960,724
[REALIZED-GAINS-CURRENT] 4,547,564
[APPREC-INCREASE-CURRENT] 17,676,067
[NET-CHANGE-FROM-OPS] 82,184,355
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (28,851,590)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 6,931,240
[NUMBER-OF-SHARES-REDEEMED] (20,868,702)
[SHARES-REINVESTED] 1,813,058
[NET-CHANGE-IN-ASSETS] (84,883,713)
[ACCUMULATED-NII-PRIOR] (1,930,953)
[ACCUMULATED-GAINS-PRIOR] (234,240,593)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4,949,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13,356,000
[AVERAGE-NET-ASSETS] 431,641,225
[PER-SHARE-NAV-BEGIN] 7.41
[PER-SHARE-NII] 0.48
[PER-SHARE-GAIN-APPREC] 0.18
[PER-SHARE-DIVIDEND] (0.48)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] (0.02)
[PER-SHARE-NAV-END] 7.57
[EXPENSE-RATIO] 1.76
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250123.AR6
<PAGE>
[ARTICLE] 6
[CIK] 0000003794
[NAME] ALLIANCE BOND FUND, INC.
[SERIES]
[NUMBER] 013
[NAME] ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JUL-01-1997
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 844,145,896
[INVESTMENTS-AT-VALUE] 847,001,084
[RECEIVABLES] 18,565,656
[ASSETS-OTHER] 4,282
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 865,571,022
[PAYABLE-FOR-SECURITIES] 0
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 8,176,527
[TOTAL-LIABILITIES] 8,176,527
[SENIOR-EQUITY] 113,214
[PAID-IN-CAPITAL-COMMON] 1,065,882,616
[SHARES-COMMON-STOCK] 15,101,775
[SHARES-COMMON-PRIOR] 15,591,892
[ACCUMULATED-NII-CURRENT] (1,603,541)
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (209,847,930)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 2,850,136
[NET-ASSETS] 857,394,495
[DIVIDEND-INCOME] 0
[INTEREST-INCOME] 73,317,122
[OTHER-INCOME] 0
[EXPENSES-NET] (13,356,398)
[NET-INVESTMENT-INCOME] 59,960,724
[REALIZED-GAINS-CURRENT] 4,547,564
[APPREC-INCREASE-CURRENT] 17,676,067
[NET-CHANGE-FROM-OPS] 82,184,355
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (7,765,684)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 4,489,582
[NUMBER-OF-SHARES-REDEEMED] (5,630,703)
[SHARES-REINVESTED] 651,004
[NET-CHANGE-IN-ASSETS] (84,883,713)
[ACCUMULATED-NII-PRIOR] (1,930,953)
[ACCUMULATED-GAINS-PRIOR] (234,240,593)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 4,949,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 13,356,000
[AVERAGE-NET-ASSETS] 116,159,028
[PER-SHARE-NAV-BEGIN] 7.41
[PER-SHARE-NII] 0.48
[PER-SHARE-GAIN-APPREC] 0.18
[PER-SHARE-DIVIDEND] (0.48)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] (0.02)
[PER-SHARE-NAV-END] 7.57
[EXPENSE-RATIO] 1.76
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250123.AR7
<PAGE>
[ARTICLE] 6
[CIK] 0000003794
[NAME] ALLIANCE BOND FUND, INC.
[SERIES]
[NUMBER] 021
[NAME] ALLIANCE BOND FUND CORPORATE BOND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JUL-01-1997
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 1,481,167,545
[INVESTMENTS-AT-VALUE] 1,456,912,968
[RECEIVABLES] 34,490,698
[ASSETS-OTHER] 9,829,039
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,501,232,705
[PAYABLE-FOR-SECURITIES] 52,873,578
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 11,057,883
[TOTAL-LIABILITIES] 63,931,461
[SENIOR-EQUITY] 101,312
[PAID-IN-CAPITAL-COMMON] 1,478,893,451
[SHARES-COMMON-STOCK] 35,972,098
[SHARES-COMMON-PRIOR] 26,133,431
[ACCUMULATED-NII-CURRENT] 1,664,395
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (19,103,337)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (24,254,577)
[NET-ASSETS] 1,437,301,244
[DIVIDEND-INCOME] 3,980,092
[INTEREST-INCOME] 101,360,629
[OTHER-INCOME] 0
[EXPENSES-NET] (18,457,590)
[NET-INVESTMENT-INCOME] 86,883,131
[REALIZED-GAINS-CURRENT] 17,694,598
[APPREC-INCREASE-CURRENT] (14,341,150)
[NET-CHANGE-FROM-OPS] 90,236,579
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (36,960,152)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 14,575,082
[NUMBER-OF-SHARES-REDEEMED] (6,171,084)
[SHARES-REINVESTED] 1,434,669
[NET-CHANGE-IN-ASSETS] 411,367,316
[ACCUMULATED-NII-PRIOR] 1,077,850
[ACCUMULATED-GAINS-PRIOR] (35,889,776)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,774,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 18,458,000
[AVERAGE-NET-ASSETS] 442,775,436
[PER-SHARE-NAV-BEGIN] 14.19
[PER-SHARE-NII] 1.08
[PER-SHARE-GAIN-APPREC] 0.12
[PER-SHARE-DIVIDEND] (1.20)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 14.19
[EXPENSE-RATIO] 1.05
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250015.AH1
<PAGE>
[ARTICLE] 6
[CIK] 0000003794
[NAME] ALLIANCE BOND FUND, INC.
[SERIES]
[NUMBER] 022
[NAME] ALLIANCE BOND FUND CORPORATE BOND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JUL-01-1997
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 1,481,167,545
[INVESTMENTS-AT-VALUE] 1,456,912,968
[RECEIVABLES] 34,490,698
[ASSETS-OTHER] 9,829,039
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,501,232,705
[PAYABLE-FOR-SECURITIES] 52,873,578
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 11,057,883
[TOTAL-LIABILITIES] 63,931,461
[SENIOR-EQUITY] 101,312
[PAID-IN-CAPITAL-COMMON] 1,478,893,451
[SHARES-COMMON-STOCK] 47,399,813
[SHARES-COMMON-PRIOR] 26,133,431
[ACCUMULATED-NII-CURRENT] 1,664,395
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (19,103,337)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (24,254,577)
[NET-ASSETS] 1,437,301,244
[DIVIDEND-INCOME] 3,980,092
[INTEREST-INCOME] 101,360,629
[OTHER-INCOME] 0
[EXPENSES-NET] (18,457,590)
[NET-INVESTMENT-INCOME] 86,883,131
[REALIZED-GAINS-CURRENT] 17,694,598
[APPREC-INCREASE-CURRENT] (14,341,150)
[NET-CHANGE-FROM-OPS] 90,236,579
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (44,309,949)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 19,913,781
[NUMBER-OF-SHARES-REDEEMED] (7,942,030)
[SHARES-REINVESTED] 1,579,489
[NET-CHANGE-IN-ASSETS] 411,367,316
[ACCUMULATED-NII-PRIOR] 1,077,850
[ACCUMULATED-GAINS-PRIOR] (35,889,776)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,774,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 18,458,000
[AVERAGE-NET-ASSETS] 577,303,305
[PER-SHARE-NAV-BEGIN] 14.19
[PER-SHARE-NII] 0.98
[PER-SHARE-GAIN-APPREC] 0.13
[PER-SHARE-DIVIDEND] (1.11)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 14.19
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250015.AH2
<PAGE>
[ARTICLE] 6
[CIK] 0000003794
[NAME] ALLIANCE BOND FUND, INC.
[SERIES]
[NUMBER] 023
[NAME] ALLIANCE BOND FUND CORPORATE BOND
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] JUN-30-1998
[PERIOD-START] JUL-01-1997
[PERIOD-END] JUN-30-1998
[INVESTMENTS-AT-COST] 1,481,167,545
[INVESTMENTS-AT-VALUE] 1,456,912,968
[RECEIVABLES] 34,490,698
[ASSETS-OTHER] 9,829,039
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 1,501,232,705
[PAYABLE-FOR-SECURITIES] 52,873,578
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 11,057,883
[TOTAL-LIABILITIES] 63,931,461
[SENIOR-EQUITY] 101,312
[PAID-IN-CAPITAL-COMMON] 1,478,893,451
[SHARES-COMMON-STOCK] 17,940,039
[SHARES-COMMON-PRIOR] 26,133,431
[ACCUMULATED-NII-CURRENT] 1,664,395
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] (19,103,337)
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] (24,254,577)
[NET-ASSETS] 1,437,301,244
[DIVIDEND-INCOME] 3,980,092
[INTEREST-INCOME] 101,360,629
[OTHER-INCOME] 0
[EXPENSES-NET] (18,457,590)
[NET-INVESTMENT-INCOME] 86,883,131
[REALIZED-GAINS-CURRENT] 17,694,598
[APPREC-INCREASE-CURRENT] (14,341,150)
[NET-CHANGE-FROM-OPS] 90,236,579
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] (16,097,659)
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 11,907,869
[NUMBER-OF-SHARES-REDEEMED] (7,056,779)
[SHARES-REINVESTED] 773,490
[NET-CHANGE-IN-ASSETS] 411,367,316
[ACCUMULATED-NII-PRIOR] 1,077,850
[ACCUMULATED-GAINS-PRIOR] (35,889,776)
[OVERDISTRIB-NII-PRIOR] 0
<PAGE>
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 6,774,000
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 18,458,000
[AVERAGE-NET-ASSETS] 209,723,581
[PER-SHARE-NAV-BEGIN] 14.19
[PER-SHARE-NII] 0.99
[PER-SHARE-GAIN-APPREC] 0.12
[PER-SHARE-DIVIDEND] (1.11)
[PER-SHARE-DISTRIBUTIONS] 0.00
[RETURNS-OF-CAPITAL] 0.00
[PER-SHARE-NAV-END] 14.19
[EXPENSE-RATIO] 1.75
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
00250015.AH3
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Developing Markets Fund, Inc. Alliance
Global Dollar Government Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance Global Small Cap Fund,
Inc., Alliance Global Strategic Income Trust, Inc., Alliance
Government Reserves, Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance Mortgage
Securities Income Fund, Inc., Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance
New Europe Fund, Inc., Alliance North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance World
Income Trust, Inc., Alliance Worldwide Privatization Fund,
Inc., Fiduciary Management Associates, The Alliance Fund,
Inc., The Alliance Portfolios, and The Hudson River Trust,
and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ John D. Carifa
___________________________
John D. Carifa
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc. and The Alliance Portfolios, and
filing the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said
attorneys-in-fact, or their substitute or substitutes, may
do or cause to be done by virtue hereof.
/s/ Ruth Block
___________________________
Ruth Block
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc. Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Greater China 97 Fund, Inc.,
Alliance Growth and Income Fund, Inc., Alliance High Yield
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance New Europe Fund, Inc., Alliance North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc. and filing the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ David H. Dievler
___________________________
David H. Dievler
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance All-Asia Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Developing
Markets Fund, Inc., Alliance Global Dollar Government Fund,
Inc., Alliance Global Environment Fund, Inc., Alliance
Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Growth and Income Fund, Inc.,
Alliance High Yield Fund, Inc., Alliance Income Builder
Fund, Inc., Alliance International Fund, Alliance Limited
Maturity Government Fund, Inc., Alliance Mortgage Securites
Incoem Fund, Inc., Alliance Multi-Market Strategy Trust,
Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance New Europe Fund, Inc.,
Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ John H. Dobkin
___________________________
John H. Dobkin
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Greater China 97
Fund, Inc., Alliance Growth and Income Fund, Inc., Alliance
High Yield Fund, Inc., Alliance Income Builder 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 North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates,
The Alliance Fund, Inc., The Alliance Portfolios and the
Hudson River Trust, and filing the same, with exhibits
thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their
substitute or substitutes, may do or cause to be done by
virtue hereof.
/s/ William H. Foulk, Jr.
___________________________
William H. Foulk, Jr.
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., Alliance Mortgage Securities Income Fund, Inc.,
Alliance Multi-Market Strategy Trust, Inc., Alliance
Municipal Income Fund, Inc., Alliance Municipal Income Fund
II, Alliance North American Government Income Trust, Inc.,
Alliance Premier Growth Fund, Inc., Alliance Quasar Fund,
Inc., Alliance Real Estate Investment Fund, Inc.,
Alliance/Regent Sector Opportunity Fund, Inc., Alliance
Short-Term Multi-Market Trust, Inc., Alliance Utility Income
Fund, Inc., Alliance Variable Products Series Fund, Inc.,
Alliance World Income Trust, Inc., Alliance Worldwide
Privatization Fund, Inc., Fiduciary Management Associates
and The Alliance Fund, Inc., and filing the same, with
exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ Dr. James M. Hester
___________________________
Dr. James M. Hester
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance 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 North American Government
Income Trust, Inc., Alliance Premier Growth Fund, Inc.,
Alliance Quasar Fund, Inc., Alliance Real Estate Investment
Fund, Inc., Alliance/Regent Sector Opportunity Fund, Inc.,
Alliance Short-Term Multi-Market Trust, Inc., Alliance
Utility Income Fund, Inc., Alliance Variable Products Series
Fund, Inc., Alliance World Income Trust, Inc., Alliance
Worldwide Privatization Fund, Inc., Fiduciary Management
Associates, The Alliance Fund, Inc. and The Hudson River
Trust, and filing the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all
that said attorneys-in-fact, or their substitute or
substitutes, may do or cause to be done by virtue hereof.
/s/ Clifford L. Michel
___________________________
Clifford L. Michel
Dated: October 8, 1998
<PAGE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the person
whose signature appears below hereby revokes all prior
powers granted by the undersigned to the extent inconsistent
herewith and constitutes and appoints John D. Carifa, Edmund
P. Bergan, Jr., Domenick Pugliese, Andrew L. Gangolf and
Emilie D. Wrapp and each of them, to act severally as
attorneys-in-fact and agents, with power of substitution and
resubstitution, for the undersigned in any and all
capacities, solely for the purpose of signing the respective
Registration Statements, and any amendments thereto, on Form
N-1A of ACM Institutional Reserves, Inc., AFD Exchange
Reserves, Alliance Balanced Shares, Inc., Alliance Bond
Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Small Cap
Fund, Inc., Alliance Global Strategic Income Trust, Inc.,
Alliance Government Reserves, Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance Limited Maturity Government
Fund, Inc., 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 North American
Government Income Trust, Inc., Alliance Premier Growth Fund,
Inc., Alliance Quasar Fund, Inc., Alliance Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance World Income Trust,
Inc., Alliance Worldwide Privatization Fund, Inc., Fiduciary
Management Associates, The Alliance Fund, Inc., The Alliance
Portfolios and The Hudson River Trust, and filing the same,
with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorneys-in-
fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
/s/ Donald J. Robinson
___________________________
Donald J. Robinson
Dated: October 8, 1998
00250050.AQ8
