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As filed with the Securities and Exchange
Commission on April 9, 1999
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. 69 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 47 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)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel LLP
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
on March 1, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
X 75 days after filing pursuant to paragraph (a)(2)
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on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
This Post-Effective Amendment No. 69 relates solely to the
Investment Grade Portfolio of the Registrant. No information
contained in the Registrant's Registration Statement relating
to the Corporate Bond Portfolio or the U.S. Government
Portfolio of the Registrant is amended or superseded hereby.
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ALLIANCE INVESTMENT GRADE PORTFOLIO
PROSPECTUS
[ , 1999]
The Securities and Exchange Commission has not approved
or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
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TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY
FEES AND EXPENSES OF THE PORTFOLIO
DESCRIPTION OF THE PORTFOLIO
Investment Objective, Policies and Risks
Description of Investment Practices
Additional Risk Considerations
MANAGEMENT OF THE PORTFOLIO
PURCHASE AND SALE OF SHARES
How The Portfolio Values Its Shares
How To Buy Shares
How To Exchange Shares
How To Sell Shares
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTION ARRANGEMENTS
GENERAL INFORMATION
APPENDIX: BOND RATINGS
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Alliance Investment Grade Portfolio's investment adviser is
Alliance Capital Management L.P., a global investment manager
providing diversified services to institutions and individuals
through a broad line of investments including more than 100
mutual funds.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the
Portfolio. You will find additional information about the
Portfolio, including a detailed description of the risks of an
investment in the Portfolio, after this Summary. Please be sure
to read the more complete description of the Portfolio following
this Summary, including the risks associated with investing in
the Portfolio, BEFORE you invest. The Portfolio may at times
use certain types of investment derivatives such as options,
futures, forwards, and swaps. The use of these techniques
involves special risks that are discussed in this Prospectus.
Objective. The Portfolio's investment objective is high current
income consistent with preservation of capital by investing
solely in investment grade fixed-income securities.
Principal Investment Strategies. The Portfolio invests in
readily marketable securities that do not involve undue risk of
capital. The Portfolio normally invests all of its assets in
securities that are rated at least BBB by S&P or, if unrated,
are of comparable quality. The Portfolio has the flexibility to
invest in long- and short-term fixed-income securities depending
on Alliance's assessment of prospective cyclical interest rate
changes.
The Portfolio also may:
-- use derivatives strategies;
-- invest in convertible debt securities, preferred stock
and dividend-paying stocks;
-- invest in U.S. Government obligations; and
-- invest in foreign securities.
Principal Risks: The principal risks of investing in the
Portfolio are interest rate risk, credit risk and market risk.
To the extent the Portfolio invests in foreign investment
securities, it has foreign risk and currency risk.
Other important things for you to note:
-- You may lose money by investing in the Portfolio.
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-- An investment in the Portfolio is not a deposit in a
bank and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government
agency.
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FEES AND EXPENSES OF THE PORTFOLIO
This table describes the fees and expenses that you may pay
if you buy and hold shares of the Portfolio.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
Class A Class B Class C
Shares Shares Shares
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.25% None None
Maximum Deferred Sales Charge
(Load) (as a percentage of
original purchase price or
redemption proceeds, whichever
is lower) None 3.0% 1.0%
during during the
the 1st 1st year,
year, 0%
decreasing thereafter
1.0%
annually
to 0%
after the
3rd year*
Exchange Fee None None None
* Class B Shares automatically convert to Class A Shares after
6 years.
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted
from portfolio assets) AND EXAMPLE
The example is to help you compare the cost of investing in the
Portfolio with the cost of investing in other funds. It assumes
that you invest $10,000 in the Portfolio for the time periods
indicated and then redeem all of your shares at the end of those
periods. It also assumes that your investment has a 5% return
each year, that the Portfolio's operating expenses stay the same,
and that all dividends and distributions are reinvested. Your
actual cost may be higher or lower.
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Operating Expenses Example
Class Class Class Class Class Class Class Class
A B C A B+ B++ C+ C++
Management Fees % % %
Rule 12b-1 Fees % % % After 1 Yr. $ $ $ $ $
Other Expenses % % % After 3 Yrs. $ $ $ $ $
After 5 Yrs. $ $ $ $ $
Total Fund
Operating
Expenses % % % After 10 Yrs. $ $(a) $(a) $ $
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) Assumes Class B shares convert to Class A shares after
6 years.
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DESCRIPTION OF THE PORTFOLIO
This section of the Prospectus provides a more complete
description of the investment objective and principal strategies
and risks of the Portfolio. Of course, there can be no assurance
that the Portfolio will achieve its investment objective.
Please note that:
- -- Additional discussion of the Portfolio's investments,
including the risks of the investments, can be found in the
discussion under Description of Investment Practices
following this section.
- -- Additional descriptions of the Portfolio's strategies,
investments, and risks, can be found in the Portfolio's
Statement of Additional Information or SAI.
- -- The Portfolio's investment objective is "fundamental" and
cannot be changed without a shareholder vote. Except as
noted, the Portfolio's investment policies are not
fundamental and thus can be changed without a shareholder
vote.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The Portfolio's investment objective is high current income
consistent with preservation of capital by investing solely in
investment grade fixed-income securities. The Portfolio invests
in readily marketable securities with relatively attractive
yields that do not involve undue risk of loss of capital. The
Portfolio normally invests all of its assets in securities that
are rated at least BBB by S&P or Baa by Moody's or that are of
comparable quality. The Portfolio normally maintains an average
aggregate quality rating of its portfolio securities of at least
A (S&P and Moody's). The Portfolio has the flexibility to invest
in long- and short-term fixed-income securities (including debt
securities, convertible debt securities and U.S. Government
obligations) and preferred stocks based on Alliance's assessment
of prospective cyclical interest rate changes.
In the event that the credit rating of a security held by the
Portfolio falls below investment grade (or, if in the case of
unrated securities, Alliance determines that the quality of a
security has deteriorated below investment grade), the Portfolio
will not be obligated to dispose of that security and may
continue to hold the security if, in the opinion of Alliance,
such investment is appropriate in the circumstances.
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The Portfolio also may:
- -- purchase and sell interest rate futures contracts and
options;
- -- enter into interest rate swaps, caps and floors for hedging
purposes;
- -- purchase put and call options and write covered put and call
options on securities it may purchase;
- -- write covered call options for cross-hedging purposes;
- -- invest in foreign securities, but only up to 20% of the
Portfolio's total assets;
- -- enter into foreign currency futures contracts and related
options;
- -- enter into forward foreign currency exchange contracts and
options on foreign currencies for hedging purposes;
- -- invest in collateralized mortgage obligations or CMOs;
- -- invest in zero coupon securities and "pay-in-kind"
debentures; and
- -- make loans of portfolio securities of up to 50% of the
Portfolio's total assets.
The value of your investment in the Portfolio will change with
changes in the values of the Portfolio's investments. Many
factors can affect those values. In this Description, we
describe the principal risks that may affect the Portfolio as a
whole. The Portfolio could be subject to additional principal
risks because the types of investments made by the Portfolio can
change over time. This Prospectus has additional descriptions of
the types of investments that appear in bold type in the
discussions under "Description of Investment Practices" or
"Additional Risk Considerations." These sections also include
more information about the Portfolio, its investments, and
related risks.
-- Interest Rate Risk This is the risk that changes in
interest rates will affect the value of the Portfolio's
investments in debt securities, such as bonds, notes,
and asset-backed securities, or other income-producing
securities. Debt securities are obligations of the
issuer to make payments of principal and/or interest on
future dates. Increases in interest rates may cause the
value of the Portfolio's investments to decline. The
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Portfolio's investments in zero coupon securities, which
pay no current interest, and payment-in-kind securities,
which pay non-cash interest in the form of other debt
securities, may have increased interest rate risk.
-- Credit Risk This is the risk that the issuer or
guarantor of a debt security, or the counterparty to a
derivatives contract, will be unable or unwilling to
make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for
a particular security may be reflected in its credit
rating.
-- Market Risk This is the risk that the value of the
Portfolio's investments will fluctuate as the bond
markets fluctuate and that prices overall will decline
over shorter or longer-term periods.
-- Foreign Risk This is the risk of investments in issuers
located in foreign countries. Investments in foreign
securities may experience more rapid and extreme changes
in value than investments in securities of U.S.
companies. The securities markets of many foreign
countries are relatively small, with a limited number of
companies representing a small number of industries. In
addition, foreign securities issuers are usually not
subject to the same degree of regulation as U.S.
issuers. Reporting, accounting, and auditing standards
of foreign countries differ, in some cases
significantly, from U.S. standards. Nationalization,
expropriation or confiscatory taxation, currency
blockage, political changes or diplomatic developments
could adversely affect the Portfolio's investments in a
foreign country. In the event of nationalization,
expropriation, or other confiscation, the Portfolio
could lose its entire investment.
-- Currency Risk This is the risk that fluctuations in the
exchange rates between the U.S. dollar and foreign
currencies may negatively affect the value of the
Portfolio's investments.
-- Leveraging Risk When the Portfolio borrows money or
otherwise leverages its investments, the value of an
investment in the Portfolio will be more volatile and
all other risks will tend to be compounded.
-- Derivatives Risk The Portfolio may use derivatives,
which are financial contracts whose value depends on, or
is derived from, the value of an underlying asset,
reference rate, or index. Alliance will sometimes use
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derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Portfolio uses
derivatives as direct investments to earn income,
enhance yield, and broaden Portfolio diversification,
which entail greater risk than if used solely for
hedging purposes. In addition to other risks such as
the credit risk of the counterparty, derivatives involve
the risk of difficulties in pricing and valuation and
the risk that changes in the value of the derivative may
not correlate perfectly with relevant assets, rates, or
indices.
-- Liquidity Risk Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly
preventing the Portfolio from selling out of these
illiquid securities at an advantageous price. The
Portfolio is subject to liquidity risk because
derivatives and securities involving substantial
interest rate and credit risk tend to involve greater
liquidity risk. In addition, liquidity risk tends to
increase to the extent the Portfolio invests in debt
securities whose sale may be restricted by law or by
contract.
-- Management Risk The Portfolio is subject to management
risk because it is an actively managed investment
portfolio. Alliance will apply its investment
techniques and risk analyses in making investment
decisions for the Portfolio, but there can be no
guarantee that they will produce the desired results.
In some cases, derivative and other investment
techniques may be unavailable or Alliance may determine
not to use them, possibly even under market conditions
where their use could benefit the Portfolio.
DESCRIPTION OF INVESTMENT PRACTICES
This section describes the Portfolio's investment practices and
associated risks.
Derivatives. The Portfolio may use derivatives to achieve its
investment objective. 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
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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 Portfolio 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. The Portfolio is permitted to use
derivatives for one or more of these purposes, although the
Portfolio generally uses 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 Portfolio shareholders. The Portfolio may
take a significant position in those derivatives that are within
its investment policies if, in Alliance's judgment, this
represents the most effective response to current or anticipated
market conditions. Alliance's use of derivatives is subject to
continuous risk assessment and control from the standpoint of the
Portfolio'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
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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. The term
"derivative" also is sometimes used to describe securities
involving rights to a portion of the cash flows from an
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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.
While the judicious use of derivatives by highly-experienced
investment managers such as Alliance can be quite beneficial,
derivatives involve risks different from, and, in certain cases,
greater than, the risks presented by more traditional
investments. The following is a general discussion of important
risk factors and issues relating to the use of derivatives that
investors should understand before investing in the Portfolio.
-- Market Risk--This is the general risk of all investments
that the value of a particular investment will change in
a way detrimental to the Portfolio's interest based on
changes in the bond market generally.
-- 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 the Portfolio'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 the Portfolio as a result of the failure of
a derivative 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.,
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 Portfolio considers
the creditworthiness of each counterparty to a privately
negotiated derivative in evaluating potential credit
risk.
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-- 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 the Portfolio. 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, the Portfolio's use of
derivatives may not always be an effective means of, and
sometimes could be counterproductive to, furthering the
Portfolio's investment objective.
Derivatives Used by the Portfolio. The following describes
specific derivatives that the Portfolio may use.
Forward Foreign Currency Exchange Contracts. The Portfolio
purchases or sells forward foreign currency exchange contracts
("forward contracts") to minimize the risk from adverse changes
in the relationship between the U.S. Dollar and other currencies.
The Portfolio 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 the Portfolio 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 Portfolio's
portfolio securities denominated in such foreign currency, or
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when the Portfolio 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, the Portfolio may, in the alternative,
enter into a forward contract to sell a different foreign
currency for a fixed U.S. Dollar amount where the Portfolio
believes that the U.S. Dollar value of the currency to be sold
pursuant to the forward contract will fall whenever there is a
decline in the U.S. Dollar value of the currency in which
portfolio securities of the Portfolio are denominated (a "cross-
hedge").
Futures Contracts and Options on Futures Contracts. The
Portfolio may buy and sell 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 the Portfolio will be traded on
U.S. or foreign exchanges and will be used only for hedging
purposes.
Interest Rate Transactions (Swaps, Caps, and Floors). The
Portfolio expects to enter into interest rate swap, cap, or floor
transactions 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 Portfolio anticipates purchasing at a
later date. The Portfolio does not intend to use these
transactions in a speculative manner.
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) 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 Portfolio 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.
The Portfolio may enter into interest rate swaps, caps, and
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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 the Portfolio. The Portfolio 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 is then rated in the highest rating category of
at least one NRSRO. The Portfolio will only enter into interest
rate swap, cap or floor transactions 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.
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 the Portfolio from interest rate transactions is limited
to the net amount of interest payments that the Portfolio is
contractually obligated to make.
Options on Foreign Currencies. The Portfolio 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 the Portfolio 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, the Portfolio may forfeit the entire amount of the
premium plus related transaction costs.
Options on Securities. In purchasing an option on securities,
the Portfolio 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
Portfolio would experience a loss not greater than the premium
paid for the option. Thus, the Portfolio 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 the
Portfolio were permitted to expire without being sold or
exercised, its premium would represent a loss to the Portfolio.
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The Portfolio may write a put or call option in return for a
premium, which is retained by the Portfolio whether or not the
option is exercised. The Portfolio will not write uncovered call
or put options on securities. A call option written by the
Portfolio is covered if the Portfolio owns the underlying
security, has an absolute and immediate right to acquire that
security upon conversion or exchange of another security it
holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it
has written. A put option written by the Portfolio is "covered"
if the Portfolio 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 call option is that
there could be an increase in the market value of the underlying
security, and the Portfolio 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.
The Portfolio 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". The Portfolio 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.
The Portfolio may purchase or write privately negotiated options
on securities. The Portfolio 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. Privately negotiated options
purchased or written by the Portfolio may be illiquid and it may
not be possible for the Portfolio to effect a closing transaction
at an advantageous time.
Options on Securities Indices. An option on a securities index
is similar to an option on a security except that, rather than
taking or making delivery of a security at a specified price, an
option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of
a call) or less than (in the case of a put) the exercise price of
the option.
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Convertible Securities. Prior to conversion, convertible
securities have the same general characteristics as non-
convertible debt securities, which provide a stable stream of
income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a
convertible security will normally vary with changes in the price
of the underlying 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.
Forward Commitments. Forward commitments for the purchase or
sale of securities may include purchases on a when-issued basis
or purchases or sales on a delayed delivery basis. In some
cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and
consummation of a merger, corporate reorganization or debt
restructuring 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 four months after the
transaction, but settlements beyond four 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.
The use of forward commitments helps the Portfolio to protect
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, the Portfolio 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, the Portfolio 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.
The Portfolio's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date. The
Portfolio enters into forward commitments, however, only with the
intention of actually receiving securities or delivering them, as
the case may be. If the Portfolio, however, chooses to dispose
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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.
Illiquid Securities. The Portfolio will not invest more than 15%
of its net assets in illiquid securities. Illiquid securities
are securities restricted as to disposition under Federal
securities laws and 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.
A Portfolio 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. Alliance will monitor the Portfolio's
investments in illiquid securities. Rule 144A securities will
not be treated as "illiquid" for the purposes of the limit on
investments so long as the securities meet liquidity guidelines
established by the Board of Directors.
Loans of Portfolio Securities. The Portfolio may make secured
loans of portfolio securities to broker-dealers, provided that
cash, marketable securities issued or guaranteed by the U.S.
Government or its agencies 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 Portfolio. 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 Portfolio any income earned from the
securities. The Portfolio may invest any cash collateral in
portfolio securities and earn additional income or receive an
agreed-upon amount of income from a borrower who has delivered
equivalent collateral. Lending of portfolio securities is
limited to 50% of total assets at the time of the loan.
Mortgage-Related Securities. The Portfolio's investments in
mortgage-related securities 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 the Portfolio) by governmental or private organizations.
Mortgage-related securities bear interest at either a fixed rate
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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. 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. The Portfolio may buy
mortgage-related securities without credit enhancement if the
securities meet the Portfolio'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. 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
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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. 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 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 Portfolios 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). 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.
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
or IOs receiving all of the interest payments from the underlying
assets; while the other class of securities, principal-only
securities or 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
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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 Portfolios 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, the Portfolio 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, the Portfolio 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 the Portfolio'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
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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 the Portfolio 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. 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. In some
transactions (such as those involving the securitization of
vehicle loans or leases) it may be administratively burdensome to
perfect the interest of the security issuer in the underlying
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collateral and the underlying collateral may become damaged or
stolen.
Repurchase Agreements. A repurchase agreement arises when a
buyer purchases a security and simultaneously agrees to resell it
to the vendor at an agreed-upon future date, normally a day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate for the period the
buyer's money is invested in the security. Such agreements permit
the Portfolio to keep all of its assets at work while retaining
overnight flexibility in pursuit of investments of a longer-term
nature. The Portfolio 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, the
Portfolio would suffer a loss to the extent that the proceeds
from the sale of the collateral were less than the repurchase
price. If a vendor goes bankrupt, the Portfolio might be delayed
in, or prevented from, selling the collateral for its benefit.
The staff of the Commission currently takes the position that
repurchase agreements maturing in more than seven days are
illiquid securities. The Portfolio will not enter into a
repurchase agreement if as a result more than 15% of the
Portfolio's net assets would be invested in "illiquid
securities".
Rights and Warrants. The Portfolio may invest in warrants and
rights, which are option securities permitting their holders to
subscribe for other securities. 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.
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.
The Portfolio 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
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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.
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
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instruments (which are generally held by a bank in a custodial or
trust account).
The Portfolio also may 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.
Future Developments. The Portfolio may, following written notice
to its shareholders, take advantage of other investment practices
that are not currently contemplated for use by the Portfolio, or
are not available but may yet be developed, to the extent such
investment practices are consistent with the Portfolio's
investment objective and legally permissible for the Portfolio.
Such investment practices, if they arise, may involve risks that
are different from or exceed those involved in the practices
described above.
Portfolio Turnover. The Portfolio is actively managed and, in
response to market conditions, the Portfolio will have a higher
rate of portfolio turnover than might be expected of investment
companies not so managed. The Portfolio's turnover rate may
exceed 250%. A higher rate of portfolio turnover increases
brokerage and other expenses, which must be borne by the
Portfolio and its shareholders. High portfolio turnover also may
result in the realization of substantial net short-term capital
gains, which, when distributed, are taxable to shareholders.
Temporary Defensive Position. For temporary defensive purposes,
the Portfolio may invest in certain money market instruments.
While the Portfolio is investing for temporary defensive
purposes, it may not meet its investment objective.
ADDITIONAL RISK CONSIDERATIONS
Investment in the Portfolio involves the special risk
considerations described below.
Currency Considerations. A Portfolio that invests some portion
of its assets in securities denominated in, and receives 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 the Portfolio's net assets,
distributions and income. If the value of the foreign currencies
in which the Portfolio receives income falls relative to the U.S.
Dollar between receipt of the income and the making of Portfolio
distributions, the Portfolio may be required to liquidate
securities in order to make distributions if the Portfolio has
insufficient cash in U.S. Dollars to meet the distribution
requirements that the Portfolio must satisfy to qualify as a
regulated investment company for federal income tax purposes.
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Similarly, if an exchange rate declines between the time the
Portfolio 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, the Portfolio may engage in certain
currency hedging transactions, as described above, which involve
certain special risks.
Effects of Borrowing. The Portfolio's loan agreements provide
for additional borrowings and for repayments and reborrowings
from time to time, and the Portfolio 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 the Portfolio result in leveraging of the
Portfolio's shares. Utilization of leverage, which is usually
considered speculative, involves certain risks to the Portfolio's
shareholders. These include a higher volatility of the net asset
value of the Portfolio's shares and the relatively greater effect
on the net asset value of the shares. So long as the Portfolio
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 Portfolio's shareholders
to realize a higher current net investment income than if the
Portfolio 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 of the
Portfolio's investments. If the interest expense on borrowings
approaches the net return on the Portfolio's investment
portfolio, the benefit of leverage to the Portfolio's
shareholders will be reduced. If the interest expense on
borrowings were to exceed the net return to shareholders, the
Portfolio's use of leverage would result in a lower rate of
return. Similarly, the effect of leverage in a declining market
could be a greater decrease in net asset value per share. In an
extreme case, if the Portfolio's current investment income were
not sufficient to meet the interest expense on borrowings, it
could be necessary for the Portfolio to liquidate certain of its
investments and reduce the net asset value of the Portfolio's
shares.
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Fixed-Income Securities. The value of the Portfolio's shares
will fluctuate with the value of its investments. The value of
the Portfolio's investments will change as the general level of
interest rates fluctuates. During periods of falling interest
rates, the values of the Portfolio's securities will generally
rise, although if falling interest rates are viewed as a
precursor to a recession, the values of the Portfolio's
securities may fall along with interest rates. Conversely,
during periods of rising interest rates, the values of the
Portfolio'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 the Portfolio'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 the Portfolio's portfolio will be unavoidable.
Foreign Securities. The securities markets of many foreign
countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited
number of companies representing a small number of industries.
Consequently, the Portfolio 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. The
Portfolio will not invest more than 20% of its total assets at
the time of investment in securities denominated in currencies
other than the U.S. dollar. Nor will the Portfolio invest in
securities of foreign issuers of countries that are considered at
the time of purchase to be emerging markets or developing
countries by the World Bank. At present, the World Bank
considers such countries to include Argentina, Brazil, Mexico,
Morocco, the Philippines, Russia and Venezuela.
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 the Portfolio. 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
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country could impose temporary restrictions on foreign capital
remittances.
The Portfolio 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
require the Portfolio to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve
additional costs to the Portfolio. These factors may affect the
liquidity of the Portfolio's investments in any country and
Alliance will monitor the effect of any such factor or factors on
the Portfolio'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. In the event of
nationalization, expropriation or other confiscation, the
Portfolio 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 Portfolio
than that provided by U.S. laws.
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
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pay interest and repay principal than in the case of higher-rated
securities.
Unrated Securities. Unrated securities will also be considered
for investment by the Portfolio when Alliance 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
objective and policies.
Year 2000. Many computer systems and applications in use today
process transactions using two-digit date fields for the year of
the transaction, rather than the full four digits. If these
systems are not modified or replaced, transactions occurring
after 1999 could be processed as year 1900, which could result in
processing inaccuracies and computer system failures. This is
commonly known as the Year 2000 problem. The failure of any of
the computer systems employed by the Portfolio's major service
providers to process Year 2000 related information properly could
have a significant negative impact on the Portfolio's operations
and the services that are provided to the Portfolio's
shareholders. In addition, to the extent that the operations of
issuers of securities held by the Portfolio are impaired by the
Year 2000 problem, or prices of securities held by the Portfolio
decline as a result of real or perceived problems relating to the
Year 2000, the value of the Portfolio's shares may be materially
affected.
With respect to the Year 2000 problem, the Portfolio has been
advised that Alliance, the Portfolio's investment adviser,
Alliance Fund Distributors, Inc. (AFD), the Portfolio's principal
underwriter, and Alliance Fund Services, Inc. (AFS), the
Portfolio's registrar, transfer agent and dividend disbursing
agent, (collectively, "Alliance"), began to address the Year 2000
issue several years ago in connection with the replacement or
upgrading of certain computer systems and applications. During
1997, Alliance began a formal Year 2000 initiative, which
established a structured and coordinated process to deal with the
Year 2000 issue. Alliance reports that it has completed its
assessment of the Year 2000 issues on its domestic and
international computer systems and applications. Currently,
management of Alliance expects that the required modifications
for the majority of its significant systems and applications that
will be in use on January 1, 2000, will be completed and tested
by early 1999. Full integration testing of these systems and
testing of interfaces with third-party suppliers will continue
through 1999. At this time, management of Alliance believes that
the costs associated with resolving this issue will not have a
material adverse effect on its operations or on its ability to
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provide the level of services it currently provides to the
Portfolio.
The Portfolio and Alliance have been advised by the Portfolio's
Custodian that it is also in the process of reviewing its systems
with the same goals. As of the date of this Prospectus, the
Portfolio and Alliance have no reason to believe that the
Custodian will be unable to achieve these goals.
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MANAGEMENT OF THE PORTFOLIO
INVESTMENT ADVISER
The Portfolio's Adviser is Alliance Capital Management L.P.
("Alliance"), 1345 Avenue of the Americas, New York, New York
10105. Alliance is a leading international investment manager
supervising client accounts with assets as of December 31, 1998,
totaling more than $286 billion (of which approximately
$118 billion represented the assets of investment companies).
Alliance's clients are primarily major corporate employee benefit
Portfolios, public employee retirement systems, investment
companies, foundations, and endowment Portfolios. The 54
registered investment companies, with more than 118 separate
portfolios, managed by Alliance currently have over 3.6 million
shareholder accounts. As of December 31, 1998, Alliance was
retained as an investment manager for employee benefit plan
assets of 35 of the FORTUNE 100 companies.
Alliance provides investment advisory services and order
placement facilities for the Portfolio. For these services, the
Portfolio pays Alliance as a percentage of net assets:
Fee as a percentage of Fiscal Year Ending
average daily net assets
Alliance Investment
Grade Portfolio
The person primarily responsible for the day-to-day management of
the Portfolio is Matthew Bloom. Mr. Bloom, a Senior Vice
President of Alliance, has been associated with Alliance since
1989.
PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the
"Historical Fund") 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 the Portfolio. Alliance
has served as investment adviser to the Historical Fund since its
inception in 1993. Matthew Bloom, who is primarily responsible
for the day-to-day management of the Portfolio, has been the
person principally responsible for the day-to-day management of
the Historical Fund since 1995.
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The following tables set forth performance results for the
Historical Fund since its inception on October 1, 1993, together
with those of the Lipper Corporate Debt Funds A Rated Average and
the Lehman Aggregate Bond Index as comparative benchmarks. As of
December 31, 1998, the assets in the Historical Fund totaled
approximately $ 322 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 Fund. In addition, the performance data do not
reflect the Portfolio's higher expenses, which, if reflected,
would lower the performance of the Historical Fund. The
performance data have not been adjusted for corporate or
individual taxes, if any, payable with respect to the Historical
Fund. The rates of return shown for the Historical Fund are not
an estimate or guarantee of future investment performance of the
Portfolio.
The Lipper Corporate Debt Funds A Rated 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 Portfolio.
Nonetheless, the investment policies pursued by funds in the
survey may differ from those of the Portfolio and the Historical
Fund. 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. The Lehman Aggregate Bond Index is an index
comprised of investment grade fixed income securities, including
U.S. Treasury, mortgage-backed, corporate and "Yankee bonds"
(U.S. dollar-denominated bonds issued outside the United States).
The performance results presented below are based on percent
changes in net asset values of the Historical Fund 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. The inception date for the Historical
Fund, the Lipper data and the Lehman index data is October 1,
1993.
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Annualized Rates of Return
Periods Ended December 31, 1998
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
Historical Fund 8.69% 7.72% 6.78% 6.34%
Lipper Corporate Debt.
Funds A Rated Average 7.47 6.38 6.54 6.21
Lehman Aggregate
Bond Index 8.69 7.29 7.27 6.92
Cumulative Rates of Return
Periods Ending December 31, 1998
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
Historical Fund 8.69% 24.98% 38.80% 38.10%
Lipper Corporate Debt
Funds A Rated Average 7.47 20.42 37.37 37.26
Lehman Aggregate
Bond Index 8.69 23.61 42.06 42.14
PURCHASE AND SALE OF SHARES
How the Portfolio Values Its Shares
The Portfolio's net asset value or NAV is calculated at 4:00 p.m.
Eastern time each day the Exchange is open for business. To
calculate NAV, the Portfolio's assets are valued and totaled,
liabilities are subtracted, and the balance, called net assets,
is divided by the number of shares outstanding. The Portfolio
values its securities at their current market value determined on
the basis of market quotations or, if such quotations are not
readily available, such other methods as the Portfolio's
Directors believe accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at
the next NAV calculated after your order is received by the
Portfolio. Your purchase of Portfolio shares may be subject to
an initial sales charge. Sales of Portfolio shares may be
subject to a contingent deferred sales charge or CDSC. See the
next section of this Prospectus, Distribution Arrangements, for
details.
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How to Buy Shares
You may purchase the Portfolio's shares through broker-dealers,
banks, or other financial intermediaries. You also may purchase
shares directly from the Portfolio's principal underwriter,
Alliance Fund Distributors, Inc., or AFD.
Minimum investment amounts are:
-- Initial $250
-- Subsequent $ 50
-- Automatic Investment Program $ 25
The Portfolio is required to withhold 31% of taxable dividends,
capital gains distributions, and redemptions paid to shareholders
who have not provided the Portfolio with their certified taxpayer
identification number. To avoid this, you must provide your
correct Tax Identification Number (Social Security Number for
most investors) on your account application.
The Portfolio may refuse any order to purchase shares. In this
regard, the Portfolio reserves the right to restrict purchases of
shares (including through exchanges) when there appears to be
evidence of a pattern of frequent purchases and sales made in
response to short-term considerations.
How to Exchange Shares
You may exchange your Portfolio shares for shares of the same
class of other Alliance Mutual Funds (including AFD Exchange
Reserves, a money market fund managed by Alliance). Exchanges of
shares are made at the next-determined NAV, without sales or
service charges. You may request an exchange by mail or
telephone. You must call by 4:00 p.m. Eastern time to receive
that day's NAV. The Portfolio may change, suspend, or terminate
the exchange service on 60 days' written notice.
How to Sell Shares
You may "redeem" your shares (i.e., sell your shares to the
Portfolio) on any day the Exchange is open, either directly or
through your financial intermediary. Your sales price will be
the next-determined NAV, less any applicable CDSC, after the
Portfolio receives your request in proper form. Normally,
proceeds will be sent to you within seven days. If you recently
purchased your shares by check or electronic funds transfer, your
redemption payment may be delayed until the Portfolio 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
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Your broker must receive your request by 4:00 p.m., Eastern time,
and submit it to the Portfolio by 5:00 p.m., Eastern time, for
you to receive that day's NAV, less any applicable CDSC. Your
broker is responsible for furnishing all necessary documentation
to the Portfolio and may charge you for this service.
-- Selling Shares Directly to the Portfolio
By Mail:
-- Send a signed letter of instruction or stock power form
to AFS, along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
-- For your protection, a bank, a member firm of a national
stock exchange or other eligible guarantor institution
must guarantee signatures. Stock power forms are
available from your financial intermediary, AFS, and
many commercial banks. Additional documentation is
required for the sale of shares by corporations,
intermediaries, fiduciaries, and surviving joint owners.
By Telephone:
-- You may redeem your shares for which no stock
certificates have been issued by telephone request.
Call AFS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
-- A telephone redemption request must be made by 4:00 p.m.
Eastern time for you to receive that day's NAV, less any
applicable CDSC and, except for certain omnibus
accounts, may be made only once per day.
-- If you have selected electronic funds transfer in your
Subscription Application, the redemption proceeds may be
sent directly to your bank. Otherwise, the proceeds
will be mailed to you.
-- Redemption requests by electronic funds transfer may not
exceed $100,000 per day and redemption requests by check
cannot exceed $50,000 per day.
-- Telephone redemption is not available for shares held in
nominees or "street name" accounts or retirement plan
accounts or shares held by a shareholder who has changed
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his or her address of record within the previous 30
calendar days.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Dividends and Distributions
The Portfolio declares dividends on its shares each Portfolio
business day. For Saturdays, Sundays, and holidays dividends
will be as of the previous business day. The Portfolio pays
dividends on its shares after the close of business on the
twentieth day of each month or on the first day after that day if
the day is not a business day.
The Portfolio's income dividend and capital gains distribution,
if any, declared by the Portfolio on its outstanding shares will,
at the election of each shareholder, be paid in cash or in
additional shares of the same class of shares of the Portfolio.
If paid in additional shares, the shares will have an aggregate
net asset value as of the close of business on the day following
the declaration date of the dividend or distribution equal to the
cash amount of the dividend or distribution. You may make an
election to receive dividends and distributions in cash or in
shares at the time you purchase shares. Your election can be
changed at any time prior to a record date for a dividend. There
is no sales or other charge in connection with the reinvestment
of dividends or capital gains distributions. Cash dividends may
be paid in check, or at your election, electronically via the ACH
network. There is no sales or other charge on the reinvestment
of Portfolio dividends and distributions.
If you receive an income dividend or capital gains distribution
in cash you may, within 120 days following the date of its
payment, reinvest the dividend or distribution in additional
shares of the Portfolio without charge by returning to Alliance,
with appropriate instructions, the check representing the
dividend or distribution. Thereafter, unless you otherwise
specify, you will be deemed to have elected to reinvest all
subsequent dividends and distributions in shares of the
Portfolio.
While it is the intention of the Portfolio 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 Portfolio of income and capital gains
from investments. There is no fixed dividend rate and there can
be no assurance that the Portfolio will pay any dividends or
realize any capital gains.
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Investment income received by the Portfolio from sources within
foreign countries may be subject to foreign income taxes withheld
at the source.
U.S. Federal Income Taxes
The Portfolio expects that distributions will consist either of
net income (or short-term capital gains) or long-term capital
gains. For federal income tax purposes, the Portfolio's dividend
distributions of net income (or short-term taxable gains) will be
taxable to you as ordinary income. Distributions of long-term
capital gains will be taxable to you as long-term capital gains.
The Portfolio's distributions also may be subject to certain
state and local taxes.
If you buy shares just before the Portfolio deducts a
distribution from its NAV, you will pay the full price for the
shares and then receive a portion of the price back as a taxable
distribution.
The sale or exchange of Portfolio shares is a taxable transaction
for Federal income tax purposes.
Each year shortly after December 31, the Portfolio will send you
tax information stating the amount and type of all its
distributions for the year. Consult your tax adviser about the
federal, state, and local tax consequences in your particular
circumstances.
DISTRIBUTION ARRANGEMENT
Share Classes. The Portfolio offers three classes of shares.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at NAV plus an initial sales
charge, as follows:
Initial Sales Charge
Commission to
Amount Purchased As % of Net AmountAs % of Offering Dealer/Agent as
Invested Price % of Offering Price
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36% 3.25% 3.00%
$250,000 up to $500,000 2.30% 2.25% 2.00%
$500,000 up to $1,000,000 1.78% 1.75% 1.50%
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You pay no initial sales charge on purchases of Class A Shares in
the amount of $1,000,000, but may pay a 1% CDSC if you redeem
your shares within 1 year. Alliance may pay the dealer or agent
a fee of up to 1% of the dollar amount purchased. Certain
purchases of Class A shares may qualify for reduced or eliminated
sales charges under the Portfolio's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Privilege
for Certain Retirement Plans, Reinstatement Privilege, and Sales
at Net Asset Value Programs. Consult the Subscription
Application and the Portfolio's SAI for additional information
about these options.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at NAV without an initial sales
charge. The Portfolio will thus receive the full amount of your
purchase. Your investment, however, will be subject to a CDSC if
you redeem shares within three years after purchase. The CDSC
varies depending on the number of years you hold the shares. The
CDSC amounts are:
Year Since Purchase CDSC
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
If you exchange your shares for the Class B shares of another
Alliance Mutual Fund, the CDSC also will apply to those Class B
shares. The CDSC period begins with the date of your original
purchase, not the date of exchange for the other Class B shares.
The Portfolio's Class B shares purchased for cash automatically
convert to Class A shares six years after the end of the month of
your purchase. If you purchase shares by exchange for the Class B
shares of another Alliance Mutual Fund, the conversion period
runs from the date of your original purchase.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares at NAV without any initial sales
charge. The Portfolio will thus receive the full amount of your
purchase. Your investment, however, will be subject to a 1% CDSC
if you redeem your shares within 1 year. If you exchange your
shares for the Class C shares of another Alliance Mutual Fund,
the 1% CDSC also will apply to those Class C shares. The 1-year
period for the CDSC begins with the date of your original
purchase, not the date of the exchange for the other Class C
shares.
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Class C shares do not convert to any other class of shares of the
Portfolio.
Asset-based Sales Charge or Rule 12b-1 Fees. The Portfolio has
adopted a plan under Commission Rule 12b-1 that allows the
Portfolio to pay asset-based sales charges or distribution and
service fees for the distribution and sale of its shares. The
amount of these fees for each class of the Portfolio's shares is:
Rule 12b-1 Fee
(as a percent of aggregate average daily net assets)
Class A .30%
Class B 1.00%
Class C 1.00%
Because these fees are paid out of the Portfolio's assets on an
on-going basis, over time these fees will increase the cost of
your investment and may cost you more than paying other types of
sales fees. Class B and Class C shares are subject to higher
distribution fees than Class A shares (Class B shares are subject
to these higher fees for a period of six years, after which they
convert to Class A shares). The higher fees mean a higher
expense ratio, so Class B and Class C shares pay correspondingly
lower dividends and may have a lower net asset value than Class A
shares.
Choosing a Class of Shares. The decision as to which class of
shares is more beneficial to you depends on the amount and
intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might
consider purchasing Class A shares. If you are making a smaller
investment, you might consider purchasing Class B shares because
100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C
shares because there is no initial sales charge and no CDSC as
long as the shares are held for one year or more. Dealers and
agents may receive differing compensation for selling Class A,
Class B, or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C hares is $1,000,000.
You should consult your financial agent to assist in choosing a
class of Portfolio shares.
Application of the CDSC. The CDSC is applied to the lesser of
the original cost of shares being redeemed or NAV at the time of
redemption (or, as to Portfolio shares acquired through an
exchange, the cost of the Alliance Portfolio shares originally
purchased for cash). Shares obtained from dividend or
distribution reinvestment are not subject to the CDSC. The
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Portfolio may waive the CDSC on redemptions of shares following
the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans, or under a
monthly, bimonthly, or quarterly systematic withdrawal plan. See
the Portfolio's SAI or further information about CDSC waivers.
Other. A transaction, service, administrative, or other similar
fee may be charged by your broker-dealer, agent, financial
intermediary, or other financial representative with respect to
the purchase, sale, or exchange of Class A, Class B or Class C
shares made through your financial representative. The financial
intermediaries also may impose requirements on the purchase,
sale, or exchange of shares that are different from, or in
addition to, those imposed by the Portfolio, 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 Portfolio. These additional amounts may be
utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the
Portfolio. On some occasions, the cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount
of the shares of the Portfolio and/or other Alliance Mutual Funds
during a specific period of time. The 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. The dealer or agent may elect to receive cash incentives
of equivalent amount in lieu of such payments.
GENERAL INFORMATION
Under unusual circumstances, the Portfolio may suspend
redemptions or postpone payment for up to seven days or longer,
as permitted by federal securities law. The Portfolio reserves
the right to close an account that through redemption has
remained below $200 for 90 days. Shareholders will receive 60
days' written notice to increase the account value before the
account is closed.
During drastic economic or market developments, you might have
difficulty reaching AFS by telephone, in which event you should
issue written instructions to AFS. AFS is not responsible for the
authenticity of telephonic requests to purchase, sell, or
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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.
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 Portfolio, including maximum and minimum initial
investment requirements, that are different from those described
in this Prospectus. Employee Benefit Plans also may not offer
all classes of shares of the Portfolio. In order to enable
participants investing through Employee Benefit Plans to purchase
shares of the Portfolio, 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.
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APPENDIX
BOND RATINGS
MOODY'S INVESTORS SERVICES, 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 Portfolio mentally 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.
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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 unrated 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.
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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.
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 occurred.
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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 fluctuate 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.
45
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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.
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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.
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<PAGE>
For more information about the Portfolio, the following documents
are available upon request:
Annual/Semi-Annual Reports to Shareholders
The Portfolio's annual and semi-annual reports to shareholders
contain additional information on the Portfolio's investments.
In the annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected
the Portfolio's performance during its last fiscal year.
Statement of Additional Information (SAI)
The Portfolio has an SAI, which contains more detailed
information about the Portfolio, including its operations and
investment policies. The Portfolio's SAI is incorporated by
reference into (and is legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual
report or the SAI, by contacting your broker or other financial
intermediary, or by contacting Alliance:
By mail: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
By phone: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
In person: at the Commission's Public Reference Room in
Washington, D.C.
By phone: 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
48
<PAGE>
(LOGO) ALLIANCE BOND FUND, INC. -
INVESTMENT GRADE 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
[___________], 1999
_______________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus for the Investment Grade Portfolio (the "Portfolio")
of Alliance Bond Fund, Inc. (the "Fund") that offers Class A,
Class B and Class C shares of the Portfolio. Copies of the
Prospectus 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................................
Expenses of the Fund..................................
Purchase of Shares....................................
Redemption and Repurchase of Shares...................
Shareholder Services..................................
Net Asset Value.......................................
Portfolio Transactions................................
Taxes.................................................
General Information...................................
Appendix A: Futures Contracts and Options on
Futures Contracts and Foreign Currencies............ A-1
Appendix B: Certain Employee Benefit Plans............ B-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
Alliance Bond Fund, Inc. (the "Fund") is a diversified,
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 and
Sale 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 three portfolios: the Investment
Grade Portfolio (the "Portfolio"), which is described in this
Statement of Additional Information, and the U.S. Government
Portfolio and the Corporate Bond Portfolio, each of which is
described in a separate Statement of Additional Information.
Copies of the Prospectus and Statement of Additional Information
for either the U.S. Government Portfolio or the Corporate Bond
Portfolio 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 INVESTMENT GRADE 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 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 high
current income consistent with preservation of capital by
investing solely in investment grade fixed-income securities.
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HOW THE PORTFOLIO PURSUES ITS OBJECTIVE
The Portfolio invests in readily marketable securities
with relatively attractive yields that do not involve undue risk
of loss of capital. The Portfolio normally invests all of its
assets in securities that are rated at least BBB by S&P or Baa by
Moody's or, if unrated, are of comparable quality. The Portfolio
normally maintains an average aggregate quality rating of its
portfolio securities of at least A (S&P and Moody's). The
Portfolio has the flexibility to invest in long- and short-term
fixed-income securities (including debt securities, convertible
debt securities and U.S. Government obligations) and preferred
stocks based on the assessment of Alliance Capital Management
L.P. (the "Investment Adviser") of prospective cyclical interest
rate changes.
In the event that the credit rating of a security held
by the Portfolio falls below investment grade (or, if in the case
of unrated securities, the Investment Adviser determines that the
quality of a security has deteriorated below investment grade),
the Portfolio will not be obligated to dispose of that security
and may continue to hold the security if, in the opinion of the
Investment Adviser, such investment is appropriate in the
circumstances.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
The following additional investment policies supplement
those set forth in the Prospectus.
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 the Government National Mortgage
Association ("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
3
<PAGE>
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 the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation, and
governmental collateralized mortgage obligations ("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 amount with principal
payments at maturity or specified call dates.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain stripped
mortgage-related securities ("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 interest-only ("IO") class and a
principal-only ("PO") class. 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 the Portfolio 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.
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
4
<PAGE>
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
passed through to the holder of the Certificate.
In addition to GNMA Certificates, the Portfolio may
invest in mortgage-backed securities issued by the Federal
National Mortgage Association ("FNMA") and by the Federal Home
Loan Mortgage Corporation ("FHLMC"). FNMA, a federally chartered
and privately-owned corporation, issues mortgage-backed
pass-through securities which are guaranteed as to timely payment
of principal and interest by FNMA. FHLMC, a corporate
instrumentality of the United States whose stock is owned by the
Federal Home Loan Banks, issues participation certificates which
represent an interest in mortgages from FHLMC's portfolio. FHLMC
guarantees the timely payment of interest and the ultimate
collection of principal. Securities guaranteed by FNMA and FHLMC
are not backed by the full faith and credit of the United States.
If other fixed or variable rate pass-through mortgage-backed
securities issued by the U.S. Government or its agencies or
instrumentalities are developed in the future, the Portfolio
reserves the right to invest in them.
The Investment Adviser will, consistent with the
Portfolio's investment objectives, policies, and quality
standards, consider making investments in new types of mortgage-
related securities as such securities are developed and offered
to investors.
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
5
<PAGE>
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
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 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
6
<PAGE>
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 IO class), while the other class
will receive all of the principal (the 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
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.
COLLATERALIZED MORTGAGE OBLIGATIONS AND MULTI-CLASS
PASS-THROUGH SECURITIES. Mortgage-related securities in which
the Portfolio may invest may also include 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 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").
7
<PAGE>
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.
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
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.
In addition, the Portfolio may invest in mortgage-backed
bonds. Mortgage-backed bonds are general obligations of the
issuer fully collateralized directly or indirectly by a pool of
mortgages. These mortgages serve as collateral for the issuer's
payment obligations on the mortgage-backed bonds but interest and
principal payments on the mortgages are not passed through
directly (as with GNMA, FNMA and FHLMC pass-through securities)
or on a modified basis (as with CMOs). Accordingly, a change in
the rate of prepayments on the pool of mortgages could change the
effective maturity of a CMO but not the effective maturity of a
mortgage-backed bond (although, like many bonds, mortgage-backed
bonds may be callable by the issuer prior to maturity).
It is expected that governmental, government-related, or
private entities may create mortgage loan pools and other
mortgage-backed securities offering mortgage pass-through and
mortgage-collateralized investments in addition to those
described above.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers, and other
8
<PAGE>
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. In addition, such
issuers may be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-backed
securities. Pools created by nongovernmental issuers generally
offer a higher rate of interest than government and
government-related pools because of the absence of direct or
indirect government or agency guarantors. Timely payment of
interest and principal with respect to these pools may be
supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance, and letters of
credit. The insurance, guarantees, and creditworthiness of the
issuers thereof will be considered in determining whether a
mortgage-backed security meets the Portfolio's investment quality
standards. There is no assurance that the private insurers or
guarantors can meet their obligations under the insurance
policies or guarantee arrangements.
OTHER ASSET-BACKED SECURITIES. In general, the
collateral supporting asset-backed securities is of shorter
maturity than mortgage loans and is less likely to experience
unexpected levels of prepayments. As with mortgage-related
securities, asset-backed securities are often backed by a pool of
assets representing the obligations of a number of different
parties and use similar credit enhancement techniques. The
Portfolio may purchase asset-backed securities that represent
fractional interests in pools of retail installment loans, both
secured (such as Certificates for Automobile Receivables) and
unsecured, leases or revolving credit receivables, both secured
and unsecured (such as Credit Card Receivable Securities).
Underlying retail installment loans, leases or revolving
credit receivables are subject to prepayment, which may reduce
the overall return to certificate holders. Certificate holders
may also experience delay in payment on the certificates if the
full amounts due on underlying retail installment loans, leases
or revolving credit receivables are not realized by the Portfolio
because of unanticipated legal or administrative costs of
enforcing the contracts, retail installment loans, leases or
revolving credit receivables, or because of depreciation or
damage to the collateral (usually automobiles) securing certain
contracts, retail installment loans, leases or revolving credit
receivables, or other factors. If consistent with its investment
objective and policies, the Portfolio may invest in other
asset-backed securities that may be developed in the future.
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
9
<PAGE>
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 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
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 Portfolio may write put options either to earn
additional income in the form of option premiums (anticipating
that the price of the underlying security will remain stable or
rise during the option period and the option will therefore not
be exercised) or to acquire the underlying security at a net cost
below the current value (e.g., the option is exercised because of
a decline in the price of the underlying security, but the amount
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<PAGE>
paid by the Portfolio, offset by the option premium, is less than
the current price).
The Portfolio will write covered call options both to
reduce the risks associated with certain of its investments and
to increase total investment return through the receipt of
premiums. In return for the premium income, the Portfolio will,
give up the opportunity to profit from an increase in the market
price of the underlying security above the exercise price so long
as its obligations under the contract continue, except insofar as
the premium represents a profit. Moreover, in writing the call
option, the Portfolio will retain the risk of loss should the
price of the security decline. The premium is intended to offset
that loss in whole or in part. Unlike the situation in which the
Portfolio owns securities not subject to a call option, the
Portfolio, in writing call options, must assume that the call may
be exercised at any time prior to the expiration of its
obligation as a writer, and that in such circumstances the net
proceeds realized from the sale of the underlying securities
pursuant to the call may be substantially below the prevailing
market 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 covered 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
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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. A closing
purchase transaction for exchange-traded options may be made only
on a national securities exchange. There is no assurance that a
liquid secondary market on a national securities exchange will
exist for any particular option, or at any particular time, and
for some options, such as over-the-counter options, no secondary
market on a national securities exchange may exist. If the
Portfolio is unable to effect a closing purchase transaction, the
Portfolio will not sell the underlying security until the option
expires or the Portfolio delivers the underlying security upon
exercise.
The Portfolio may purchase or write 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 traded in the over-
the-counter market may not be as actively traded as those traded
on an exchange. Accordingly, it may be more difficult to value
such options. Options purchased or written by the Portfolio in
negotiated transactions may be considered 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.
The Portfolio may enter into contracts (or amend
existing contracts) with primary dealer(s) with whom it writes
over-the-counter options. The contracts will provide that the
Portfolio has the absolute right to repurchase an option it
writes at any time at a repurchase price which represents the
fair market value, as determined in good faith through
negotiation between the parties, but which in no event will
exceed a price determined pursuant to a formula contained in the
contract. Although the specific details of the formula may vary
between contracts with different primary dealers, the formula
will generally be based on a multiple of the premium received by
the Portfolio for writing the option, plus the amount, if any, of
the option's intrinsic value (i.e., the amount the option is
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"in-the-money"). The formula will also include a factor to
account for the difference between the price of the security and
the strike price of the option if the option is written
"out-of-the-money." Although the Portfolio has established
standards of creditworthiness for these primary dealers, the
Portfolio may still be subject to the risk that firms
participating in such transactions will fail to meet their
obligations. With respect to agreements concerning the
over-the-counter options the Portfolio has written, the Portfolio
will treat as illiquid only securities equal in amount to the
formula price described above less the amount by which the option
is "in-the-money," i.e., the amount by which the price of the
option exceeds the exercise price.
OPTIONS ON SECURITIES INDICES. The Portfolio may
purchase put and call options and write covered put and call
options on securities indexes for the purpose of hedging against
the risk of unfavorable price movements adversely affecting the
value of the Portfolio's securities or securities it intends to
purchase. An option on a securities index is similar to an
option on a security except that, rather than the right to take
or make delivery of a security at a specified price, an option on
a securities index gives the holder the right to receive, upon
exercise of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call) or less
than (in the case of a put) the exercise price of the option. A
call option on a securities index is considered covered, for
example, if, so long as the Portfolio is obligated as the writer
of the call, it holds securities the price changes of which are,
in the opinion of the Investment Adviser, expected to replicate
substantially the movement of the index or indexes upon which the
options written by the Portfolio are based. A put on a securities
index written by the Portfolio will be considered covered if, so
long as it is obligated as the writer of the put, the Portfolio
segregates with its custodian liquid assets having a value equal
to or greater than the exercise price of the option.
Through the purchase of listed index options, the
Portfolio could achieve many of the same objectives as through
the use of options on individual securities. Price movements in
the Portfolio's securities probably will not correlate perfectly
with movements in the level of the index and, therefore, the
Portfolio would bear a risk of loss on index options purchased by
it if favorable price movements of the hedged portfolio
securities do not equal or exceed losses on the options or if
adverse price movements of the hedged portfolio securities are
greater than gains realized from the options.
FUTURES CONTRACTS AND OPTIONS THEREON. The Portfolio
may purchase and sell futures contracts and related options on
debt securities and on indexes of debt securities to hedge
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against anticipated changes in interest rates that might
otherwise have an adverse effect on the value of its assets or
assets it intends to acquire. The Portfolio may also enter into
futures contracts and related options on foreign currencies in
order to limit its exchange rate risk. A "sale" of a futures
contract means the acquisition of a contractual obligation to
deliver the securities called for by the contract at a specified
price on a specified date. A "purchase" of a futures contract
means the incurring of a contractual obligation to acquire the
securities called for by the contract at a specified price on a
specified date. The purchaser of a futures contract on an index
agrees to take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of
the index on the expiration date of the contract and the price at
which the contract was originally struck. All futures contracts
and related options will be traded on exchanges that are licensed
and regulated by the Commodity Futures Trading Commission (the
"CFTC"). The Portfolio will only write options on futures
contracts which are "covered." These investment techniques will
be used only to hedge against anticipated future changes in
interest or exchange rates which otherwise might either adversely
affect the value of the Portfolio's securities or adversely
affect the prices of securities which the Portfolio intends to
purchase at a later date. These investment techniques will not
be used for speculation.
In general, the Portfolio will limit its use of futures
contracts and options on futures contracts so that either (i) the
contracts or options thereon are for "bona fide hedging" purposes
as defined under regulations of the CTFC or (2) if for other
purposes, no more than 5% of the liquidation value of the
Portfolio's total assets will be used for initial margin of
option premiums required to establish non-hedging positions.
These instruments will be used for hedging purposes and not for
speculation or to leverage the Portfolio.
In instances involving the purchase of futures contracts
or the writing of put options thereon by the Portfolio, an amount
of liquid assets equal to the cost of such futures contracts or
options written (less any related margin deposits) will be
deposited in a segregated account with its custodian, thereby
insuring that the use of such futures contracts and options is
unleveraged. In instances involving the sale of futures
contracts or the writing of call options thereon by the
Portfolio, the securities underlying such futures contracts or
options will at all times be maintained by the Portfolio or, in
the case of index futures and related options, the Portfolio will
own securities the price changes of which are, in the opinion of
the Investment Adviser, expected to replicate substantially the
movement of the index upon which the futures contract or option
is based.
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Positions taken in the futures markets are not normally
held until delivery or cash settlement is required, but are
instead liquidated through offsetting transactions which may
result in a gain or a loss. While futures positions taken by the
Portfolio will usually be liquidated in this manner, the
Portfolio may instead make or take delivery of underlying
securities whenever it appears economically advantageous to the
Portfolio to do so.
Positions in futures contracts may be closed out only on
an exchange or a board of trade which provides the market for
such futures. Although the Portfolio intends to purchase or sell
futures only on exchanges or boards of trade where there appears
to be an active market, there is no guarantee that such will
exist for any particular contract or at any particular time. If
there is not a liquid market at a particular time, it may not be
possible to close a futures position at such time, and, in the
event of adverse price movements, the Portfolio would continue to
be required to make daily cash payments of maintenance margin.
However, in the event futures positions are used to hedge
portfolio securities, the securities will not be sold until the
futures positions can be liquidated. In such circumstances, an
increase in the price of securities, if any, may partially or
completely offset losses on the futures contracts.
See Appendix A for further discussion of the use, risks
and costs of futures contracts and options on futures contracts.
FORWARD COMMITMENTS. The Portfolio may enter into
forward commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis.
When forward commitment transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date, normally within four
months after the transaction, although delayed settlements beyond
four months may be negotiated. Securities purchased or sold
under a forward commitment are subject to market fluctuation, and
no interest accrues to the purchaser prior to the settlement
date. At the time the Portfolio enters into a forward
commitment, it will record the transaction and thereafter reflect
the value of the security purchased or, if a sale, the proceeds
to be received, in determining its net asset value.
The use of forward commitments enables the Portfolio to
protect against anticipated changes in interest rates and prices.
For instance, in periods of rising interest rates and falling
bond prices, the Portfolio might sell securities in its portfolio
on a forward commitment basis to limit its exposure to falling
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bond prices. In periods of falling interest rates and rising
bond prices, the Portfolio might sell a security in its portfolio
and purchase the same or a similar security on a when-issued or
forward commitment basis, thereby obtaining the benefit of
currently higher cash yields. However, if the Investment Adviser
were to forecast incorrectly the direction of interest rate
movements, the Portfolio might be required to complete such when-
issued or forward transactions at prices less favorable than
current market values.
The Portfolio's right to receive or deliver a security
under a forward commitment may be sold prior to the settlement
date, but the Portfolio will enter into forward commitments only
with the intention of actually receiving or delivering the
securities, as the case may be. To facilitate such transactions,
the Portfolio's custodian will maintain, in the separate account
of the Portfolio, liquid assets having value equal to, or greater
than, any commitments to purchase securities on a forward
commitment basis. If the Portfolio, however, chooses to dispose
of the right to receive or deliver a security subject to a
forward commitment prior to the settlement date of the
transaction, it can incur a gain or loss. In the event the other
party to a forward commitment transaction were to default, the
Portfolio might lose the opportunity to invest money at favorable
rates or to dispose of securities at favorable prices.
Although the Portfolio intends to make such purchases
for speculative purposes, purchases of securities on such bases
may involve more risk than other types of purchases. For
example, by committing to purchase securities in the future, the
Portfolio subjects itself to a risk of loss on such commitments
as well as on its portfolio securities. Also, the Portfolio may
have to sell assets that have been set aside in order to meet
redemptions. In addition, if the Portfolio determines it is
advisable as a matter of investment strategy to sell the forward
commitment or when-issued or delayed delivery securities before
delivery, the Portfolio may incur a gain or loss because of
market fluctuations since the time the commitment to purchase
such securities was made. Any such gain or loss would be treated
as a capital gain or loss and would be treated for tax purposes
as such. When the time comes to pay for the securities to be
purchased under a forward commitment or on a when-issued or
delayed delivery basis, the Portfolio will meet its obligations
from the then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of
the forward commitment or when-issued or delayed delivery
securities themselves (which may have a value greater or less
than the Portfolio's payment obligation).
OPTIONS ON FOREIGN CURRENCIES. The Portfolio may
purchase and write put and call options on foreign currencies for
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the purpose of protecting against declines in the U.S. Dollar
value of foreign currency-denominated portfolio securities and
against increases in the U.S. Dollar cost of such securities to
be acquired. As in the case of other kinds of options, however,
the writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the
Portfolio could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange
rates although, in the event of rate movements adverse to the
Portfolio's position, it may forfeit the entire amount of the
premium plus related transaction costs. Options on foreign
currencies to be written or purchased by the Portfolio are
exchange-traded or traded over-the-counter. The Portfolio will
write options on foreign currencies only if they are "covered."
The Portfolio will not speculate in foreign currency
options. Accordingly, the Portfolio will not hedge a currency
substantially in excess of the market value of the securities
denominated in that currency which it owns or the expected
acquisition price of securities which it anticipates purchasing.
See Appendix A for further discussion of the use, risks
and costs of options on foreign currencies.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. The
Portfolio may purchase or sell forward foreign currency exchange
contracts ("forward contracts") to attempt to minimize the risk
to the Portfolio of adverse changes in the relationship between
the U.S. Dollar and foreign currencies. A forward contract is an
obligation to purchase or sell a specific currency for an agreed
price at a future date which is individually negotiated and
privately traded by currency traders and their customers. The
Portfolio may enter into a forward contract, for example, when it
enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S.
Dollar price of the security ("transaction hedge").
Additionally, for example, when the Portfolio 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 Portfolio's securities denominated in such foreign
currency, or when the Portfolio believes that the U.S. Dollar may
suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Portfolio may, in the alternative, enter into a
forward contract to sell a different foreign currency for a fixed
U.S. Dollar amount where the Portfolio believes that the U.S.
Dollar value of the currency to be sold pursuant to the forward
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contract will fall whenever there is a decline in the U.S. Dollar
value of the currency in which portfolio securities of the
Portfolio are denominated ("cross-hedge"). To the extent required
by applicable law, the Portfolio's Custodian will place liquid
assets in a separate account of the Portfolio having a value
equal to the aggregate amount of the Portfolio's commitments
under forward contracts entered into with respect to position
hedges and cross-hedges. If the value of the assets placed in a
separate account declines, additional liquid assets will be
placed in the account on a daily basis so that the value of the
account will equal the amount of the Portfolio's commitments with
respect to such contracts. As an alternative to maintaining all
or part of the separate account, the Portfolio may purchase a
call option permitting the Portfolio to purchase the amount of
foreign currency being hedged by a forward sale contract at a
price no higher than the forward contract price or the Portfolio
may purchase a put option permitting the Portfolio to sell the
amount of foreign currency subject to a forward purchase contract
at a price as high or higher than the forward contract price. In
addition, the Portfolio may use such other methods of "cover" as
are permitted by applicable law. Unanticipated changes in
currency prices may result in poorer overall performance for the
Portfolio than if it had not entered into such contracts.
While these contracts are not presently regulated by the
Commodity Futures Trading Commission (the "CFTC"), the CFTC may
in the future assert authority to regulate forward contracts. In
such event the Portfolio's ability to utilize forward contracts
in the manner set forth in the Prospectus may be restricted. The
use of foreign currency forward contracts will not eliminate
fluctuations in the underlying U.S. Dollar equivalent value of
the prices of or rates of return on the Portfolio's foreign
currency-denominated portfolio securities and the use of such
techniques will subject the Portfolio to certain risks. The
Portfolio will not speculate in forward currency contracts. The
Portfolio will only enter forward foreign currency exchange
contracts with counterparties that, in the option of the
Investment Adviser, do not present undue credit risk. Generally,
such forward contracts will be for a period of less than three
months.
The matching of the increase in value of a forward
contract and the decline in the U.S. Dollar equivalent value of
the foreign currency-denominated asset that is the subject of the
hedge generally will not be precise. In addition, the Portfolio
may not always be able to enter into foreign currency forward
contracts at attractive prices and this will limit the
Portfolio's ability to use such contract to hedge or cross-hedge
its assets. Also, with regard to the Portfolio's use of cross-
hedges, there can be no assurance that historical correlations
between the movement of certain foreign currencies relative to
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the U.S. Dollar will continue. Thus, at any time poor
correlation may exist between movements in the exchange rates of
the foreign currencies underlying the Portfolio's cross-hedges
and the movements in the exchange rates of the foreign currencies
in which the Portfolio's assets that are the subject of such
cross-hedges are denominated.
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
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
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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.
GENERAL. The successful use of the foregoing investment
practices draws upon the Investment Adviser's special skills and
experience with respect to such instruments and usually depends
on the Investment Adviser's ability to forecast interest rate and
currency exchange rate movements correctly. Should interest or
exchange rates move in an unexpected manner, the Portfolio may
not achieve the anticipated benefits of futures contracts or
options on futures contracts, options, forward currency
contracts, interest rate transactions or forward commitment
contracts or may realize losses and thus be in a worse position
than if such strategies had not been used. Further, unlike many
exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits with
respect to options on currencies, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. In addition, the correlation between movements in the
prices of such instruments and movements in the values of the
securities and currencies hedged will not be perfect and could
produce unanticipated losses.
The Portfolio's ability to dispose of its position in
futures contracts, options, interest rate transaction and forward
commitment contracts will depend on the availability of liquid
markets in such instruments. Markets for these vehicles with
respect to a number of fixed-income securities and currencies are
relatively new and still developing. If, for example, a
secondary market did not exist with respect to an option
purchased or written by the Portfolio over-the-counter, it might
not be possible to effect a closing transaction in the option
(i.e., dispose of the option) with the result that (i) an option
purchased by the Portfolio would have to be exercised in order
for the Portfolio to realize any profit and (ii) the Portfolio
may not be able to sell portfolio securities covering an option
written by the Portfolio until the option expired or it delivered
the underlying currency or futures contract upon exercise.
If in the event of an adverse movement the Portfolio
could not close a futures position, it would be required to
continue to make daily cash payments of variation margin. If the
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Portfolio could not close an option position, an option holder
would be able to realize profits or limit losses only by
exercising the option, and an option writer would remain
obligated until exercise or expiration. Finally, if a broker or
clearing member of an options or futures clearing corporation
were to become insolvent, the Portfolio could experience delays
and might not be able to trade or exercise options or futures
purchased through that broker. In addition, the Portfolio could
have some or all of their positions closed out without their
consent. If substantial and widespread, these insolvencies could
ultimately impair the ability of the clearing corporations
themselves.
No assurance can be given that the Portfolio will be
able to utilize these instruments effectively for the purposes
set forth above.
LENDING OF PORTFOLIO SECURITIES. Consistent with
applicable regulatory requirements, the Portfolio may loan its
portfolio securities where such loans are continuously secured by
cash, marketable securities issued or guaranteed by the U.S.
Government or its agencies, or a standby letter of credit issued
by qualified banks 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. Loans will only
be made to firms deemed by the Investment Adviser to be of good
standing and will not be made unless, in the judgment of the
Investment Adviser, the consideration to be earned from such
loans would justify the risk.
SECURITIES RATINGS. 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.
The ratings of fixed-income securities by Moody's, S&P,
Duff & Phelps Credit Rating Co. ("Duff & Phelps") and Fitch IBCA,
Inc. ("Fitch") are a generally accepted barometer of credit risk.
They are, however, subject to certain limitations from an
investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
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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. 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.
ILLIQUID SECURITIES. The Portfolio will not invest
more than 15% of its net assets in illiquid securities. For this
purpose, illiquid securities are securities restricted as to
disposition under Federal securities laws and 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 Portfolio over-the-counter and the
cover for options written by the Portfolio over-the-counter, and
(c) repurchase agreements not terminable within seven days.
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
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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.
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 Portfolio, however, could affect adversely
the marketability of such portfolio securities and the Portfolio
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 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
23
<PAGE>
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.
REPURCHASE AGREEMENTS. The Portfolio 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). Under a repurchase agreement, underlying debt
instruments are acquired for a relatively short period (usually
not more than one week and never more than a year) subject to an
obligation of the seller to repurchase and the Portfolio to
resell the debt instruments at a fixed price and time, thereby
determining the yield during the Portfolio's holding period. The
Portfolio enters into repurchase agreements with respect to U.S.
Government obligations, certificates of deposit, or banker's
acceptances with registered broker-dealers, U.S. Government
securities dealers or domestic banks whose creditworthiness is
determined to be satisfactory by the Investment Adviser pursuant
to guidelines adopted by the Board of Directors. Generally, the
Portfolio does not invest in repurchase agreements maturing in
more than seven days.
Repurchase agreements may exhibit the characteristics of
loans by the Portfolio. During the term of the repurchase
agreement, the Portfolio retains the security subject to the
repurchase agreement as collateral securing the seller's
repurchase obligation, continually monitors on a daily basis the
market value of the security subject to the agreement and
requires the seller to deposit with the Portfolio collateral
equal to any amount by which the market value of the security
subject to the repurchase agreement falls below the resale amount
provided under the repurchase agreement.
INVESTMENT IN OTHER INVESTMENT COMPANIES. The Portfolio
may invest in other investment companies whose investment
objectives and policies are consistent with those of the
Portfolio. If the Portfolio acquires shares in investment
companies, shareholders would bear both their proportionate share
of expenses in the Portfolio (including management and advisory
fees) and, indirectly, the expenses of such investment companies
(including management and advisory fees). The Portfolio will not
invest more than 5% of its assets in the securities of any one
investment company, own more than 3% of any one investment
company's outstanding voting securities, or have total holdings
24
<PAGE>
of investment company securities in excess of 10% of the value of
the Portfolio's assets.
PORTFOLIO TURNOVER. Because the Portfolio will actively
use trading 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 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 250% in
future years (but is not expected to exceed 500%). An annual
turnover rate of 250% occurs, for example, when all of the
securities in the Portfolio are replaced two and one-half times
in a period of one year.
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.
CERTAIN RISK CONSIDERATIONS
RISKS OF INVESTMENTS IN FOREIGN SECURITIES. Foreign
issuers are subject to accounting and financial standards and
requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and
profits appearing on the financial statements of a foreign issuer
may not reflect its financial position or results of operations
in the way they would be reflected had the financial statement
been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules
in some of the countries in which the Portfolio will invest
require, for both tax and accounting purposes, that certain
assets and liabilities be restated on the issuer's balance sheet
in order to express items in terms of currency of constant
purchasing power. Inflation accounting may indirectly generate
losses or profits. Consequently, financial data may be materially
affected by restatements for inflation and may not accurately
reflect the real condition of those issuers and securities
markets. Substantially less information is publicly available
about certain non-U.S. issuers than is available about U.S.
issuers.
Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
25
<PAGE>
in countries in which the Portfolio will invest and could
adversely affect the Portfolio's assets should these conditions
or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Portfolio. Certain countries in which the Portfolio will
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
purchase by domiciliaries of the countries and/or impose
additional taxes on foreign investors.
Certain countries other than those on which the
Portfolio will focus it investments may require governmental
approval for the repatriation of investment income, capital or
the proceeds of sales of securities by foreign investors. In
addition, if a deterioration occurs in a country's balance of
payments, the country could impose temporary restrictions on
foreign capital remittances.
Income from certain investments held by the Portfolio
could be reduced by foreign income taxes, including withholding
taxes. It is impossible to determine the effective rate of
foreign tax in advance. The Portfolio's net asset value may also
be affected by changes in the rates or methods of taxation
applicable to the Portfolio or to entities in which the Fund has
invested. The Investment Adviser generally will consider the
cost of any taxes in determining whether to acquire any
particular investments, but can provide no assurance that the tax
treatment of investments held by the Portfolio will not be
subject to change.
For many foreign securities, there are U.S. dollar-
denominated American Depository Receipts (ADRs) which are traded
in the United States on exchanges or over-the-counter, are issued
by domestic banks or trust companies and which market quotations
are readily available. ADRs do not lessen the foreign exchange
risk inherent in investing in the securities of foreign issuers.
However, by investing in ADRS rather than directly in stock of
foreign issuers, the Portfolio can avoid currency risks which
might occur during the settlement period for either purchases or
sales. The Portfolio may purchase foreign securities directly,
as well as through ADRs.
26
<PAGE>
1940 ACT RESTRICTIONS
Under the 1940 Act, the Portfolio 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 Portfolio. In addition,
under the 1940 Act, in the event asset coverage falls below 300%,
the Portfolio 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 the
Portfolio's total assets less liabilities (other than such
borrowings), the asset coverage of the Portfolio's portfolio
would be 300%; while outstanding borrowings representing 25% of
the total assets less liabilities (other than such borrowings),
the asset coverage of the Portfolio's portfolio would be 400%.
The Portfolio will maintain asset coverage of outstanding
borrowings of at least 300% and if necessary will, to the extent
possible, reduce the amounts borrowed by making repayments from
time to time in order to do so. Such repayments could require
the Portfolio to sell portfolio securities at times considered
disadvantageous by the Investment Adviser and such sales could
cause the Portfolio to incur related transaction costs and to
realize taxable gains.
Under the 1940 Act, the Portfolio may invest not more
than 10% of its total assets in securities of other investment
companies. In addition, 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.
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. 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
27
<PAGE>
transactions, forward commitments or stand- by
commitments may be considered senior securities);
2. Effect a short sale of any security except
when it has, by reason of ownership of other securities,
the right to obtain securities of equivalent kind and
amount that will be held so long as it is in a short
position;
3. Underwrite securities issued by other persons
except to the extent that, in connection with the
disposition of its portfolio investments, it may be
deemed to be an underwriter under certain Federal
securities laws;
4. Purchase real estate or mortgages; however,
the Portfolio may, as appropriate and consistent with
its investment policies and other investment
restrictions, buy securities of issuers which engage in
real estate operations and securities which are secured
by interests in real estate (including partnership
interests and shares of real estate investment trusts),
and may hold and sell real estate acquired as a result
of ownership of such securities;
5. Purchase any security on margin or borrow
money, except that this restriction shall not apply to
borrowing from banks for temporary purposes, to the
pledging of assets to banks in order to transfer funds
for various purposes as required without interfering
with the orderly liquidation of securities in the
Portfolio (but not for leveraging purposes), to margin
payments or pledges in connection with options, futures
contracts, options on futures contracts, forward
contracts or options on foreign currencies, or,
transactions in interest rate swaps, caps and floors; or
6. Make loans (including lending cash or
securities), except that the Portfolio may make loans of
portfolio securities not exceeding 50% of the value of
the Portfolio's total assets. This restriction does not
prevent the Portfolio from purchasing debt obligations
in which the Portfolio may invest consistent with its
investment policies, or from buying government
obligations, short-term commercial paper, or publicly-
traded debt, including bonds, notes, debentures,
certificates of deposit, and equipment trust
certificates, nor does this restriction apply to loans
made under insurance policies or through entry into
28
<PAGE>
repurchase agreements to the extent they may be viewed
as loans.
The Portfolio, except as noted below, elects not to
"concentrate" investments in an industry, as that concept is
defined under applicable Federal securities laws. In general,
this means that the Portfolio will not make an investment in an
industry if that investment would make the Portfolio's holdings
in that industry exceed 25% of the Portfolio's assets. The U.S.
Government, its agencies and instrumentalities are not considered
members of any industry. The Portfolio intends to be
"diversified," as that term is defined under the Investment
Company Act. In general, this means that the Portfolio will not
make an investment unless, when considering all its other
investments, 75% of the value of the Portfolio's assets would
consist of cash, cash items, U.S. Government securities,
securities of other investment companies and other securities.
For the purposes of this restriction, "other securities" are
limited for any one issuer to not more than 5% of the value of
the Portfolio's total assets and to not more than 10% of the
issuer's outstanding voting securities. As a matter of operating
policy, the Portfolio will not consider repurchase agreements to
be subject to the above-stated 5% limitation if the collateral
underlying the repurchase agreements consists exclusively of U.S.
Government securities and such repurchase agreements are fully
collateralized.
NON-FUNDAMENTAL RESTRICTIONS
The following investment restrictions apply to the
Portfolio, but are not fundamental. They may be changed for the
Portfolio without a vote of the Portfolio's shareholders.
The Portfolio will not:
1. Invest more than 15% of its net assets in
securities restricted as to disposition under Federal
securities laws, or securities otherwise considered
illiquid or not readily marketable, including repurchase
agreements not terminable within seven days; however,
this restriction will not apply to securities sold
pursuant to Rule 144A under the Securities Act of 1933,
so long as such securities meet liquidity guidelines
established from time to time by the Board of Directors;
2. Trade in foreign exchange (except transactions
incidental to the settlement of purchases or sales of
securities for the Portfolio); however, the Portfolio
may trade in foreign exchange in connection with its
foreign currency hedging strategies, provided the amount
of foreign exchange underlying the Portfolio's currency
29
<PAGE>
hedging transactions does not exceed 10% of the
Portfolio's assets;
3. Acquire securities of any company that is a
securities broker or dealer, a securities underwriter,
an investment adviser of an investment company, or an
investment adviser registered under the Investment
Advisers Act of 1940 (other than any such company that
derives no more than 15% of its gross revenues from
securities related activities), except that the
Portfolio may purchase bank, trust company, and bank
holding company stock, and except that the Portfolio may
invest, in accordance with Rule 12d3-1 under the
Investment Company Act, up to 5% of its total assets in
any such company provided that it owns no more than 5%
of the outstanding equity securities of any class plus
10% of the outstanding debt securities of such company;
or
4. Make an investment in order to exercise
control or management over a company.
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.
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
30
<PAGE>
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.
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.
31
<PAGE>
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.
MATTHEW BLOOM, SENIOR VICE PRESIDENT, 42, is a Senior
Vice President of Alliance, 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
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, 34, is a Vice President
of AFS, with which he has been associated since prior to 1993.
32
<PAGE>
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 1998 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.
Total Number
Total Number of Investment
of Funds in Funds
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- ___ ___
Ruth Block $______ $______ ___ ___
David H. Dievler $______ $______ ___ ___
John H. Dobkin $______ $______ ___ ___
William H. Foulk, Jr. $______ $______ ___ ___
Dr. James M. Hester $______ $______ ___ ___
Clifford L. Michel $______ $______ ___ ___
Donald J. Robinson $______ $______ ___ ___
As of __________, 1999, 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).
33
<PAGE>
The Investment Adviser is a leading international
investment manager supervising client accounts with assets as of
____________, 1999, totaling more than $_____ billion (of which
more than $_____ 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 ___ registered investment companies managed by the Investment
Adviser, comprising ____ separate investment portfolios, currently
have more than ____ million shareholders. As of __________, 1999,
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
__________, 1999, the Investment Adviser was retained as an
investment manager for employee benefit plan assets of ___ 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
34
<PAGE>
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 Fund's Board of
Directors.
The Investment Advisory Contract became effective with
respect to the Portfolio on [__________], 1999. 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 Fund'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.
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
35
<PAGE>
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 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,
36
<PAGE>
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment Fund,
Inc., The Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
______________________________________________________________
EXPENSES OF THE FUND
______________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The 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"). Rule 12b-1 permits an investment company to pay expenses
associated with the distribution of its shares in accordance with
the duly adopted Rule 12b-1 Plan. Pursuant to the Rule 12b-1
Plan, the Portfolio pays to AFD a Rule 12b-1 distribution services
fee, which may not exceed an annual rate of .30% of the
Portfolio's aggregate average daily net assets attributable to the
Class A shares, 1.00% of the Portfolio's aggregate average daily
net assets attributable to the Class B shares and 1.00% of the
Portfolio's aggregate average daily net assets attributable to the
Class C shares, for distribution expenses. The Rule 12b-1 Plan
provides that a portion of the distribution services fee in an
amount not to exceed .25% of the aggregate average daily net
assets of the Portfolio attributable to each class of shares
constitutes a service fee used for personal service and/or the
maintenance of shareholder accounts.
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
37
<PAGE>
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.
The Rule 12b-1 Plan provides that AFD will use the
distribution services fee received from the Portfolio 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 Portfolio and (iii) to
compensate broker-dealers, depository institutions and other
financial intermediaries for providing administrative, accounting
and other services with respect to the Portfolio's administrative,
accounting and other services with respect to the Portfolio's
shareholders. In this regard, some payments under the Rule 12b-1
Plan are used to compensate financial intermediaries with trail or
maintenance commissions in an amount equal to .25%, annualized,
with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets
maintained in the Portfolio by its customers. Distribution
services fees received from the Portfolio 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 Portfolio, with
respect to Class B and Class C shares, may be used for these
purposes. The Rule 12b-1 Plan also provides that the Investment
Adviser may use its own resources to finance the distribution of
the Portfolio's shares. The Portfolio is not obligated under the
Rule 12b-1 Plan to pay any distribution services fee in excess of
the amounts set forth above. With respect to Class A shares of
the Portfolio, distribution expenses accrued by AFD in one fiscal
year may not be paid from distribution services fees received from
the Portfolio in subsequent fiscal years. AFD's compensation with
respect to Class B and Class C shares for any given year, however,
will probably exceed the distribution services fee payable under
the Rule 12b-1 Plan with respect to the class involved and, in the
case of Class B and Class C shares, payments received from
Contingent Deferred Sales Charges ("CDSCs"). The excess will be
carried forward by AFD and reimbursed from distribution services
fees payable under the Rule 12b-1 Plan 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 Rule 12b-1
Plan is in effect.
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which effectively
limit the annual asset-based sales charges and service fees that a
mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end,
38
<PAGE>
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.
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.
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.
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.
39
<PAGE>
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 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.
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 Portfolio's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
service arrangements would be made and that shareholders would not
be adversely affected.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Investment Adviser, located at 500 Plaza Drive,
Secaucus, New Jersey 07094, acts as the Portfolio's registrar,
transfer agent and dividend-disbursing agent for a fee based upon
the number of account holders for each of the Class A, Class B and
Class C shares of the Portfolio, plus reimbursement for out-of-
40
<PAGE>
pocket expenses. The transfer agency fee with respect to the
Class B shares and Class C shares is higher than the transfer
agency fee with respect to the Class A shares.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the 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"), or without
any initial sales charge and, as long as the shares are held for
one year or more, without any contingent deferred sales charge
("Class C shares"), 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.
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 or
Class C 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 or Class C shares.
The Portfolio may refuse any order for the purchase of
shares. The Portfolio reserves the right to suspend the sale of
41
<PAGE>
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 and Class C shares are expected to be substantially the
same. Under certain circumstances, however, the per share net
asset values of the Class B and Class C shares may be lower than
the per share net asset values of the Class A shares as a result
of the differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the 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
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
42
<PAGE>
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
minimum dollar amount of the shares of the Portfolio and/or other
Alliance Mutual Funds, as defined below, during a specific period
43
<PAGE>
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 and Class C 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, (iii) Class B and Class C shares bear higher
transfer agency costs than that borne by Class A shares, (iv) each
of Class A, Class B and Class C shares has exclusive voting rights
with respect to provisions of the Rule 12b-1 Plan pursuant to
which its distribution services fee is paid and other matters for
which separate class voting is appropriate under applicable law,
provided that, if the 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 shareholders, and the Class A shareholders and the
Class B shareholders will vote separately by class, and
(v) Class B shares are subject to a conversion feature. Each
class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A, Class
B and Class C 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 Portfolio, the
accumulated distribution services fee and contingent deferred
44
<PAGE>
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
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
45
<PAGE>
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.
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
46
<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 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
defined under Combined Purchase Privilege below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves (AFDER) that
were purchased for cash without the payment of an initial sales
charge and without being subject to a contingent deferred sales
charge or (iii) upon the automatic conversion of Class B shares as
described below under "--Class B Shares--Conversion Feature". The
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
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<PAGE>
$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 [ ].
Net Asset Value per Class A Share
at [ ] $____
Per Share Sales Charge - 4.25%
of offering price (4.44% ___
of net asset value per share)
Class A Per Share Offering Price
to the Public $____
=====
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
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:
48
<PAGE>
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International 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 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.
49
<PAGE>
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.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or agent
must provide the Principal Underwriter with sufficient information
to verify that each purchase qualifies for the privilege or
discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by means
of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and/or
Class C shares) of the 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.
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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.
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
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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
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
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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.
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
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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).
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
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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.
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.
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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 will thus have a higher expense ratio and pay
correspondingly lower dividends than Class A shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived
from reinvestment of dividends or capital gains distributions.
The contingent deferred sales charge on Class C shares will be
waived on certain redemptions, as described above under "--Class B
Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the time
they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the
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
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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.
_______________________________________________________________
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."
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
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
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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,
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
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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
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,
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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 Fund as described above is a voluntary service of the Fund
and the Fund may suspend or terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the 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." The shareholder services set forth below are applicable
to Class A, Class B and Class C shares unless otherwise indicated.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the 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
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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.
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). 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. 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
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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 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
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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
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
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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.
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
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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.
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.
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.
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 or Class C Portfolio accounts, Class A,
Class B or Class C accounts with one or more other Alliance Mutual
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Funds may direct that income dividends and/or capital gains paid
on his or her Class A, Class B or Class C 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.
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.
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
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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 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 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
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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.
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).
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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 Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is closed,
other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid-and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
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exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares and Class C shares will be invested together in a single
portfolio. The net asset value of each class will be determined
separately by subtracting the liabilities allocated to that class
from the assets belonging to that class in conformance with the
provisions of a plan adopted by the Fund in accordance with Rule
18f-3 under the 1940 Act.
______________________________________________________________
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
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.
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Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Portfolio may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Portfolio. 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.
______________________________________________________________
TAXES
______________________________________________________________
GENERAL. The Portfolio intends for each taxable year to
qualify to be taxed 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
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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 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.
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Distributions of net capital gain are taxable as long-
term capital gain, regardless of how long a shareholder has held
shares in the Portfolio. 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
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.
The Fund will advise 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.
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.
ZERO COUPON TREASURY SECURITIES. Under current federal
tax law, the Portfolio will receive net investment income in the
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
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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.
CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES.
Under the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the 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 foreign
currencies, from the disposition of debt securities denominated in
a foreign currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date
of acquisition of the asset and the date of disposition also are
treated as ordinary gain or loss. These gains or losses, referred
to under the Code as "section 988" gains or losses, increase or
decrease the amount of the Portfolio's investment company taxable
income available to be distributed to its shareholders as ordinary
income, rather than increasing or decreasing the amount of the
Portfolio's net capital gain. Because section 988 losses reduce
the amount of ordinary dividends the Portfolio will be allowed to
distribute for a taxable year, such section 988 losses may result
in all or a portion of prior dividend distributions for such year
being recharacterized as a non-taxable return of capital to
shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his Portfolio shares. To the extent that
such distributions exceed such shareholder's basis, each will be
treated as a gain from the sale of shares.
"SECTION 1256 CONTRACTS". Certain listed options,
regulated futures contracts and forward foreign currency contracts
are considered "section 1256 contracts" for federal income tax
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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 other than
forward foreign currency contracts generally will be considered
60% long-term and 40% short-term capital gain or loss. Gain or
loss realized by the Portfolio on forward foreign currency
contracts generally will be treated as section 988 gain or loss
and will therefore be characterized as ordinary income or loss and
will increase or decrease the amount of the Portfolio's net
investment income available to be distributed to holders as
ordinary income, as described above.
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 Fund is a Maryland Corporation organized in 1973.
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 and upon redeeming shares, will receive
the then current net asset value of the Portfolio represented by
the redeemed shares less any applicable CDSC. 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 250,000,000 shares of Class A Common Stock,
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250,000,000 shares of Class B Common Stock, and 250,000,000 shares
of Class C 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 and Class C
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.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
Procedures for calling a shareholders' meeting for the
removal of Directors of the 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
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shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
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., an indirect wholly-
owned subsidiary of the Investment Adviser, located at 1345 Avenue
of the Americas, New York, New York 10105, is the principal
underwriter of shares of the Portfolio, 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.
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"
and "total return," which are computed separately for Class A,
Class B and Class C 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 may also state
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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 separately for Class A, Class B and
Class C shares. Advertisements of the Portfolio's total return
disclose its average annual compounded total return for the
periods prescribed by the Commission. 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 the investment at
the end of the period. For purpose of computing total return,
income dividends and capital gains distributions paid on shares of
the Portfolio are assumed to have been reinvested when paid and
the maximum sales charges applicable to purchases and redemptions
of the Portfolio's shares are assumed to have been paid. The
Portfolio's advertisements may quote performance rankings or
ratings of the Portfolio by financial publications or independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare the Portfolio's performance to
various indices.
Yield and total return are computed separately for the
Portfolio's Class A, Class B and Class C 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
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Times and The Wall Street Journal or other media on behalf of the
Fund.
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the shareholder's
broker or 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.
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____________________________________________________________
APPENDIX A
FUTURES CONTRACTS AND OPTIONS ON
FUTURES CONTRACTS AND FOREIGN CURRENCIES
____________________________________________________________
FUTURES CONTRACTS
The Portfolio may enter into contracts for the purchase
or sale for future delivery of debt securities or foreign
currencies, or contracts based on financial indices. U.S. futures
contracts have been designed by exchanges which have been
designated "contracts markets" by the Commodity Futures Trading
Commission ("CFTC"), and must be executed through a futures
commission merchant, or brokerage firm, which is a member of the
relevant contract market. Futures contracts trade on a number of
exchange markets, and, through their clearing corporations, the
exchanges guarantee performance of the contracts as between the
clearing members of the exchange.
At the same time a futures contract is purchased or sold,
the Portfolio must allocate cash or securities as a deposit
payment ("initial deposit"). It is expected that the initial
deposit would be approximately 1 1/2%-5% of a contract's face
value. Daily thereafter, the futures contract is valued and the
payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline
or increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the
actual delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is effected
through a member of an exchange, cancels the obligation to make or
take delivery of the securities. Since all transactions in the
futures market are made, offset or fulfilled through a
clearinghouse associated with the exchange on which the contracts
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are traded, the Portfolio will incur brokerage fees when it
purchases or sells futures contracts.
The purpose of the acquisition or sale of a futures
contract, in the case of the Portfolio which holds or intends to
acquire fixed-income securities, is to attempt to protect the
Portfolio from fluctuations in interest or foreign exchange rates
without actually buying or selling fixed-income securities or
foreign currency. For example, if interest rates were expected to
increase, the Portfolio might enter into futures contracts for the
sale of debt securities. Such a sale would have much the same
effect as selling an equivalent value of the debt securities owned
by the Portfolio. If interest rates did increase, the value of
the debt securities in the portfolio would decline, but the value
of the futures contracts to the Portfolio would increase at
approximately the same rate, thereby keeping the net asset value
of the Portfolio from declining as much as it otherwise would
have. The Portfolio could accomplish similar results by selling
debt securities and investing in bonds with short maturities when
interest rates are expected to increase. However, since the
futures market is more liquid than the cash market, the use of
futures contracts as an investment technique allows the Portfolio
to maintain a defensive position without having to sell its
portfolio securities.
Similarly, when it is expected that interest rates may
decline, futures contracts may be purchased to attempt to hedge
against anticipated purchases of debt securities at higher prices.
Since the fluctuations in the value of futures contracts should be
similar to those of debt securities, the Portfolio could take
advantage of the anticipated rise in the value of debt securities
without actually buying them until the market had stabilized. At
that time, the futures contracts could be liquidated and the
Portfolio could then buy debt securities on the cash market. To
the extent the Portfolio enters into futures contracts for this
purpose, the assets in the segregated asset account maintained to
cover the Portfolio's obligations with respect to such futures
contracts will consist of cash, cash equivalents or high quality
liquid debt securities from its portfolio in an amount equal to
the difference between the fluctuating market value of such
futures contracts and the aggregate value of the initial and
variation margin payments made by the Portfolio with respect to
such futures contracts.
The ordinary spreads between prices in the cash and
futures markets, due to differences in the nature of those
markets, are subject to distortions. First, all participants in
the futures market are subject to initial deposit and variation
margin requirements. Rather than meeting additional variation
margin requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
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relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures market
are less onerous than margin requirements in the securities
market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
rate trends by the Investment Adviser may still not result in a
successful transaction.
By establishing an appropriate "short" position in index
futures, the Portfolio may seek to protect the value of its
portfolio against an overall decline in the market for such
securities. Alternatively, in anticipation of a generally rising
market, the Portfolio can seek to avoid losing the benefit of
apparently low current prices by establishing a "long" position in
securities index futures and later liquidating that position as
particular securities, are acquired. To the extent that these
hedging strategies are successful, the Portfolio will be affected
to a lesser degree by adverse overall market price movements than
would otherwise be the case.
In addition, futures contracts entail risks. Although
the Portfolio believes that use of such contracts will benefit the
Portfolio, if the Investment Adviser's investment judgment about
the general direction of interest rates is incorrect, the
Portfolio's overall performance would be poorer than if it had not
entered into any such contract. For example, if the Portfolio has
hedged against the possibility of an increase in interest rates
which would adversely affect the price of debt securities held in
its portfolio and interest rates decrease instead, the Portfolio
will lose part or all of the benefit of the increased value of its
debt securities which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such
situations, if the Portfolio has insufficient cash, it may have to
sell debt securities from its portfolio to meet daily variation
margin requirements. Such sales of bonds may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Portfolio may have to sell securities at a time when
it may be disadvantageous to do so.
OPTIONS ON FUTURES CONTRACTS
The Portfolio intends to purchase and write options on
futures contracts for hedging purposes. The purchase of a call
option on a futures contract is similar in some respects to the
purchase of a call option on an individual security. Depending on
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the pricing of the option compared to either the price of the
futures contract upon which it is based or the price of the
underlying debt securities, it may or may not be less risky than
ownership of the futures contract or underlying debt securities.
As with the purchase of futures contracts, when the Portfolio is
not fully invested it may purchase a call option on a futures
contract to hedge against a market advance due to declining
interest rates.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the
option is below the exercise price, the Portfolio will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Portfolio's
holdings. The writing of a put option on a futures contract
constitutes a partial hedge against increasing prices of the
security or foreign currency which is deliverable upon exercise of
the futures contract. If the futures price at expiration of the
option is higher than the exercise price, the Portfolio will
retain the full amount of the option premium which provides a
partial hedge against any increase in the price of securities
which the Portfolio intends to purchase. If a put or call option
the Portfolio has written is exercised, the Portfolio will incur a
loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, the Portfolio's losses from existing
options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities. The Portfolio will
write only options on futures contracts which are "covered."
The purchase of a put option on a futures contract is
similar in some respects to the purchase of protective put options
on portfolio securities. For example, the Portfolio may purchase
a put option on a futures contract to hedge the Portfolio against
the risk of rising interest rates.
Upon the exercise of a call, the writer of the option is
obligated to sell the futures contract (to deliver a "long"
position to the option holder) at the option exercise price, which
will presumably be lower than the current market price of the
contract in the futures market. Upon exercise of a put, the
writer of the option is obligated to purchase the futures contract
(deliver a "short" position to the option holder) at the option
exercise price which will presumably be higher than the current
market price of the contract in the futures market. When the
holder of an option exercises it and assumes a long futures
position, in the case of call, or a short futures position in the
case of a put, its gain will be credited to its futures margin
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account, while the loss suffered by the writer of the option will
be debited to its futures margin account and must be immediately
paid by the writer. However, as with the trading of futures, most
participants in the options markets do not seek to realize their
gains or losses by exercise of their option rights. Instead, the
holder of an option will usually realize a gain or loss by buying
or selling an offsetting option at a market price that will
reflect an increase or a decrease from the premium originally
paid.
Options on futures contracts can be used by a Portfolio
to hedge substantially the same risks as might be addressed by the
direct purchase or sale of the underlying futures contracts. If
the Portfolio purchases an option on a futures contract, it may
obtain benefits similar to those that would result if it held the
futures position itself. Purchases of options on futures
contracts may present less risk in hedging than the purchase and
sale of the underlying futures contracts since the potential loss
is limited to the amount of the premium plus related transaction
costs.
If the Portfolio writes options on futures contracts, the
Portfolio will receive a premium but will assume a risk of adverse
movement in the price of the underlying futures contract
comparable to that involved in holding a futures position. If the
option is not exercised, the Portfolio will realize a gain in the
amount of the premium, which may partially offset unfavorable
changes in the value of securities held in or to be acquired for
the Portfolio. If the option is exercised, the Portfolio will
incur a loss in the option transaction, which will be reduced by
the amount of the premium it has received, but which will offset
any favorable changes in the value of its portfolio securities or,
in the case of a put, lower prices of securities it intends to
acquire.
While the holder or writer of an option on a futures
contract may normally terminate its position by selling or
purchasing an offsetting option of the same series, the
Portfolio's ability to establish and close out options positions
at fairly established prices will be subject to the existence of a
liquid market. The Portfolio will not purchase or write options
on futures contracts unless, in the Investment Adviser's opinion,
the market for such options has sufficient liquidity that the
risks associated with such options transactions are not at
unacceptable levels.
OPTIONS ON FOREIGN CURRENCIES
The Portfolio may purchase and write options on foreign
currencies for hedging purposes in a manner similar to that in
which futures contracts on foreign currencies, or forward
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contracts, will be utilized. For example, a decline in the dollar
value of a foreign currency in which portfolio securities are
denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order
to protect against such diminutions in the value of portfolio
securities, the Portfolio may purchase put options on the foreign
currency. If the value of the currency does decline, the
Portfolio will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
Portfolio may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to the Portfolio deriving
from purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to
the extent anticipated, the Portfolio could sustain losses on
transactions in foreign currency options which would require it to
forego a portion or all of the benefits of advantageous changes in
such rates.
The Portfolio may write options on foreign currencies for
the same types of hedging purposes. For example, where the
Portfolio anticipates a decline in the dollar value of foreign
currency denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option, write
a call option on the relevant currency. If the expected decline
occurs, the option will most likely not be exercised, and the
diminution in value of portfolio securities will be offset by the
amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Portfolio could write a put option on the
relevant currency which, if rates move in the manner projected,
will expire unexercised and allow the Portfolio to hedge such
increased cost up to the amount of the premium. As in the case of
other types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Portfolio
would be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium. Through
the writing of options on foreign currencies, the Portfolio also
may be required to forego all or a portion of the benefits which
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might otherwise have been obtained from favorable movements in
exchange rates.
The Portfolio will write options on foreign currencies
only if they are covered. A put option on a foreign currency
written by the Portfolio will be considered "covered" if, so long
as the Portfolio is obligated as the writer of the put, it
segregates with the Portfolio's custodian liquid assets equal at
all times to the aggregate exercise price of the put. A call
option on a foreign currency written by the Portfolio will be
considered "covered" only if the Portfolio owns short term debt
securities with a value equal to the face amount of the option
contract and denominated in the currency upon which the call is
written.
ADDITIONAL RISKS OF OPTIONS ON FUTURES CONTRACTS,
FORWARD CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Unlike transactions entered into by the Portfolio in
futures contracts, options on foreign currencies and forward
contracts are not traded on contract markets regulated by the CFTC
or (with the exception of certain foreign currency options) by the
SEC. To the contrary, such instruments are traded through
financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities
exchanges, such as the Philadelphia Stock Exchange and the Chicago
Board Options Exchange, subject to SEC regulation. Similarly,
options on currencies may be traded over-the-counter. In an over-
the-counter trading environment, many of the protections afforded
to exchange participants will not be available. For example,
there are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a
period of time. Although the purchase of an option cannot lose
more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option
writer and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such positions.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges will
be available with respect to such transactions. In particular,
all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market, potentially
permitting the Portfolio to liquidate open positions at a profit
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prior to exercise or expiration, or to limit losses in the event
of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of a
liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political and
economic events. In addition, exchange- traded options on foreign
currencies involve certain risks not presented by the over-the-
counter market. For example, exercise and settlement of such
options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that
foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercises, or would
result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions, on exercise.
In addition, futures contracts, options on futures
contracts, forward contracts and options on foreign currencies may
be traded on foreign exchanges. Such transactions are subject to
the risk of governmental actions affecting trading in or the
prices of foreign currencies or securities. The value of such
positions also could be adversely affected by (i) other complex
foreign political and economic factors, (ii) lesser availability
than in the United States of data on which to make trading
decisions, (iii) delays in the Portfolio's ability to act upon
economic events occurring in foreign markets during nonbusiness
hours in the United States, (iv) the imposition of different
exercise and settlement terms and procedures and margin
requirements than in the United States, and (v) lesser trading
volume.
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____________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are intended
to be tax-qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended ("Tax Qualified Plans"), for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an affiliate
thereof ("Merrill Lynch") is recordkeeper (or with respect to
which recordkeeping services are provided pursuant to certain
arrangements as described in paragraph (ii) below) ("Merrill Lynch
Plans") are subject to specific requirements as to the Fund shares
which they may purchase. Notwithstanding anything to the contrary
contained elsewhere in this Statement of Additional Information,
the following Merrill Lynch Plans are not eligible to purchase
Class A shares and are eligible to purchase Class B shares of the
Fund at net asset value without being subject to a contingent
deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
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by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to a contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth above
under "Purchase of Shares" and "Redemption and Repurchase of
Shares."
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<PAGE>
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS:
(a) (1) 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.
(2) Articles of Amendment of the Articles of
Incorporation of the Registrant dated December 15,
1989 and filed December 19, 1989 - Incorporated by
reference to Exhibit 1(b) to Post-Effective
Amendment No. 66 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 30, 1998.
(3) 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
the Securities and Exchange Commission on
October 31, 1997.
(4) 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.
(5) Articles of Amendment to the Articles of
Incorporation of the Registrant dated October 27,
1992 and filed November 2, 1992 - Incorporated by
reference to Exhibit 1(e) to Post-Effective
Amendment No. 66 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 30, 1998.
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(6) Articles Supplementary to the Articles of
Incorporation of the Registrant dated December 30,
1992 and filed December 31, 1992 - Incorporated by
reference to Exhibit 1(f) to Post-Effective
Amendment No. 66 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 30, 1998.
(7) 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.
(8) Articles Supplementary to the Articles of
Incorporation of the Registrant dated April 29,
1993 and filed April 30, 1993 - Incorporated by
reference to Exhibit 1(h) to Post-Effective
Amendment No. 66 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 30, 1998.
(9) 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.
(10) Articles Supplementary to the Articles of
Incorporation of the Registrant dated March 31,
1998 and filed April 6, 1998 - Filed herewith.
(b) 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
Nos. 2-48227 and 811-2383) filed with the Securities
and Exchange Commission on October 31, 1997.
(c) Not applicable.
(d) Investment Advisory Contract between the Registrant and
Alliance Capital Management L.P. - Incorporated by
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<PAGE>
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.
(e) (1) 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.
(2) 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.
(3) 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.
(4) 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.
(f) Not applicable.
(g) (1) 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
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Commission with the Securities and Exchange
Commission on October 31, 1997.
(2) 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.
(h) 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.
(i) 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.
(j) Not Applicable.
(k) Not applicable.
(l) Not applicable.
(m) (1) Rule 12b-1 Plan - See Exhibit (e)(1) above.
(2) Amended Rule 12b-1 Plan - See Exhibit (e)(2)
above.
(n) Not Applicable.
(o) 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.
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<PAGE>
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 - Incorporated by reference to Other Exhibits
to Post-Effective Amendment No. 66 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 30, 1998.
ITEM 24. Persons Controlled by or under Common Control with the
Fund.
None.
ITEM 25. 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
(e)(1) 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 (d) 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
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,
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<PAGE>
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
1. Was committed in bad faith; or
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<PAGE>
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
expenses incurred by the director in connection
with the proceeding.
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<PAGE>
(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
the time, parties to such proceeding and who were
duly designated to act in the matter by a majority
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<PAGE>
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
an unlimited general obligation of the director
but need not be secured and may be accepted
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<PAGE>
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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<PAGE>
(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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<PAGE>
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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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 26. 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 27. Principal Underwriters.
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant. Alliance Fund Distributors,
Inc. 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 Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
C-16
<PAGE>
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance 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 and Chairman
John D. Carifa Director
Robert L. Errico Director and President
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
C-17
<PAGE>
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Richard A. Davies Senior Vice President
and Managing Director
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Anne S. Drennan Senior Vice President
and Treasurer
Benji A. Baer Senior Vice President
Karen J. Bullot Senior Vice President
John R. Carl 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
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Kevin A. Rowell Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
C-18
<PAGE>
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
William C. White Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President and
Controller
Ricardo Arreola Vice President
Jamie A. Atkinson Vice President
Kenneth F. Barkoff Vice President
Charles M. Barrett Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Robert F. Brendli Vice President
Christopher L. Butts Vice President
Timothy W. Call Vice President
Jonathan W. Cangalosi Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Russell R. Corby Vice President
John W. Cronin Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
C-19
<PAGE>
John E. English Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Joseph C. Gallagher Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Alex G. Garcia Vice President
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
John Grambone Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Michael S. Hart Vice President
Scott F. Heyer Vice President
Timothy A. Hill Vice President
Brian R. Hoegee Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Michael J. Hutten Vice President
Scott Hutton Vice President
Oscar J. Isoba Vice President
Richard D. Keppler Vice President
Donna M. Lamback Vice President
P. Dean Lampe Vice President
C-20
<PAGE>
Nicholas J. Lapi Vice President
Henry Michael Lesmeister Vice President
Eric L. Levinson 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
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Peter J. O'Brien Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
Richard J. Olszewski Vice President
Catherine N. Peterson Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
C-21
<PAGE>
Richard J. Sidell Vice President
Clara Sierra Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Martine H. Stansbery, Jr. Vice President
Vincent T. Strangio Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
David R. Turnbough Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Secretary
Counsel
Patrick Look Assistant Vice
President and
Assistant Treasurer
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
John M. Capeci Assistant Vice
President
Maria L. Carreras Assistant Vice
President
C-22
<PAGE>
John P. Chase Assistant Vice
President
Jean A. Coomber Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
Adam E. Engelhardt Assistant Vice
President
Duff C. Ferguson 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
Victor Kopelakis Assistant Vice
President
Michael Laino Assistant Vice
President
Evamarie C. Lombardo Assistant Vice
President
Kristine J. Luisi Assistant Vice
President
Kathryn Austin Masters Assistant Vice
President
C-23
<PAGE>
Richard F. Meier Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Mark V. Spina Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Eileen Stauber Assistant Vice
President
Margaret M. Tompkins 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
(c) Not applicable.
ITEM 28. 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
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<PAGE>
offices of Alliance Capital Management L.P., 1345
Avenue of the Americas, New York, New York 10105.
ITEM 29. Management Services.
Not applicable.
ITEM 30. 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 of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(a) 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 9th day of April, 1999.
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 April 9, 1999
John D. Carifa
2) Principal Financial
and Accounting Officer
/s/ Mark D. Gersten Treasurer and
__________________________ Chief Financial
Mark D. Gersten Officer April 9, 1999
C-26
<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. April 9, 1999
_________________________
Edmund P. Bergan, Jr.
(Attorney-in-fact)
C-27
<PAGE>
INDEX TO EXHIBITS
PAGE
(a) Articles Supplementary
C-28
00250245.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 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 50,000,000 50,000,000 250,000,000
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 31st 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
