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This is filed pursuant to Rule 497(c).
File Nos. 2-48227 and 811-02383.
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(LOGO) ALLIANCE BOND FUND, INC. -
U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________
c/o Alliance Fund Services, Inc.
P. O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_______________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
November 2, 1998 as amended as of March 1, 1999
_______________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Prospectus
dated March 1, 1999 for the U.S. Government Portfolio (the
"Portfolio") of the Alliance Bond Fund, Inc. (the "Fund") that
offers Class A, Class B and Class C shares of the Portfolio and,
if the Portfolios begins to offer Advisor Class shares, the
Prospectus that offers the Advisor Class shares of the Portfolio
(the "Advisor Class Prospectus" and, together with any Prospectus
that offers the Class A, Class B, and Class C shares, the
"Prospectus(es)"). Copies of the Prospectus(es) of the Portfolio
may be obtained by contacting Alliance Fund Services, Inc., at
the address or the "For Literature" telephone number shown above.
The Portfolio currently does not offer Advisor Class shares.
TABLE OF CONTENTS
Page
Description of the Portfolio..........................
Management of the Fund................................
Expenses of the Fund..................................
Purchase of Shares....................................
Redemption and Repurchase of Shares...................
Shareholder Services..................................
Net Asset Value.......................................
Portfolio Transactions................................
Taxes.................................................
General Information...................................
Financial Statements and Report of Independent
Auditors............................................
Appendix A: Certain Employee Benefit Plans............ A-1
________________________________
(R) This is a registered service mark used under license from the
owner, Alliance Capital Management L.P.
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_______________________________________________________________
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 of
Shares" and "Redemption and Repurchase of Shares," in the
Portfolio's Prospectus.) The Fund is empowered to establish,
without shareholder approval, additional portfolios which may
have different investment objectives.
The Fund currently has two portfolios: the U.S.
Government Portfolio (the "Portfolio"), which is described in
this Statement of Additional Information, and the Corporate Bond
Portfolio, which is described in a separate Statement of
Additional Information. Copies of the Corporate Bond Portfolio's
Prospectus and Statement of Additional Information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
THE U.S. GOVERNMENT PORTFOLIO
Except as otherwise indicated, the 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 to seek a
high level of current income that is consistent with prudent
investment risk.
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HOW THE PORTFOLIO PURSUES ITS OBJECTIVE
As a matter of fundamental policy the Portfolio pursues
its objective by investing at least 65% of the value of its total
assets in U.S. Government securities and repurchase agreements
and forward contracts relating to U.S. Government securities.
The Portfolio may invest the remaining 35% of the value of its
total assets in non-U.S. Government mortgage-related and asset-
backed securities. The Portfolio will not invest in any security
rated below BBB or Baa by a nationally recognized statistical
rating organization. The Portfolio may invest in unrated
securities of equivalent quality to the rated securities in which
it may invest, as determined by the Investment Adviser. The
Portfolio expects, but is not required, to dispose of securities
that are downgraded below BBB and Baa or, if unrated, are
determined by the Adviser to have undergone similar credit
quality deterioration subsequent to their purchase.
The Portfolio may also (i) enter into repurchase
agreements and reverse repurchase agreements, forward contracts,
and dollar rolls, (ii) enter into various hedging transactions,
such as interest rate swaps, caps and floors, (iii) purchase and
sell futures contracts for hedging purposes, and (iv) purchase
call and put options on futures contracts or on securities for
hedging purposes.
The following information provides a description of the
types of securities in which the Portfolio would be able to
invest and the various investment techniques that the Portfolio
would be able to use in pursuit of its investment objectives.
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
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Administration; and (iii) obligations issued or guaranteed by
U.S. government agencies and instrumentalities that are not
supported by the full faith and credit of the U.S. Government,
such as securities issued by 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 Fund that holds the securities.
U.S. Government securities are considered among the
safest of fixed-income investments. As a result, however, their
yields are generally lower than the yields available from other
fixed-income securities.
ZERO COUPON SECURITIES
The Portfolio may invest in zero coupon Treasury
securities, which consist of Treasury bills or the principal
components of U.S. Treasury bonds or notes. The Portfolio may
also invest in zero coupon securities issued by U.S. Government
agencies or instrumentalities that are supported by the full
faith and credit of the United States, which consist of the
principal components of securities of U.S. Government agencies or
instrumentalities. A zero coupon security pays no interest to
its holder during its life. An investor acquires a zero coupon
security at a price which is generally an amount based upon its
present value, and which, depending upon the time remaining until
maturity, may be significantly less than its face value
(sometimes referred to as a "deep discount" price). Upon
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maturity of the zero coupon security, the investor receives the
face value of the security.
Currently, the only U.S. Treasury security issued
without coupons is the Treasury bill. The zero coupon securities
purchased by the Portfolio may consist of principal components
held in STRIPS form issued through the U.S. Treasury's STRIPS
program, which permits the beneficial ownership of the component
to be recorded directly in the Treasury book-entry system. In
addition, in the last few years a number of banks and brokerage
firms have separated ("stripped") the principal portions
("corpus") from the coupon portions of the U.S. Treasury bonds
and notes and sold them separately in the form of receipts or
certificates representing undivided interests in these
instruments (which instruments are generally held by a bank in a
custodial or trust account). The staff of the Securities and
Exchange Commission (the "Commission") has indicated that, in its
view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm involved and,
therefore, unlike those obligations issued under the U.S.
Treasury's STRIPS program, should not be included in the Fund's
categorization of U.S. Government Securities. The Fund disagrees
with the staff's interpretation but has undertaken that it will
not invest in such securities until final resolution of the
issue. However, if such securities are deemed to be U.S.
Government Securities, the Portfolio will not be subject to any
limitations on their purchase.
Zero coupon securities do not entitle the holder to any
periodic payments of interest prior to maturity. Accordingly,
such securities usually trade at a deep discount from their face
or par value and will be subject to greater fluctuations of
market value in response to changing interest rates than debt
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.
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MORTGAGE-RELATED SECURITIES. The mortgage-related
securities in which the Portfolio may invest typically are
securities representing interests in pools of mortgage loans made
by lenders such as savings and loan associations, mortgage
bankers and commercial banks and are assembled for sale to
investors (such as the Portfolio) by governmental, government-
related or private organizations.
Pass-Through Mortgage-Related Securities. 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. Mortgage-related securities issued by GNMA are
backed by the full faith and credit of the United States; those
issued by FNMA and FHLMC are not so backed. Mortgage-related
securities bear interest at either a fixed rate or an adjustable
rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist
of both interest and principal, unlike more traditional debt
securities, which normally do not provide for periodic repayments
of principal.
Commercial banks, savings and loan associations, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers create pass-through pools of
conventional residential mortgage loans. Securities representing
interests in pools created by non-governmental private issuers
generally offer a higher rate of interest than securities
representing interests in pools created by governmental issuers
because there are no direct or indirect governmental guarantees
of the underlying mortgage payments. However, private issuers
sometimes obtain committed loan facilities, lines of credit,
letters of credit, surety bonds or other forms of liquidity and
credit enhancement to support the timely payment of interest and
principal with respect to their securities if the borrowers on
the underlying mortgages fail to make their mortgage payments.
The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of
such an enhancer were downgraded.
Commercial Mortgage-Backed Securities. Commercial
mortgage-backed securities are securities that represent an
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interest in, or are secured by, mortgage loans secured by
multifamily or commercial properties, such as industrial and
warehouse properties, office buildings, retail space and shopping
malls, and cooperative apartments, hotels and motels, nursing
homes, hospitals and senior living centers. Commercial mortgage-
backed securities have been issued in public and private
transactions by a variety of public and private issuers using a
variety of structures, some of which were developed in the
residential mortgage context, including multi-class structures
featuring senior and subordinated classes. Commercial mortgage-
backed securities may pay fixed or floating-rates of interest.
The commercial mortgage loans that underlie commercial mortgage-
related securities have certain distinct risk characteristics.
Commercial mortgage loans generally lack standardized terms,
which may complicate their structure, tend to have shorter
maturities than residential mortgage loans and may not be fully
amortizing. Commercial properties themselves tend to be unique
and are more difficult to value than single-family residential
properties. In addition, commercial properties, particularly
industrial and warehouse properties, are subject to environmental
risks and the burdens and costs of compliance with environmental
laws and regulations.
Collateralized Mortgage Obligations. 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
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. 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.
Adjustable-Rate Mortgage Securities. Another type of
mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by
reference to a predetermined interest rate or index. 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
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the ARMS, these ARMS will decline in value. The adjustable-rate
mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly
principal and interest payments on the mortgages may increase.
These payment caps can result in negative amortization (i.e., an
increase in the balance of the mortgage loan). Furthermore,
since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately
reflected in the interest rates payable on the underlying
adjustable-rate mortgages.
Stripped Securities. Stripped mortgage-related
securities (SMRS) are mortgage related securities that are
usually structured with two classes of securities collateralized
by a pool of mortgages or a pool of mortgage backed bonds or
pass-through securities, with each class receiving different
proportions of the principal and interest payments from the
underlying assets. A common type of SMRS has one class of
interest-only securities (IOs) receiving all of the interest
payments from the underlying assets; while the other class of
securities, principal-only securities (POs), receives all of the
principal payments from the underlying assets. IOs and POs are
extremely sensitive to interest rate changes and are more
volatile than mortgage-related securities that are not stripped.
IOs tend to decrease in value as interest rates decrease, while
POs generally increase in value as interest rates decrease. If
prepayments of the underlying mortgages are greater than
anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the
assets. Changes in the values of IOs and POs can be substantial
and occur quickly, such as occurred in the first half of 1994
when the value of many POs dropped precipitously due to increases
in interest rates.
Certain Risks. 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
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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.
Commercial mortgage-related securities, like all fixed-
income securities, generally decline in value as interest rates
rise. Moreover, although generally the value of fixed-income
securities increases during periods of falling interest rates,
this inverse relationship is not as marked in the case of single-
family residential mortgage-related securities, due to the
increased likelihood of prepayments during periods of falling
interest rates, and may not be as marked in the case of
commercial mortgage-related securities. The process used to rate
commercial mortgage-related securities may focus on, among other
factors, the structure of the security, the quality and adequacy
of collateral and insurance, and the creditworthiness of the
originators, servicing companies and providers of credit support.
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. In addition, the
rating agencies have not had experience in rating commercial
mortgage-related securities through different economic cycles and
in monitoring such ratings on a longer term basis.
As with fixed-income securities generally, the value of
mortgage-related securities can also be adversely affected by
increases in general interest rates relative to the yield
provided by such securities. Such an adverse effect is
especially possible with fixed-rate mortgage securities. If the
yield available on other investments rises above the yield of the
fixed-rate mortgage securities as a result of general increases
in interest rate levels, the value of the mortgage-related
securities will decline.
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,
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including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in
mortgage securitizations. These asset-backed securities are
subject to risks associated with changes in interest rates and
prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique
risks depending on the type of assets involved and the legal
structure used. For example, credit card receivables are
generally unsecured obligations of the credit card holder and the
debtors are entitled to the protection of a number of state and
federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards,
thereby reducing the balance due. There have also been proposals
to cap the interest rate that a credit card issuer may charge.
In some transactions, the value of the asset-backed security is
dependent on the performance of a third party acting as credit
enhancer or servicer. Furthermore, in some transactions (such as
those involving the securitization of vehicle loans or leases) it
may be administratively burdensome to perfect the interest of the
security issuer in the underlying collateral and the underlying
collateral may become damaged or stolen.
FORWARD CONTRACTS. 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.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse
repurchase agreements involve sales by the Portfolio of portfolio
assets concurrently with an agreement by the Portfolio to
repurchase the same assets at a later date at a fixed price.
During the reverse repurchase agreement period, the Portfolio
continues to receive principal and interest payments on these
securities. Generally, the effect of such a transaction is that
the Portfolio can recover all or most of the cash invested in the
portfolio securities involved during the term of the reverse
repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such
transactions are advantageous only if the interest cost to the
Portfolio of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by the Portfolio of
securities for delivery in the current month and the Portfolio's
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simultaneously contracting to repurchase substantially similar
(same type and coupon) securities on a specified future date.
During the roll period, the Portfolio forgoes principal and
interest paid on the securities. The Portfolio is compensated by
the difference between the current sales price and the lower
forward price for the future purchase (often referred to as the
"drop") as well as by the interest earned on the cash proceeds of
the initial sale.
Reverse repurchase agreements and dollar rolls involve
the risk that the market value of the securities the Portfolio is
obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a
reverse repurchase agreement or dollar roll files for bankruptcy
or becomes insolvent, the Portfolio's use of the proceeds of the
agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the
Portfolio's obligation to repurchase the securities. Under
normal circumstances, the Adviser does not expect to engage in
reverse repurchase agreements and dollar rolls with respect to
greater than 50% of the Portfolio's total assets.
DERIVATIVES. The Portfolio may use, for hedging
purposes only, futures, options, options on futures, interest
rate swaps, caps and floors. These investment practices are
known as derivatives. 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 by investors 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
may only use the above-referenced derivatives for hedging
purposes.
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).
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Futures. A futures contract is an agreement that
obligates the buyer to buy and the seller to sell a specified
quantity of an underlying asset (or settle for cash the value of
a contract based on an underlying asset, rate or index) at a
specific price on the contract maturity date. Futures contracts
are standardized, exchange-traded instruments and are fungible
(i.e., considered to be perfect substitutes for each other).
This fungibility allows futures contracts to be readily offset or
cancelled through the acquisition of equal but opposite
positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require
physical delivery of the underlying asset but instead is settled
for cash equal to the difference between the values of the
contract on the date it is entered into and its maturity date.
Options on Futures. Options on futures contracts are
options that call for the delivery of futures contracts upon
exercise.
1. 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.
2. Risks. Investment techniques employing such
derivatives involve risks different from, and, in certain cases,
greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk
factors and issues concerning the use of derivatives that
investors should understand in considering the proposed amendment
of the Portfolio's investment policies.
-- Market Risk--This is the general risk attendant to
all investments that the value of a particular
investment will change in a way detrimental to the
Portfolio's interest.
-- Management Risk--Derivative products are highly
specialized instruments that require investment
techniques and risk analyses different from those
associated with stocks and bonds. The use of a
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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
investment 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 another party to a derivative (usually
referred to as a "counterparty") to comply with the
terms of the derivative contract. The credit risk
for exchange-traded derivatives is generally less
than for privately negotiated derivatives, since
the clearing house, which is the issuer or
counterparty to each exchange-traded derivative,
provides a guarantee of performance. This
guarantee is supported by a daily payment system
(i.e., 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.
-- 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
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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.
USE OF OPTIONS, FUTURES AND INTEREST RATE TRANSACTIONS BY THE
PORTFOLIO
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.
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. Except with respect to uncovered call
options written for cross-hedging purposes, 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 of the call
option it has written. A put option written by the Portfolio is
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<PAGE>
covered if the Portfolio holds a put option on the underlying
securities with an exercise price equal to or greater than of the
put option it has written.
The risk involved in writing an uncovered put option is
that there could be a decrease in the market value of the
underlying securities. If this occurred, the Portfolio could be
obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in
writing an uncovered call option is that there could be an
increase in the market value of the underlying security, and 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, whereas the risk of loss from
writing an uncovered call option is potentially unlimited.
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 will not purchase an option on a security
if, immediately thereafter, the aggregate cost of all outstanding
options would exceed 2% of the Portfolio's total assets. In
addition, the Portfolio will not write an option if, immediately
thereafter, the aggregate value of the Portfolio's securities
subject to outstanding options would exceed 15% of the
Portfolio's total assets.
Options on Securities Indices. An option on a
securities index is similar to an option on a security except
that, rather than taking or making delivery of a security at a
specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in
the case of a call) or less than (in the case of a put) the
exercise price of the option.
Futures Contracts and Options on Futures Contracts.
Futures contracts that the Portfolio may buy and sell may include
futures contracts on fixed-income or other securities, and
contracts based on interest rates or financial indices, including
any index of U.S. Government securities.
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<PAGE>
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. exchanges and, will be used only for hedging
purposes.
The Portfolio will not enter into a futures contract or
write or purchase an option on a futures contract if immediately
thereafter the market values of the outstanding futures contracts
of the Portfolio and the futures contracts subject to outstanding
options written by the Portfolio would exceed 50% of the
Portfolio's total assets. Nor will the Portfolio enter into a
futures contract or write or purchase an option on a futures
contract if immediately thereafter the aggregate of initial
margin deposits on all the outstanding futures contracts of the
Portfolio and premiums paid on outstanding options on futures
contracts would exceed 5% of the Portfolio's total assets.
Interest Rate Transactions (Swaps, Caps and Floors).
The Portfolio may enter into interest rate swap, cap or floor
transactions 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 Adviser 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 floors
on either an asset-based or liability-based basis, depending upon
whether it is hedging its assets or liabilities.
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
16
<PAGE>
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. The Portfolio will not enter
into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or claims paying ability of the
counterparty is then rated in the highest rating category of at
least one NRSRO.
SECURITIES RATINGS. The ratings of fixed-income
securities by nationally recognized statistical rating
organizations including Standard & Poor's Rating Services,
Moody's Investors Services, Inc., Duff & Phelps Credit Rating Co.
and Fitch IBCA, Inc. are a generally accepted barometer of credit
risk. They are, however, subject to certain limitations from an
investor's standpoint. The rating of an issuer is heavily
weighted by past developments and does not necessarily reflect
probable future conditions. There is frequently a lag between
the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in credit
risk of securities within each rating category.
The Portfolio may invest in non-U.S. government
mortgage-related and asset-based securities that are rated at
least Baa or BBB or, if unrated, determined by the Adviser to be
of equivalent credit quality. Securities rated Baa or BBB are
considered to have speculative characteristics and share some of
the same characteristics as lower-rated securities. Sustained
periods of deteriorating economic conditions or of rising
interest rates are more likely to lead to a weakening in the
issuer's capacity to pay interest and repay principal than in the
case of higher-rated securities. The Investment Adviser expects,
but is not required, to dispose of securities that are downgraded
below Baa or BBB, or, if unrated, are determined by the
Investment Adviser to have undergone similar credit quality
deterioration.
ILLIQUID SECURITIES. The Fund will not invest in
illiquid securities if immediately after such investment more
than 15% of the Fund's total assets (taken at market value) would
be invested in such securities. In addition, the Fund will not
maintain more than 15% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others,
(a) direct placements or other securities which are subject to
legal or contractual restrictions on resale or for which there is
no readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (b) options
purchased by the Fund over-the-counter and the cover for options
written by the Fund over-the-counter, and (c) repurchase
17
<PAGE>
agreements not terminable within seven days. See "Additional
Investment Policies and Practices," below. Securities that have
legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid for purposes of this
limitation.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
18
<PAGE>
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, which is an
automated system for the trading, clearance and settlement of
unregistered securities of domestic and foreign issuers sponsored
by the National Association of Securities Dealers, Inc. (NASD).
Alliance Capital Management L.P., the Fund's investment
adviser (the "Investment Adviser"), acting under the supervision
of the Board of Directors, will monitor the liquidity of
restricted securities in the Fund's portfolio that are eligible
for resale pursuant to Rule 144A. In reaching liquidity
decisions, the Investment Adviser will consider, among others,
the following factors: (1) the frequency of trades and quotes for
the security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential
purchasers of the security; (4) the number of dealers undertaking
to make a market in the security; (5) the nature of the security
(including its unregistered nature) and the nature of the
marketplace for the security (e.g., the time needed to dispose of
the security, the method of soliciting offers and the mechanics
of the transfer); and (6) any applicable Commission
interpretation or position with respect to such type of
securities.
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).
PORTFOLIO TURNOVER. Because the Portfolio will actively
use trading to benefit from yield disparities among different
issues of U.S. Government Securities or otherwise to achieve its
investment objective and policies, the Portfolio may be subject
to a greater degree of turnover and, thus, a higher incidence of
short-term capital gains taxable as ordinary income than might be
expected from investment companies which invest substantially all
of their funds on a long-term basis, and correspondingly larger
mark-up charges can be expected to be borne by the Portfolio.
Management anticipates that the annual turnover in the Portfolio
may be in excess of 400% in future years (but is not expected to
exceed 500%). An annual turnover rate of 400% occurs, for
example, when all of the securities in the Portfolio are replaced
four times in a period of one year.
The 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
19
<PAGE>
be, of course, no assurance that the Portfolio's investment
objective will be achieved.
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 Alliance 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, except with respect
to investments in repurchase agreements, reverse repurchase agreements,
forward contracts and dollar rolls involving the types of securities in
which the Portfolio may invest, and the employment, for hedging purposes,
of futures, options, options on futures, and interest rate swaps, caps
and floors, the Portfolio may not:
1. Invest in companies for the purpose of
exercising control of management;
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2. Issue any senior securities as defined in the
Investment Company Act of 1940, as amended (the "1940
Act"), (except to the extent that when-issued securities
transactions, forward commitments or stand- by
commitments may be considered senior securities);
3. Participate on a joint or a joint and several
basis in any trading account in securities;
4. Effect a short sale of any security;
5. Purchase securities on margin, but it may
obtain such short-term credits as may be necessary for
the clearance of purchase and sales of securities;
6. Invest in the securities of any other
investment company except in connection with a merger,
consolidation, acquisition of assets or other
reorganization approved by the Fund's shareholders; or
7. Write, purchase or sell puts, calls or
combinations thereof;
To maintain portfolio diversification and reduce
investment risk, as a matter of fundamental policy, except with respect
to investments in repurchase agreements, reverse repurchase agreements,
forward contracts and dollar rolls involving the types of securities in
which the Portfolio may invest, and the employment, for hedging purposes,
of futures, options, options on futures, and interest rate swaps, caps
and floors, the Portfolio may not: (i) borrow money except from banks for
temporary or emergency purposes and then only in an amount not exceeding
5% of the value of its total assets at the time the borrowing is made;
(ii) make loans to other persons; (iii) effect a short sale of
any security; (iv) purchase securities on margin, but it may
obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities; or (v) write,
purchase or sell puts, calls or combinations thereof.
In addition to the restrictions set forth above in
connection with the qualification of its shares for sale in
certain states, the following restrictions apply and provide that
the Portfolio may not:
1. Invest more than 15% of average net assets at
the time of purchase in securities which are not readily
marketable including restricted securities;
2. Invest in warrants (other than warrants
acquired by the Portfolio as a part of a unit or
attached to securities at the time of purchase) if, as a
result such warrants valued at the lower of cost or
market would exceed 5% of the value of the Portfolio's
net assets provided that not more than 2% of the
Portfolio's net assets may be in warrants not listed on
the New York or American Stock Exchanges;
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<PAGE>
3. Engage in the purchase of real estate
(including limited partnership interests) excluding
readily marketable interests in real estate investment
trusts or readily marketable securities of companies
which invest in real estate;
4. Invest in oil, gas or other mineral leases; or
5. Invest more than 15% of the Portfolio's total
assets in securities of issuers which together with any
predecessors have a record of less than three years
continuous operation or securities of issuers which are
restricted as to disposition.
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 1994.
RUTH BLOCK, 68, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and BP Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
____________________
** An "interested person" of the Fund as defined in the 1940
Act.
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<PAGE>
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 57, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1994.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1994. He was formerly President of New York University,
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1994. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT (see biography,
above).
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 57, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1994.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 39, is an
Executive Vice President of ACMC, with which she has been
associated since prior to 1994.
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<PAGE>
JEFFREY S. PHLEGAR, VICE PRESIDENT, 31, is a Vice
President of ACMC with which he has been associated since prior
to 1994.
EDMUND P. BERGAN, JR., SECRETARY, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS") with which
he has been associated since prior to 1994.
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.
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, 43, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994.
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 1994.
JUAN RODRIGUEZ, CONTROLLER, 41, is an Assistant Vice
President of AFS, with which he has been associated since prior
to 1994.
VINCENT S. NOTO, ASSISTANT CONTROLLER, 34, is a Vice
President of AFS, with which he has been associated since prior
to 1994.
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.
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<PAGE>
Total Number
Total Number of Investment
of Funds in Portfolios
Total the Alliance Within the
Compensation Fund Complex, Funds,
From the Including the Including the
Alliance Fund, as to Fund, as to
Fund which the which the
Aggregate Complex, Director is a Director is a
Compensation Including Director or Director or
Name of Director from the Fund the Fund Trustee Trustee
________________ _____________ ____________ _____________ _____________
John D. Carifa $ -0- $ -0- 50 114
Ruth Block $1,777 $180,763 37 77
David H. Dievler $1,777 $216,288 43 80
John H. Dobkin $ 963 $185,363 41 91
William H. Foulk, Jr. $ 960 $241,003 45 109
Dr. James M. Hester $1,771 $172,913 37 74
Clifford L. Michel $1,771 $187,763 38 90
Donald J. Robinson $1,758 $193,709 41 103
As of February 1, 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).
The Investment Adviser is a leading international
investment manager supervising client accounts with assets as of
December 31, 1998, totaling more than $268 billion (of which more
than $118 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 54
registered investment companies managed by the Investment Adviser,
comprising 118 separate investment portfolios, currently have more
than 3.6 million shareholders. As of December 31, 1999, the
Investment Adviser and its subsidiaries employed more than 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,
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<PAGE>
Sydney, Tokyo, Toronto, Vienna and Warsaw. As of December 31,
1998, the Investment Adviser was retained as an investment manager
for employee benefit plan assets of 35 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 a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30, 1998,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 57% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Investment Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities principally
in Western Europe, North America and the Asia/Pacific area. AXA
is also engaged in asset management, investment banking,
securities trading, brokerage, real estate and other financial
services activities principally in the United States, as well as
in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting as
a group, the Mutuelles AXA control AXA and FINAXA.
Under the Investment Advisory Contract, the Investment
Adviser provides investment advisory services and order placement
facilities for the Fund and pays all compensation of Directors and
officers of the Fund who are affiliated persons of the Investment
Adviser. The Investment Adviser or its affiliates also furnishes
the Fund, without charge, management supervision and assistance
and office facilities and provides persons satisfactory to the
Fund's Board of Directors to serve as the Fund's officers.
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<PAGE>
The Investment Adviser is, under the Investment Advisory
Contract, responsible for certain expenses incurred by the Fund,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the promotional
expenses borne by the Fund in accordance with an effective plan
pursuant to Rule 12b-1 under the 1940 Act, and the costs of
printing Fund prospectuses and other reports to shareholders and
fees related to registration with the Commission and with state
regulatory authorities).
The Fund has, under the Investment Advisory Contract,
assumed the obligation for payment of all of its other expenses.
As to the obtaining of services other than those specifically
provided to the Fund by the Investment Adviser, the Fund may
utilize personnel employed by the Investment Adviser or by other
subsidiaries of Equitable. The Fund may employ its own personnel
or contract for services to be provided to the Fund at cost and
the payments specifically approved by the Fund's Board of
Directors. The Fund paid to the Investment Adviser a total of
$116,256 in respect of such services during the fiscal year of the
Fund ended in 1998.
Under the terms of the Investment Advisory Contract, the
Portfolio pays the Investment Adviser, a quarterly fee on the
first business day of January, April, July and October equal to
.15 of 1% (approximately .60 of 1% on an annual basis) of the
first $500 million and .125 of 1% (approximately .50 of 1% on an
annual basis) of the excess over $500 million of the Portfolio's
aggregate net assets valued on the last business day of the
previous quarter.
For the fiscal years ended June 30, 1996, 1997 and 1998,
the Investment Adviser received under the advisory agreement,
$7,041,367, $5,646,070 and $4,949,100, respectively, as advisory
fees from the Portfolio.
The Investment Advisory Contract became effective on
July 22, 1992. The Investment Advisory Contract continues in
effect for successive twelve-month periods computed from each
July 1, provided that such continuance is specifically approved at
least annually by a vote of a majority of the Portfolio's
outstanding voting securities or by the Fund's Board of Directors,
and in either case, by a majority of the Directors who are not
parties to the Investment Advisory Contract or interested persons
of any such party. Most recently, continuance of the Investment
Advisory Contract until June 30, 1999 was approved by vote, cast
in person, by the Board of Directors, including a majority of the
Directors who are not "interested persons" as defined in the 1940
Act, at their meeting held on March 28, 1998.
27
<PAGE>
The Investment Advisory Contract is terminable without
penalty on 60 days' written notice, by a vote of a majority of the
Fund's outstanding voting securities or by a vote of a majority of
the Fund's Directors or by the Investment Adviser on 60 days'
written notice, and will automatically terminate in the event of
its assignment. The Investment Advisory Contract provides that in
the absence of willful misfeasance, bad faith or gross negligence
on the part of the Investment Adviser, or of reckless disregard of
its obligations thereunder, the Investment Adviser shall not be
liable for any action or failure to act in accordance with its
duties thereunder.
Certain other clients of the Investment Adviser may have
investment objectives and policies similar to those of the Fund.
The Investment Adviser may, from time to time, make
recommendations which result in the purchase or sale of a
particular security by its other clients simultaneously with the
Fund. If transactions on behalf of more than one client during
the same period increase the demand for securities being purchased
or the supply of securities being sold, there may be an adverse
effect on price or quantity. It is the policy of the Investment
Adviser to allocate advisory recommendations and the 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: 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 Institutional
Reserves, 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
28
<PAGE>
Technology Fund, Inc., Alliance Utility Income Fund, Inc.,
Alliance Variable Products Series Fund, Inc., Alliance Worldwide
Privatization Fund, Inc., The Alliance Portfolios and The Hudson
River Trust, all registered open-end investment companies; and to
ACM Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment Fund,
Inc., The Southern Africa Fund, Inc. and The Spain Fund, Inc., all
registered closed-end investment companies.
______________________________________________________________
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").
During the Portfolio's fiscal year ended June 30, l998,
with respect to Class A shares, the distribution services fees for
expenditure payable to the Principal Underwriter amounted to
$1,061,547, which constituted .30 of 1.00% of the Portfolio's
aggregate average daily net assets attributable to Class A shares
during the fiscal year, and the Investment Adviser made payments
from its own resources aggregating $453,091. Of the
$1,514,638 paid by the Portfolio and the Investment Adviser under
the Plan with respect to Class A shares, $68,403 was spent on
advertising, $11,830 on the printing and mailing of prospectuses
for persons other than current shareholders, $1,021,799 for
compensation to broker-dealers and other financial intermediaries
(including $147,956 to the Fund's Principal Underwriter),
$93,719 for compensation to sales personnel, and $318,887 was
spent on printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
29
<PAGE>
During the Portfolio's fiscal year ended June 30, 1998
with respect to Class B shares, the distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$4,316,412, which constituted 1% of the Portfolio's aggregate
average daily net assets attributable to Class B shares during the
fiscal year, and the Investment Adviser made payments from its own
resources aggregating $-0-. Of the $4,316,412 paid by the
Portfolio under the Plan with respect to Class B shares,
$85,374 was spent on advertising, $13,007 on the printing and
mailing of prospectuses for persons other than current
shareholders, $2,043,341 for compensation to broker- dealers and
other financial intermediaries (including $190,377 to the Fund's
Principal Underwriter), $71,465 for compensation paid to sales
personnel, $265,680 was spent on printing of sales literature,
travel, entertainment, due diligence and other promotional
expenses, $449,400 was spent on the financing of interest relating
to Class B shares, and $1,388,145 was used to offset the
distribution service fees paid in prior years.
During the Portfolio's fiscal year ended June 30, 1998,
with respect to Class C shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$1,161,590, which constituted 1% of the Portfolio's aggregate
average daily net assets attributable to Class C shares during the
fiscal year, and the Investment Adviser made payments from its own
resources aggregating $590,824. Of the $1,752,414 paid by the
Portfolio and the Investment Adviser under the Plan with respect
to Class C shares, $65,262 was spent on advertising, $10,530 on
the printing and mailing of prospectuses for persons other than
current shareholders, $1,333,292 for compensation to broker-
dealers and other financial intermediaries (including $126,483 to
the Fund's Principal Underwriter), $46,440 for compensation paid
to sales personnel, $175,003 was spent on printing of sales
literature, travel, entertainment, due diligence, other
promotional expenses, and $121,887 was spent on the financing of
interest relating to Class C shares.
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Portfolio as accrued.
The distribution services fees attributable to the Class B shares
and Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the Principal
Underwriter to compensate broker-dealers in connection with the
sale of such shares. In this regard, the purpose and function of
the combined contingent deferred sales charge and distribution
services fee on the Class B shares and Class C shares are the same
as those of the initial sales charge and distribution services fee
with respect to the Class A shares in that in each case the sales
charge and distribution services fee provide for the financing of
the distribution of the relevant class of the Portfolio's shares.
30
<PAGE>
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.
Unreimbursed distribution expenses incurred as of the end
of the Portfolio's most recently completed fiscal year, and
carried over for reimbursement in future years in respect of the
Class B and Class C shares for the Portfolio, were, respectively,
$7,204,946 (1.85% of net assets of Class B Shares) and $4,179,954
(3.65% of net assets of Class C Shares).
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which effectively
limit the annual asset-based sales charges and service fees that a
mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end,
deferred and asset-based sales charges imposed with respect to a
class of shares by a mutual fund that also charges a service fee
to 6.25% of cumulative gross sales of shares of that class, plus
interest at the prime rate plus 1% per annum.
In approving the Rule 12b-1 Plan, the Directors of the
Fund determined that there was a reasonable likelihood that the
Rule 12b-1 Plan would benefit the Fund and its shareholders. The
distribution services fee of a particular class will not be used
to subsidize the provision of distribution services with respect
to any other class.
The 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
31
<PAGE>
Fund or by vote of the holders of a majority of the outstanding
voting securities (as defined in the 1940 Act) of that class, and
in either case, by a majority of the Directors of the Fund who are
not parties to this Agreement or interested persons, as defined in
the 1940 Act, of any such party (other than as directors of the
Fund) and who have no direct or indirect financial interest in the
operation of the Rule 12b-1 Plan or any agreement related thereto.
Most recently the Directors approved the continuance of the
Agreement until June 30, 1999 at their meeting held on March 28,
1998.
In the event that the the Rule 12b-1 Plan 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.
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,
Class C shares and Advisor Class shares of the Portfolio, plus
reimbursement for out-of-pocket expenses. The transfer agency fee
with respect to the Class B shares and Class C shares is higher
than the transfer agency fee with respect to the Class A shares
and Advisor Class shares. For the fiscal year ended June 30,
1998, the Fund paid Alliance Fund Services, Inc. $820,628 for
transfer agency services.
32
<PAGE>
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus(es) under "Purchase and Sale of Shares -- How to
Buy Shares."
GENERAL
Shares of the Portfolio are offered on a continuous basis
at a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge ("Class
C shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset- based
sales charge, in each case as described below. Shares of the
Portfolio that are offered subject to a sales charge are offered
through (i) investment dealers that are members of NASD and have
entered into selected dealer agreements with the Principal
Underwriter ("selected dealers"), (ii) depository institutions and
other financial intermediaries or their affiliates, that have
entered into selected agent agreements with the Principal
Underwriter ("selected agents") and (iii) the Principal
Underwriter.
Advisor Class shares of the Portfolio may be purchased
and held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers or
other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through
(iv) below under "--Sales at Net Asset Value" (other than
officers, directors and present and full-time employees of
selected dealers or agents, or relatives of such person, or any
trust, individual retirement account or retirement plan account
for the benefit of such relative, none of whom is eligible on the
basis solely of such status to purchase and hold Advisor Class
shares), or (iv) by directors and present or retired full-time
employees of CB Richard Ellis, Inc. Generally, a fee-based
program must charge an asset- based or other similar fee and must
invest at least $250,000 in Advisor Class shares of the Fund in
order to be approved by the Principal Underwriter for investment
in Advisor Class shares.
33
<PAGE>
Investors may purchase shares of the Portfolio either
through selected broker-dealers, agents, financial intermediaries
or other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Portfolio, including requirements as to the minimum initial
and subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's Portfolio shares may
receive differing compensation for selling Class A, Class B,
Class C or Advisor Class shares.
The Portfolio may refuse any order for the purchase of
shares. The Portfolio reserves the right to suspend the sale of
the Portfolio's shares to the public in response to conditions in
the securities markets or for other reasons.
The public offering price of shares of the Portfolio is
their net asset value, plus, in the case of Class A shares, a
sales charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "--Class
A shares." On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Portfolio invests might materially
affect the value of Portfolio shares, the per share net asset
value is computed in accordance with the Fund's Articles of
Incorporation and By-Laws as of the next close of regular trading
on the New York Stock Exchange (the "Exchange") (currently
4:00 p.m. Eastern time) by dividing the value of the Portfolio's
total assets, less its liabilities, by the total number of its
shares then outstanding. A Fund business day is any day on which
the Exchange is open for trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B and Class C shares may
be lower than the per share net asset values of the Class A shares
and Advisor Class shares as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
34
<PAGE>
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
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
35
<PAGE>
the Fund, stock certificates representing shares of the Fund are
not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission paid to dealers
or agents, the Principal Underwriter from time to time pays
additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Portfolio. Such
additional amounts may be utilized, in whole or in part, to
provide additional compensation to registered representatives who
sell shares of the Portfolio. On some occasions, cash or other
incentives will be conditioned upon the sale of a specified
minimum dollar amount of the shares of the Portfolio and/or other
Alliance Mutual Funds, as defined below, during a specific period
of time. On some occasions, such cash or other incentives may
take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel,
lodging and entertainment incurred in connection with travel taken
by persons associated with a dealer or agent to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount in
lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Portfolio, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of the
deferred sales charge, (ii) Class B shares and Class C shares each
bear the expense of a higher distribution services fee than that
borne by Class A shares, and Advisor Class shares do not bear such
a fee, (iii) Class B and Class C shares bear higher transfer
agency costs than that borne by Class A and Advisor Class shares,
(iv) each of Class A, Class B and Class C shares has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid and other
matters for which separate class voting is appropriate under
applicable law, provided that, if the Portfolio submits to a vote
of the Class A shareholders, an amendment to the Rule 12b-1 Plan
that would materially increase the amount to be paid thereunder
with respect to the Class A shares, then such amendment will also
be submitted to the Class B and Advisor Class shareholders, and
the Class A shareholders, the Class B shareholders and the Advisor
Class shareholders will vote separately by class, and (v) Class B
and Advisor Class shares are subject to a conversion feature.
36
<PAGE>
Each class has different exchange privileges and certain different
shareholder service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A, Class
B, Class C and Advisor Class shares. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
ALTERNATIVE RETAIL PURCHASE ARRANGEMENTS -- CLASS A, CLASS B AND
CLASS C SHARES***
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in the Portfolio, the
accumulated distribution services fee and contingent deferred
sales charges on Class B shares prior to conversion, or the
accumulated distribution services fee and contingent deferred
sales charges on Class C shares, would be less than the initial
sales charge and accumulated distribution services fee on Class A
shares purchased at the same time, and to what extent such
differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than
Class B shares to the investor who qualifies for reduced initial
sales charges on Class A shares, as described below. In this
regard, the Principal Underwriter will reject any order (except
orders from certain retirement plans and certain employee benefit
plans) for more than $250,000 for Class B shares. (See Appendix A
for information concerning the eligibility of certain employee
benefit plans to purchase Class B shares at net asset value
without being subject to a contingent deferred sales charge and
the ineligibility of certain such plans to purchase Class A
shares.) Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject any
order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time of
purchase, investors purchasing Class A shares would not have all
____________________
*** Advisor Class shares are sold only to investors described
above in this section under "-- General".
37
<PAGE>
their funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will be
invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge would have to hold his or her investment
approximately seven years for the Class C distribution services
fee to exceed the initial sales charge plus the accumulated
distribution services fee of Class A shares. In this example, an
investor intending to maintain his or her investment for a longer
period might consider purchasing Class A shares. This example
does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on
the investment, fluctuations in net asset value or the effect of
different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Portfolio shares for
the three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended June 30, 1998, 1997
and 1996, the aggregate amount of underwriting commission payable
with respect to shares of the Portfolio in each year was $836,243,
$693,220, and $534,472 , respectively. Of that amount, the
Principal Underwriter received amounts of $21,924, $32,721,
and $26,128 , respectively, representing that portion of the sales
charges paid on shares of the Portfolio sold during the year which
was not reallowed to selected dealers (and was, accordingly,
retained by the Principal Underwriter). During the Fund's fiscal
years ended in 1998, 1997 and 1996, the Principal Underwriter
received contingent deferred sales charges of $10,096, $-0- and $-
0-, respectively, on Class A shares, $291,831, $478,593 and
$1,113,832, respectively, on Class B shares, and $31,629, $19,275
and $-0-, respectively, on Class C shares.
38
<PAGE>
CLASS A SHARES
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
Less than
$100,000....... 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 ...... 3.36 3.25 3.00
$250,000 but
less than
$500,000....... 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*.... 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
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
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<PAGE>
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 or
Advisor Class shares as described below under "--Class B Shares-
- -Conversion Feature" and "--Conversion of Advisor Class Shares to
Class A Shares." The Portfolio receives the entire net asset
value of its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents for
all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives reallowance
in excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act.
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
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<PAGE>
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Portfolio for his, her or their
own account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Portfolio or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Premier Growth Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
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<PAGE>
-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.
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
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<PAGE>
$300,000 purchase of shares of the Portfolio, rather than the
3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or agent
must provide the Principal Underwriter with sufficient information
to verify that each purchase qualifies for the privilege or
discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by means
of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Portfolio or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction of
the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Portfolio or any other Alliance Mutual Fund made
not more than 90 days prior to the date that the investor signs a
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at least
$100,000 in Class A shares of the Portfolio, the investor and the
investor's spouse each purchase shares of the Portfolio worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a total of $60,000 during the following 13 months in shares
of the Portfolio or any other Alliance Mutual Fund, to qualify for
the 3.25% sales charge on the total amount being invested (the
sales charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5% of
such amount. Shares purchased with the first 5% of such amount
will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Portfolio shares, are not subject to
escrow. When the full amount indicated has been purchased, the
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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.
CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of a
sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the
Portfolio will receive the full amount of the investor's purchase
payment and, as long as the shares are held for one year or more,
without a contingent deferred sales charge so that the investor
will receive as proceeds upon redemption the entire net asset
value of his or her Class C shares. The Class C distribution
services fee enables the Portfolio to sell Class C shares without
either an initial or contingent deferred sales charge, as long as
the shares are held one year or more. Class C shares do not
convert to any other class of shares of the Portfolio and incur
higher distribution services fees and transfer agency costs than
Class A shares and Advisor Class shares, and will thus have a
higher expense ratio and pay correspondingly lower dividends than
Class A shares and Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
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<PAGE>
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
the Portfolio to sell the Class C shares without a sales charge
being deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
CONVERSION OF ADVISOR CLASS SHARES TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Investment Adviser and its affiliates or the
Fund. If (i) a holder of Advisor Class shares ceases to
participate in a fee-based program or plan, or to be associated
with the investment adviser or financial intermediary that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
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without notice to the shareholder, other than the notice contained
in the Advisor Class Prospectus and this Statement of Additional
Information, to Class A shares of the Fund during the calendar
month following the month in which the Fund is informed of the
occurrence of the Conversion Event. The failure of a shareholder
or a fee-based program to satisfy the minimum investment
requirements to purchase Advisor Class shares will not constitute
a Conversion Event. The conversion would occur on the basis of
the relative net asset values of the two classes and without the
imposition of any sales load, fee or other charge. Class A shares
currently bear a .30% distribution services fee and have a higher
expense ratio than Advisor Class shares. As a result, Class A
shares may pay correspondingly lower dividends and have a lower
net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to Class
A shares does not constitute a taxable event under federal income
tax law. The conversion of Advisor Class shares to Class A shares
may be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, the Advisor
Class shareholder would be required to redeem his or her Advisor
Class shares, which would constitute a taxable event under federal
income tax law.
_______________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Portfolio's Prospectus(es) under "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Portfolio that are different from those described herein.
A transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares of the Portfolio tendered to it, as described below, at a
redemption price equal to their net asset value as next computed
following the receipt of shares tendered for redemption in proper
form. Except for any contingent deferred sales charge which may
be applicable to Class A shares, Class B shares or Class C shares,
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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
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
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<PAGE>
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
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
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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,
agents or financial representatives may enter into operating
agreements permitting them to transmit purchase information to the
Principal Underwriter after 5:00 p.m. Eastern time and receive
that day's net asset value). If the financial intermediary or
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Portfolio to the Principal Underwriter either
directly or through a selected dealer or agent. Neither the Fund
nor the Principal Underwriter charges a fee or commission in
connection with the repurchase of shares (except for the
contingent deferred sales charge, if any, with respect to Class A,
Class B and Class C shares). Normally, if shares of the Portfolio
are offered through a financial intermediary or selected dealer or
agent, the repurchase is settled by the shareholder as an ordinary
transaction with or through the selected dealer or agent, who may
charge the shareholder for this service. The repurchase of shares
of the Portfolio as described above is a voluntary service of the
Fund and the Fund may suspend or terminate this practice at any
time.
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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--Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Portfolio that are different from those described herein.
A transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Portfolio through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives the
proceeds from the investor's bank. In electronic form, drafts can
be made on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
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EXCHANGE PRIVILEGE
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Investment
Adviser). In addition, (i) present officers and full-time
employees of the Investment Adviser, (ii) present Directors or
Trustees of any Alliance Mutual Fund and (iii) certain employee
benefit plans for employees of the Investment Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates may, on a tax-free basis, exchange Class A shares of
the Fund for Advisor Class shares of the Fund. Exchanges of
shares are made at the net asset value next determined and without
sales or service charges. Exchanges may be made by telephone or
written request. Telephone exchange requests must be received by
Alliance Fund Services, Inc. by 4:00 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request. Call
Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Portfolio for Advisor Class shares of the
Portfolio, exchanges of shares as described above in this section
are taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose shares
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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
56
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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, while
current Portfolio shareholders desiring to do so can obtain an
application form by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown on the
cover of this Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares. Under
a systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or
3% quarterly of the value at the time of redemption of the Class B
or Class C shares in a shareholder's account may be redeemed free
of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the
longest will be redeemed next. Redemptions of Class B shares in
excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of these limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
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DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Portfolio
accounts, Class A, Class B, Class C or Advisor Class accounts with
one or more other Alliance Mutual Funds may direct that income
dividends and/or capital gains paid on his or her Class A,
Class B, Class C or Advisor Class Portfolio shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the address
or the "For Literature" telephone number shown on the cover of
this Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
STATEMENTS AND REPORTS
Each shareholder of the Portfolio receives semi-annual
and annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent auditors, Ernst & Young LLP, as
well as a monthly cumulative dividend statement and a confirmation
of each purchase and redemption. By contacting his or her broker
or Alliance Fund Services, Inc., a shareholder can arrange for
copies of his or her account statements to be sent to another
person.
CHECKWRITING
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against Class A
or Class C shares of the Portfolio redeemed from the investor's
account. Under this service, checks may be made payable to any
payee in any amount not less than $500 and not more than 90% of
the net asset value of the Class A or Class C shares in the
investor's account (excluding for this purpose the current month's
accumulated dividends and shares for which certificates have been
issued). A Class A or Class C shareholder wishing to establish
this checkwriting service subsequent to the opening of his or her
Portfolio account should contact the Portfolio by telephone or
mail. Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
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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
and fractional shares of the Portfolio in the shareholder's
account to cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented to
the Bank for payment.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at fair
value as determined in good faith by the Board of Directors. The
Board of Directors has delegated to the Investment Adviser certain
of the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange are valued,
except as indicated below, at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business day
as of which such value is being determined. If there has been no
sale on such day, the securities are valued at the quoted bid
prices on such day. If no bid prices are quoted on such day, then
the security is valued at the mean of the bid and asked prices at
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the close of the Exchange on such day as obtained from one or more
dealers regularly making a market in such security. Where a bid
and asked price can be obtained from only one such dealer, such
security is valued at the mean of the bid and asked price obtained
from such dealer unless it is determined that such price does not
represent current market value, in which case the security shall
be valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Securities for
which no bid and asked price quotations are readily available are
valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange but listed on
other national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more other national
securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.
Readily marketable securities traded only in the over-
the-counter market, and debt securities listed on a U.S. national
securities exchange whose primary market is believed to be over-
the-counter, are valued at the mean of the bid and asked prices at
the close of the Exchange on such day as obtained from two or more
dealers regularly making a market in such security. Where a bid
and asked price can be obtained from only one such dealer, such
security is valued at the mean of the bid and asked price obtained
from such dealer unless it is determined that such price does not
represent current market value, in which case the security shall
be valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be Valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be valued
using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last available
closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that this
method does not represent fair value).
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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.
Mortgage backed and asset backed securities may be valued at
prices obtained from a bond pricing service or at a price obtained
from one or more of the major broker/dealers in such securities.
In cases where broker/dealer quotes are obtained, the Adviser may
establish procedures whereby changes in market yields or spreads
are used to adjust, on a daily basis, a recently obtained quoted
bid price on a security.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
The Board of Directors may suspend the determination of
the Fund's net asset value (and the offering and sales of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is closed,
other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid-and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each class
will be determined separately by subtracting the liabilities
allocated to that class from the assets belonging to that class in
conformance with the provisions of a plan adopted by the Fund in
accordance with Rule 18f-3 under the 1940 Act.
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______________________________________________________________
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.
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
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services may be used by the Investment Adviser for all of its
investment advisory accounts and, accordingly, not all such
services may be used by the Investment Adviser in connection with
the Portfolio. There may be occasions where the transaction cost
charged by a broker may be greater than that which another broker
may charge if the Fund determines in good faith that the amount of
such transaction cost is reasonable in relationship to the value
of the brokerage and research and statistical services provided by
the executing broker. During the fiscal years ended June 30,
1996, 1997 and 1998, the Portfolio incurred no brokerage
commissions.
______________________________________________________________
TAXES
______________________________________________________________
The Fund advises the Portfolio's shareholders annually as
to the Federal income tax status of dividends and distributions
made to a Portfolio's shareholders during each calendar year.
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
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
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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.
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
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<PAGE>
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.
After the end of the taxable year, the Portfolio will
notify shareholders of the federal income tax status of any
distributions made by the Portfolio to shareholders during such
year.
SALES AND REDEMPTIONS. Any gain or loss arising from a
sale or redemption of Portfolio shares generally will be capital
gain or loss except in the case of a dealer or a financial
institution, and will be long-term capital gain or loss if such
shareholder has held such shares for more than one year at the
time of the sale or redemption; otherwise it will be short-term
capital gain or loss. If a shareholder has held shares in the
Portfolio for six months or less and during that period has
received a distribution of net capital gain, any loss recognized
by the shareholder on the sale of those shares during the six-
month period will be treated as a long-term capital loss to the
extent of the distribution. In determining the holding period of
such shares for this purpose, any period during which a
shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange
of shares of the Portfolio will be disallowed to the extent the
shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the shares are
sold or exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
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<PAGE>
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
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
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<PAGE>
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.
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 200,000,000 shares of Class A Common Stock,
200,000,000 shares of Class B Common Stock, and 200,000,000 shares
69
<PAGE>
of Class C Common Stock, and 200,000,000 shares of Advisor Class
Common Stock, each having a par value of $.001 per share.
Class A, Class B and Class C shares each represent interests in
the assets of the Portfolio and have identical voting, dividend,
liquidation and other rights on the same terms and conditions,
except that expenses related to the distribution of each class and
transfer agency expenses of each class are borne solely by each
class and each class of shares has exclusive voting rights with
respect to provisions of the Fund's Rule 12b-1 distribution plan
which pertain to a particular class and other matters for which
separate class voting is appropriate under applicable law,
provided that, if the Fund submits to a vote of both the Class A
shareholders and the Class B shareholders an amendment to the Rule
12b-1 distribution plan that would materially increase the amount
to be paid thereunder with respect to the Class A shares, the
Class A shareholders and the Class B shareholders will vote
separately by class.
The Fund's Board of Directors may, without shareholder
approval, increase or decrease the number of authorized but
unissued shares of the Portfolio's Class A, Class B, Class C and
Advisor Class Common Stock.
The Board of Directors is authorized to reclassify and
issue any unissued shares to any number of additional series and
classes without shareholder approval. Accordingly, the Directors
in the future, for reasons such as the desire to establish one or
more additional portfolios with different investment objectives,
policies or restrictions, may create additional series of shares.
Any issuance of shares of another series would be governed by the
1940 Act and the laws of the State of Maryland. If shares of
another series were issued in connection with the creation of a
second portfolio, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series for the election of
Directors and on any other matter that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Investment Advisory
Contract and changes in investment policy, shares of each
Portfolio would vote as separate series.
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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<PAGE>
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on February
1, l999, there were 108,356,143 shares of common stock of the
Portfolio outstanding. Of this amount, 53,133,812 shares were
Class A shares, 54,504,648 shares were Class B shares and 717,683
shares were Class C shares. To the knowledge of the Portfolio,
the following persons owned of record, or beneficially, 5% or more
of the outstanding shares of the Portfolio as of February 1, 1999:
No of % of % of % of
Name and Address Shares Class A Class B Class C
Merrill Lynch,
Pierce, Fenner
& Smith Incorporated
For the Sole Benefit
of its Customers
Attn: Fund Admin.
4800 Deer Lake
Drive East - 2nd Floor
Jacksonville, FL 32246-6484 5,944,001 11%
Merrill Lynch,
Pierce, Fenner
& Smith Incorporated
For the Sole Benefit
of its Customers
Attn: Fund Admin.
4800 Deer Lake
Drive East - 2nd Floor
Jacksonville, FL 32246-6484 13,318,477 24%
Merrill Lynch,
Pierce, Fenner
& Smith Incorporated
For the Sole Benefit
of its Customers
Attn: Fund Admin.
4800 Deer Lake
Drive East - 2nd Floor
Jacksonville, FL 32246-6484 242,190 34%
Everen Securities, Inc.
A/C 1554-9134
Todd A. Blake TR
11 East Kilbourn Avenue
Milwaukee, WI 53202-611 63,486 9%
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Everen Securities, Inc.
A/C 1551-5975
Katherine Blake TR
11 East Kilbourn Avenue
Milwaukee, WI 53202-6611 62,598 9%
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 LLP, New York, New York. Seward & Kissel LLP has relied
upon the opinion of Venable, Baetjer and Howard, LLP, Baltimore,
Maryland, for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, has 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
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<PAGE>
formula prescribed by the Commission which provides for
compounding on a semi-annual basis. The Portfolio may also state
in sales literature an "actual distribution rate" for each class
which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question
are substituted for net investment income per share. The actual
distribution rate is computed 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.
The Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula described above. In
accordance with Commission guidelines, total return information is
presented for each class for the same time periods, i.e., the 1, 5
and/or 10 years (or over the life of the Fund, if the Fund is less
than 10 years old) ending with the most recent calendar year.
Since classes may have different actual inception dates, in some
cases this can result in return information being presented for
one or more classes for periods prior to that class's existence.
Where return information is presented for periods prior to a
class's existence ("Younger Class"), such information is
calculated by using the historical performance of the class with
the earliest inception date ("Oldest Class"). For this purpose,
the Fund calculates the expense differential between the Younger
Class and Oldest Class, divides the differential by 12, and
subtracts the result from the monthly performance of the Oldest
Class based on a hypothetical investment of $10,000 in the Oldest
Class. Any dividends and distributions paid by the Oldest Class
are also adjusted for the expense differential between the classes
and are assumed to be reinvested in the Younger Class. The
resulting monthly performance number for the Younger Class is used
to calculate that class's hypothetical average annual returns for
these periods. Any conversion feature applicable to the Younger
Class is assumed to occur with reference to the actual inception
date for that class, not its hypothetical inception date.
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<PAGE>
The yield for the month ended June 30, 1998 for the
Class A shares of the Portfolio was 6.09%, for Class B shares was
5.66% and for Class C shares was 5.66%. The actual distribution
rate for such period for the Portfolio for Class A shares was
6.86%, for Class B shares was 6.42% and for Class C shares was
6.42%.
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended June 30, 1998 (or since inception through that date, as
noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
6/30/98 6/30/98 6/30/98
_________ _____________ ______________
Class A 10.02% 5.22% 7.73%
Class B 9.20% 4.45% 6.12%*
Class C 9.21% 4.45% 4.73%*
*Inception Dates: Class B - September 30, 1991
Class C - May 3, 1993
Yield and total return are computed separately for the
Portfolio's Class A, Class B, Class C and Advisor Class shares.
The Portfolio's yield and total return are not fixed and will
fluctuate in response to prevailing market conditions or as a
function of the type and quality of the securities held by the
Portfolio, its average portfolio maturity and its expenses. Yield
and total return information is useful in reviewing the
Portfolio's performance and such information may provide a basis
for comparison with other investments. Such other investments may
include certificates of deposit, money market funds and corporate
debt securities. However, an investor should know that investment
return and principal value of an investment in the Portfolio will
fluctuate so that an investor's shares, when redeemed, may be
worth more or less than their original cost. In addition, the
Portfolio's shares are not insured or guaranteed by the U.S.
Government. In comparison, certificates of deposit are guaranteed
and pay a fixed rate of return; money market funds seek a stable
net asset value; and corporate debt securities may provide a
higher yield than those available from the Portfolio.
Advertisements quoting performance rankings or ratings of
the Fund's Portfolio as measured by financial publications or by
independent organizations such as Lipper Analytical Services, Inc.
("Lipper") and Morningstar, Inc. and advertisements presenting the
historical record payments of income dividends by the Portfolio
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<PAGE>
may also from time to time be sent to investors or placed in
newspapers, magazines, such as Barrons, Business Week, Changing
Times, Forbes, Investor's Daily, Money Magazine, The New York
Times and The Wall Street Journal or other media on behalf of the
Fund. The Portfolio has been ranked by Lipper in the category
known as "U.S. Government bond funds".
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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<PAGE>
____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT AUDITORS
____________________________________________________________
<PAGE>
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
ANNUAL REPORT
JUNE 30, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-98.8%
U.S. TREASURY SECURITIES-70.4%
U.S. TREASURY BONDS-65.7%
8.00%, 11/15/21 $ 56,400 $ 72,683,808
8.125%, 5/15/21 34,100 44,399,223
8.875%, 8/15/17 39,000 53,167,920
11.625%, 11/15/02 11,500 14,173,750
12.00%, 8/15/13 71,085 105,394,886
12.50%, 8/15/14 65,150 101,471,125
14.00%, 11/15/11 110,900 172,051,369
-------------
563,342,081
U.S. TREASURY NOTE-4.6%
8.75%, 8/15/00 36,800 39,146,000
U.S. TREASURY BILL-0.1%
4.50%, 7/09/98 825 824,175
Total U.S. Treasury Securities
(cost $589,798,040) 603,312,256
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-19.8%
Collateralized Mortgage Obligations
Series 1997-8
7.00%, 9/16/21 16,000 16,090,080
Series 1997-10 Cl.C
9.50%, 4/16/25 26,250 28,629,037
Series 1997-11 Cl.C
9.50%, 10/20/25 28,052 30,537,127
-------------
75,256,244
Mobile Homes
8.00%, 8/15/16 583 604,410
8.25%, 6/15/05-3/15/16 4,177 4,349,930
8.50%, 5/15/08-1/15/12 899 941,134
8.75%, 11/15/00-1/15/12 3,043 3,195,380
9.00%, 10/15/11-1/15/12 1,054 1,105,944
9.25%, 1/15/13 243 259,620
9.75%, 5/15/99-1/15/13 4,857 5,178,353
10.25%, 2/15/03-6/15/13 4,500 4,799,652
-------------
20,434,423
Project Loans
8.50%, 11/15/12-11/15/31 14,438 15,146,739
Single Family Homes
7.50%, 9/15/21-9/15/24 1,476 1,529,860
8.00%, 3/15/12 49,094 50,950,198
9.00%, 7/20/24-9/20/24 6,008 6,393,371
-------------
58,873,429
Total Government National Mortgage Association
(cost $172,864,327) 169,710,835
FEDERAL AGENCY SECURITIES-8.6%
Financial Assistance Corp.
9.45%, 11/21/03 26,000 26,346,580
9.50%, 4/16/04 31,506 32,441,413
United States Agency for
International Development
7.11%, 2/01/12 14,000 15,190,000
Total Federal Agency Securities
(cost $81,483,529) 73,977,993
TOTAL INVESTMENTS-98.8%
(cost $844,145,896) 847,001,084
Other assets less liabilities-1.2% 10,393,411
NET ASSETS-100% $857,394,495
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $844,145,896) $ 847,001,084
Cash 4,282
Interest receivable 14,321,861
Receivable for capital stock sold 4,243,795
Total assets 865,571,022
LIABILITIES
Payable for capital stock redeemed 4,856,468
Dividends payable 1,603,541
Advisory fee payable 1,196,743
Distribution fee payable 117,808
Accrued expenses 401,967
Total liabilities 8,176,527
NET ASSETS $ 857,394,495
COMPOSITION OF NET ASSETS
Capital stock, at par $ 113,214
Additional paid-in capital 1,065,882,616
Distributions in excess of net investment income (1,603,541)
Accumulated net realized loss on investment transactions (209,847,930)
Net unrealized appreciation of investments and other assets 2,850,136
$ 857,394,495
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($352,748,821/
46,592,789 shares of capital stock issued and outstanding) $7.57
Sales charge--4.25% of public offering price .34
Maximum offering price $7.91
CLASS B SHARES
Net asset value and offering price per share ($390,253,252/
51,518,944 shares of capital
stock issued and outstanding) $7.57
CLASS C SHARES
Net asset value and offering price per share ($114,392,422/
15,101,775 shares of capital stock issued and outstanding) $7.57
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
INVESTMENT INCOME
Interest $73,317,122
EXPENSES
Advisory fee $4,949,100
Distribution fee - Class A 1,061,547
Distribution fee - Class B 4,316,412
Distribution fee - Class C 1,161,590
Transfer agency 1,169,281
Custodian 212,134
Printing 141,221
Administrative 116,256
Audit and legal 81,258
Taxes 73,971
Registration 51,061
Directors' fees 12,225
Miscellaneous 10,342
Total expenses 13,356,398
Net investment income 59,960,724
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 4,547,564
Net change in unrealized depreciation of
investments and other assets 17,676,067
Net gain on investment transactions 22,223,631
NET INCREASE IN NET ASSETS FROM OPERATIONS $82,184,355
See notes to financial statements.
7
STATEMENT OF CHANGES
IN NET ASSETS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 59,960,724 $ 76,613,835
Net realized gain (loss) on investment
transactions 4,547,564 (17,906,339)
Net change in unrealized appreciation
(depreciation) of investmentsand other assets 17,676,067 4,101,240
Net increase in net assets from operations 82,184,355 62,808,736
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (25,072,563) (28,676,683)
Class B (27,489,182) (38,040,411)
Class C (7,398,979) (9,425,145)
Tax return of capital
Class A (1,242,637) (537,368)
Class B (1,362,408) (712,834)
Class C (366,705) (176,616)
CAPITAL STOCK TRANSACTIONS
Net decrease (104,135,594) (235,558,940)
Total decrease (84,883,713) (250,319,261)
NET ASSETS
Beginning of year 942,278,208 1,192,597,469
End of year $ 857,394,495 $ 942,278,208
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Bond Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
The Fund, which is a Maryland corporation, operates as a series company
currently comprised of two portfolios: the Corporate Bond Portfolio and the
U.S. Government Portfolio. Each series is considered to be a separate entity
for financial reporting and tax purposes. The financial statements and notes
include the operations of the U.S. Government Portfolio (the "Portfolio") only.
The Portfolio offers Class A, Class B and Class C shares. Class A shares are
sold with a front-end sales charge of up to 4.25% for purchases not exceeding
$1,000,000. With respect to purchases of $1,000,000 or more, Class A shares
redeemed within one year of purchase will be subject to a contingent deferred
sales charge of 1%. Class B shares are currently sold with a contingent
deferred sales charge which declines from 3% to zero depending on the period of
time the shares are held. Class B shares will automatically convert to Class A
shares six years after the end of the calendar month of purchase. Class C
shares are subject to a contingent deferred sales charge of 1% on redemptions
made within the first year after purchase. All three classes of shares have
identical voting, dividend, liquidation and other rights, except that each
class bears different distribution expenses and has exclusive voting rights
with respect to its distribution plan. The financial statements have been
prepared in conformity with generally accepted accounting principles which
require management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements and
amounts of income and expenses during the reporting period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies followed by the Portfolio.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last reported sale price on such exchange on the day of valuation or, if there
was no sale on such day, the last bid price quoted on such day. If no bid
prices are quoted, then the security is valued at the mean of the bid and asked
prices as obtained on that day from one or more dealers regularly making a
market in that security. Securities traded on the over-the-counter market are
valued at the mean of the closing bid and asked prices provided by two or more
dealers regularly making a market in such securities. U.S. government
securities and other debt securities which mature in 60 days or less are valued
at amortized cost unless this method does not represent fair value. Securities
for which market quotations are not readily available are valued at fair value
as determined in good faith by, or in accordance with procedures approved by,
the Board of Directors. Fixed income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed to reflect
the fair market value of such securities.
2. TAXES
It is the Portfolio's policy to meet the requirements of the Internal Revenue
Code applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Portfolio amortizes premiums and
accretes discounts as adjustments to interest income. Investment gains and
losses are determined on the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Portfolio are borne on a
pro-rata basis by each settled class of shares, based on the proportionate
interest in the Portfolio represented by the net assets of such class, except
that the Portfolio's Class B and Class C shares bear higher distribution and
transfer agent fees than Class A shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclas sified within the capital accounts based
on their federal tax basis treatment; temporary differences do not require such
reclassification.
9
NOTES TO FINANCIAL STATEMENTS(CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
During the current fiscal year, permanent differences, primarily due to
expiration of capital loss carryforwards and return of capital distributions,
resulted in a net decrease in accumulated net realized loss on investment
transactions and a corresponding decrease in additional paid-in capital and
distributions in excess of net investment income. This reclassification had no
effect on net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Portfolio pays
Alliance Capital Management L.P. (the "Adviser"), an advisory fee at a
quarterly rate of .15 of 1% (approximately .60 of 1% on an annual basis) of the
first $500 million of the Portfolio's net assets and .125 of 1% (approximately
.50 of 1% on an annual basis) of its net assets over $500 million, valued on
the last business day of the previous quarter.
Pursuant to the advisory agreement, the Portfolio paid $116,256 to the Adviser
representing the cost of certain legal and accounting services provided to the
Portfolio by the Adviser for the year ended June 30, 1998.
The Portfolio compensates Alliance Fund Services, Inc., a wholly-owned
subsidiary of the Adviser, under a Transfer Agency Agreement for providing
personnel and facilities to perform transfer agency services for the Portfolio.
Such compensation amounted to $820,628 for the year ended June 30, 1998.
Alliance Fund Distributors, Inc. (the "Distributor"), a wholly-owned subsidiary
of the Adviser, serves as the Distributor of the Portfolio's shares. The
Distributor received front-end sales charges of $21,924 from the sale of Class
A shares and $10,096, $291,831 and $31,629 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class A, Class B and Class C
shares, respectively, for the year ended June 30, 1998.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Portfolio has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Portfolio pays a distribution fee to the Distributor at an
annual rate of up to .30% of the Portfolio's average daily net assets
attributable to Class A shares and 1% of the average daily net assets
attributable to both Class B and Class C shares. The fees are accrued daily and
paid monthly. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in excess of the distribution
costs reimbursed by the Portfolio in the amount of $7,204,946, and $4,179,954
for Class B and Class C shares, respectively; such costs may be recovered from
the Portfolio in future periods as long as the Agreement is in effect. In
accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Portfolio's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government obligations) aggregated $21,304,290 and $20,870,217,
respectively, for the year ended June 30, 1998. Purchases and sales of U.S.
government obligations aggregated $1,364,538,957 and $1,517,667,848,
respectively, for the year ended June 30, 1998.
At June 30, 1998, the cost of investments for federal income tax purposes was
$845,609,579. Accordingly, gross unrealized appreciation of investments was
$15,889,181 and gross unrealized depreciation of investments was $14,497,676,
resulting in net unrealized appreciation of $1,391,505.
10
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
At June 30, 1998, the Portfolio had a capital loss carryforward for federal
income tax purposes of $208,384,247, of which $8,257,319 expires in the year
1999; $83,016,947 expires in the year 2003; $61,544,081 expires in the year
2004; $51,829,521 expires in the year 2005 and $3,736,379 expires in the year
2006.
NOTE E: CAPITAL STOCK
There are 600,000,000 shares of $.001 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 200,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
------------- ------------ -------------- --------------
CLASS A
Shares sold 10,804,046 7,330,644 $ 81,364,926 $ 54,720,782
Shares issued in
reinvestment of
dividends and
distributions 1,651,986 1,852,073 12,448,223 13,859,387
Shares converted
from Class B 2,908,590 2,400,559 21,971,601 17,892,778
Shares redeemed (16,621,353) (16,635,865) (125,182,615) (124,255,277)
Net decrease (1,256,731) (5,052,589) $ (9,397,865) $ (37,782,330)
CLASS B
Shares sold 6,931,240 5,813,050 $ 52,278,662 $ 43,483,332
Shares issued in
reinvestment of
dividends and
distributions 1,813,058 2,166,310 13,660,347 16,211,718
Shares converted
to Class A (2,908,590) (2,400,559) (21,971,601) (17,892,778)
Shares redeemed (17,960,112) (25,514,220) (135,276,839) (190,768,847)
Net decrease (12,124,404) (19,935,419) $ (91,309,431) $(148,966,575)
CLASS C
Shares sold 4,489,582 3,571,988 $ 34,077,964 $ 26,694,306
Shares issued in
reinvestment of
dividends and
distributions 651,004 544,818 4,904,415 4,070,889
Shares redeemed (5,630,703) (10,605,329) (42,410,677) (79,575,230)
Net decrease (490,117) (6,488,523) $ (3,428,298) $ (48,810,035)
11
FINANCIAL HIGHLIGHTS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .54(a) .57(a) .58 .64 .65
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .72 .47 .14 .77 (.15)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.54) (.57) (.58) (.65) (.65)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.56) (.58) (.58) (.65) (.65)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on
net asset value (b) 10.02% 6.49% 1.74% 10.37% (1.93)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $352,749 $354,782 $397,894 $463,660 $482,595
Ratio of expenses to average net assets 1.06% 1.02% 1.01% 1.01% 1.02%
Ratio of net investment income to
average net assets 7.08% 7.66% 7.38% 8.27% 7.76%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 14.
12
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS B
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.84 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .13 (.80)
Net increase (decrease) in net asset
value from operations .66 .42 .08 .71 (.21)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.52) (.59) (.59)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.50) (.53) (.52) (.59) (.59)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.84
TOTAL RETURN
Total investment return based on net
asset value (b) 9.20% 5.69% 1.01% 9.52% (2.63)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $390,253 $471,889 $628,628 $774,097 $756,282
Ratio of expenses to average net assets 1.76% 1.73% 1.72% 1.72% 1.72%
Ratio of net investment income to
average net assets 6.37% 6.95% 6.67% 7.57% 7.04%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
See footnote summary on page 14.
13
FINANCIAL HIGHLIGHTS (CONTINUED)
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS C
---------------------------------------------------------------
YEAR ENDED JUNE 30,
---------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year $7.41 $7.52 $7.96 $7.83 $8.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income .48(a) .52(a) .52 .58 .59
Net realized and unrealized gain (loss)
on investment transactions .18 (.10) (.44) .14 (.81)
Net increase (decrease) in net asset
value from operations .66 .42 .08 .72 (.22)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.52) (.59) (.59)
Tax return of capital (.02) (.01) -0- -0- -0-
Total dividends and distributions (.50) (.53) (.52) (.59) (.59)
Net asset value, end of year $7.57 $7.41 $7.52 $7.96 $7.83
TOTAL RETURN
Total investment return based on net
asset value (b) 9.21% 5.69% 1.01% 9.67% (2.75)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $114,392 $115,607 $166,075 $181,948 $231,859
Ratio of expenses to average net assets 1.76% 1.72% 1.71% 1.71% 1.70%
Ratio of net investment income to
average net assets 6.38% 6.96% 6.68% 7.59% 6.97%
Portfolio turnover rate 153% 330% 334% 190% 188%
</TABLE>
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period less than one year is
not annualized.
14
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE BOND FUND U.S. GOVERNMENT PORTFOLIO
We have audited the accompanying statement of assets and liabilities of
Alliance Bond Fund U.S. Government Portfolio (one of the portfolios comprising
the Alliance Bond Fund, Inc.), including the portfolio of investments, as of
June 30, 1998, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the period
then ended, and the financial highlights for each of the periods indicated
therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities
owned as of June 30, 1998, by correspondence with the custodian and brokers. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance Bond Fund U.S. Government Portfolio at June 30, 1998, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for
each of the indicated periods, in conformity with generally accepted accounting
principles.
New York, New York
August 4, 1998
15
<PAGE>
____________________________________________________________
APPENDIX A:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are intended to
be tax-qualified under section 401(a) of the Internal Revenue Code
of 1986, as amended ("Tax Qualified Plans"), for which Merrill
Lynch, Pierce, Fenner & Smith Incorporated or an affiliate thereof
("Merrill Lynch") is recordkeeper (or with respect to which
recordkeeping services are provided pursuant to certain
arrangements as described in paragraph (ii) below) ("Merrill Lynch
Plans") are subject to specific requirements as to the Fund shares
which they may purchase. Notwithstanding anything to the contrary
contained elsewhere in this Statement of Additional Information,
the following Merrill Lynch Plans are not eligible to purchase
Class A shares and are eligible to purchase Class B shares of the
Fund at net asset value without being subject to a contingent
deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
A-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
A-2
00250123.AV2
