<PAGE>
As filed with the Securities and Exchange
Commission on February 29, 1996
File No. 2-85921
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 26 X
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 25 X
_________________
ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (800)
221-5672
_____________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of Communications to:
Thomas G. MacDonald, Esq.
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
<PAGE>
It is proposed that this filing will become effective (check
appropriate box)
X immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new
effective date for a previously filed post-effective
amendment.
Registrant has registered an indefinite number of its shares of
Common Stock pursuant to Rule 24f-2 under the Investment Company
Act of 1940. Registrant's Rule 24f-2 notice for its fiscal year
ended December 31, 1995 was filed on February 26, 1996.
2
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A ITEM NO. LOCATION IN PROSPECTUS
(Caption)
PART A
Item 1. Cover Page Cover Page
Item 2. Synopsis The Funds at a Glance
Item 3. Condensed Financial
Information Financial Highlights
Item 4. General Description of
Registrant Description of the Fund;
General Information
Item 5. Management of the Fund Management of the Fund;
General Information
Item 6. Capital Stock and Other
Securities Dividends, Distributions
and Taxes; General
Information
Item 7. Purchase of Securities
Being Offered Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase Purchase and Sale of
Shares
Item 9. Pending Legal Proceedings Not Applicable
LOCATION IN STATEMENT OF
PART B ADDITIONAL INFORMATION
(Caption)
Item 10. Cover Page Cover Page
Item 11. Table of Contents Cover Page
Item 12. General Information Description of the Fund;
General Information
Item 13. Investment Objectives and
Policies Description of the Fund
3
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
LOCATION IN STATEMENT OF
N-1A ITEM NO. ADDITIONAL INFORMATION
(Caption)
PART B
(Continued)
Item 14. Management of the
Registrant Management of the Fund
Item 15. Control Persons and
Principal Holders of
Securities Management of the Fund;
General Information
Item 16. Investment Advisory and
Other Services Management of the Fund
Item 17. Brokerage Allocation and
Other Practices Portfolio Transactions
Item 18. Capital Stock and Other
Securities General Information
Item 19. Purchase, Redemption and
Pricing of Securities
Being Offered Purchase, Redemption and
Repurchase of Shares
Item 20. Tax Status Dividends, Distributions
and Taxes
Item 21. Underwriters General Information
Item 22. Calculation of
Performance Data General Information
Item 23. Financial Statements Financial Statements;
Report of Independent
Auditors
4
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
MARCH 1, 1996
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
- -ALLIANCE LIMITED MATURITY
GOVERNMENT FUND
MORTGAGE FUND CORPORATE BOND FUND
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
SECURITIES INCOME FUND
MULTI-MARKET FUNDS
- -ALLIANCE WORLD INCOME TRUST
- -ALLIANCE SHORT-TERM
MULTI-MARKET TRUST
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 13
Description of the Funds 14
Investment Objectives and Policies 14
Additional Investment Practices 20
Certain Fundamental Investment Policies 31
Risk Considerations 32
Purchase and Sale of Shares 37
Management of the Funds 39
Dividends, Distributions and Taxes 41
General Information. 42
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
ADVISER
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Fund invests in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Fund invests primarily in corporate
debt securities.
Each fund or portfolio (each a 'Fund') is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A 'Statement of Additional Information' for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, write Alliance Fund Services, Inc. at the indicated address or
call the 'For Literature' telephone number shown above.
Each Fund offers three classes of shares that may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the 'Class A shares'), (ii) with
a contingent deferred sales charge imposed on most redemptions made within
three years of purchase (the 'Class B shares'), or (iii) without any initial or
contingent deferred sales charge (the 'Class C shares'), except that Alliance
World Income Trust offers only one class of shares which may be purchased at a
price equal to its net asset value without any initial or contingent deferred
sales charge. See 'Purchase and Sale of Shares.'
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
ALLIANCE
MUTUAL FUNDS WITHOUT THE MYSTERY.
R/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ('Alliance'), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 107 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $146 billion in
assets under management as of December 31, 1995. Alliance provides investment
management services to 29 of the FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
SEEKS . . . High current income consistent with preservation of capital.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
SEEKS . . . As high a level of current income as is consistent with safety of
principal.
INVESTS SOLELY IN . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.
LIMITED MATURITY GOVERNMENT FUND
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value.
INVESTS PRIMARILY IN . . . U.S. Government securities, including
mortgage-related securities, and repurchase agreements relating to U.S.
Government securities.
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUNDS
WORLD INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated securities.
SHORT-TERM MULTI-MARKET TRUST
SEEKS . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso, and
expects to maintain at least 25% of its assets in securities denominated in the
U.S. Dollar. In addition, the Fund may invest up to 25% of its total assets in
debt securities issued by governmental entities in Argentina.
2
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
CORPORATE BOND FUND
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment;
secondarily, the Fund will attempt to increase its capital through appreciation
of its investments in order to preserve and, if possible, increase the
purchasing power of each shareholder's investment.
INVESTS PRIMARILY IN . . . A diversified portfolio of corporate bonds issued by
domestic and foreign issuers that give promise of relatively attractive yields.
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate as the daily
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. Some of the Funds invest in high-yield, high-risk bonds that are
rated below investment grade and are considered to have predominantly
speculative characteristics. The prices of non-U.S. Dollar denominated bonds
also fluctuate with changes in foreign exchange rates. Investment in the Global
Bond Funds, the Multi-Market Funds and any other Fund that may invest a
significant amount of its assets in non-U.S. securities involves risks not
associated with Funds that invest primarily in securities of U.S. issuers.
While the Funds invest principally in fixed-income securities, in order to
achieve their investment objectives, the Funds may at times use certain types
of derivative instruments, such as options, futures, forwards and swaps. These
instruments involve risks different from, and, in certain cases, greater than,
the risks presented by more traditional investments. These risks are fully
discussed in this Prospectus. See 'Description of the Funds-Additional
Investment Practices' and '-Risk Considerations.'
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund (except WORLD INCOME) can be purchased for a minimum initial investment of
$250, and subsequent investments can be made for as little as $50. For detailed
information about purchasing and selling shares, see 'Purchase and Sale of
Shares.' In addition, the Funds offer several time and money saving services to
investors. Be sure to ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24 HOUR INFORMATION
ALLIANCE
MUTUAL FUNDS WITHOUT THE MYSTERY.
R/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund, other than WORLD INCOME, and annual operating
expenses for each class of shares of each Fund. WORLD INCOME, which has only
one class of shares, has no sales charge on purchases or reinvested dividends,
deferred sales charge, redemption fee or exchange fee. For each Fund, the
'Examples' below show the cumulative expenses attributable to a hypothetical
$1,000 investment, assuming a 5% annual return, in each class for the periods
specified.
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 4.25%(a) None None
Sales charge imposed on dividend
reinvestments None None None
Deferred sales charge (as a
percentage of original
purchase price or redemption
proceeds, whichever is lower) None 3.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
third year (b)
Exchange fee None None None
(A) REDUCED FOR LARGER PURCHASES. PURCHASES OF $1,000,000 OR MORE ARE NOT
SUBJECT TO AN INITIAL SALES CHARGE BUT MAY BE SUBJECT TO A 1% DEFERRED SALES
CHARGE ON REDEMPTIONS WITHIN ONE YEAR OF PURCHASE. SEE 'PURCHASE AND SALE OF
SHARES-HOW TO BUY SHARES' -PAGE 37.
(B) CLASS B SHARES OF EACH FUND AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER
SIX YEARS. SEE 'PURCHASE AND SALE OF SHARES-HOW TO BUY SHARES' -PAGE 37.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------- ----------------------------------------------------
SHORT-TERM U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees(b)(after
waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66
Other expenses(a)(b)(after After 5 years $116 $113 $113 $113
reimbursement) 1.10% 1.10% 1.10% After 10 years $203 $209 $209 $243
Total fund operating
expenses(b) 1.40% 2.10% 2.10%
U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .53% .53% .53% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54
Other expenses(a) .18% .19% .18% After 5 years $ 96 $ 93 $ 93 $ 93
Total fund operating After 10 years $161 $167 $167 $202
expenses 1.01% 1.72% 1.71%
LIMITED MATURITY GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .65% .65% .65% After 1 year $ 63 $ 59 $ 29 $ 29
12b-1 fees .30% 1.00% 1.00% After 3 years $107 $ 98 $ 88 $ 88
Other expenses After 5 years $153 $150 $150 $150
Interest expense .73% .74% .75% After 10 years $279 $285 $285 $318
Other operating expenses(a) .46% .46% .45%
Total other expenses 1.19% 1.20% 1.20%
Total fund operating expense(h) 2.14% 2.85% 2.85%
MORTGAGE SECURITIES INCOME CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .51% .51% .51% After 1 year $ 59 $ 54 $ 24 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 93 $ 84 $ 74 $ 73
Other expenses After 5 years $129 $127 $127 $126
Interest expense .63% .63% .62% After 10 years $231 $237 $237 $269
Other operating expenses(a) .22% .23% .22%
Total other expenses .85% .86% .84%
Total fund operating expenses(g) 1.66% 2.37% 2.35%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 5.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- ---------------------------------------------------------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WORLD INCOME
Management fees(c)(after waiver) .49% After 1 year $ 20
12b-1 fees(c)(after waiver) .68% After 3 years $ 62
Other expenses(a) .80% After 5 years $106
Total fund operating After 10 years $230
expenses(c) 1.97%
SHORT-TERM MULTI-MARKET CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .55% .55% .55% After 1 year $ 54 $ 50 $ 20 $ 19
12b-1 fees .30% 1.00% 1.00% After 3 years $ 80 $ 71 $ 61 $ 60
Other expenses(a) .38% .40% .37% After 5 years $107 $105 $105 $104
Total fund operating expenses 1.23% 1.95% 1.92% After 10 years $185 $192 $192 $224
MULTI-MARKET STRATEGY CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 91 $ 82 $ 72 $ 72
Other expenses After 5 years $126 $123 $123 $123
Interest expense .05% .07% .05% After 10 years $224 $229 $229 $263
Other operating expenses(a) .65% .62% .64%
Total other expenses .70% .69% .69%
Total fund operating
expenses(d) 1.60% 2.29% 2.29%
NORTH AMERICAN GOVERNMENT
INCOME CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees(e) .65% .65% .65% After 1 year $ 68 $ 64 $ 34 $ 34
12b-1 fees .30% 1.00% 1.00% After 3 years $120 $112 $102 $102
Other expenses After 5 years $176 $174 $174 $174
Interest expense 1.11% 1.11% 1.12% After 10 years $325 $331 $331 $362
Other operating expenses(a) .56% .57% .56%
Total other expenses 1.67% 1.68% 1.68%
Total fund operating
expenses(f) 2.62% 3.33% 3.33%
GLOBAL DOLLAR GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .75% .75% .75% After 1 year $ 61 $ 57 $ 27 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $ 92 $ 82 $ 82
Other expenses(a) .88% .89% .88% After 5 years $142 $140 $140 $140
Total fund operating expenses 1.93% 2.64% 2.63% After 10 years $258 $264 $264 $296
CORPORATE BOND CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
- ------------------------------- ------- ------- ------- ------- -------- --------- -------
Management fees .63% .63% .63% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 80 $ 72 $ 62 $ 61
Other expenses(a) .32% .36% .32% After 5 years $108 $107 $107 $105
Total fund operating expenses 1.25% 1.99% 1.95% After 10 years $187 $195 $195 $227
</TABLE>
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS.
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS.
(A) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE, BASED ON A FIXED DOLLAR AMOUNT
CHARGED TO THE FUND FOR EACH SHAREHOLDER'S ACCOUNT.
(B) NET OF VOLUNTARY FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH
WAIVERS AND REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER
EXPENSES WOULD HAVE BEEN 2.86% FOR CLASS A, 2.78% FOR CLASS B AND 2.68% FOR
CLASS C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 3.71% FOR CLASS A,
4.33% FOR CLASS B AND 4.23% FOR CLASS C.
(C) NET OF VOLUNTARY FEE WAIVERS. ABSENT SUCH WAIVERS, ANNUALIZED MANAGEMENT
FEES WOULD HAVE BEEN .65%, ANNUALIZED RULE 12B-1 FEES WOULD HAVE BEEN .90% AND
ANNUALIZED TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.35%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.55%, FOR CLASS B, 2.22% AND FOR CLASS C, 2.24%.
(E) REPRESENTS .65 OF 1% OF THE AVERAGE DAILY VALUE OF THE FUND'S ADJUSTED
TOTAL NET ASSETS.
(F) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.51%, FOR CLASS B, 2.22% AND FOR CLASS C, 2.21%.
(G) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.03%, FOR CLASS B, 1.74%, FOR CLASS C, 1.73%.
(H) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.41%, FOR CLASS B, 2.11%, FOR CLASS C, 2.10%.
5
The purpose of the tables on pages 4 and 5 is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See 'Management of the
Funds-Distribution Services Agreements.' The Rule 12b-1 fee for each class
comprises a service fee not exceeding .25% of the aggregate average daily net
assets of the Fund attributable to the class and an asset-based sales charge
equal to the remaining portion of the Rule 12b-1 fee. With respect to each of
MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME, 'interest expense'
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See 'Risk Considerations-Effects of
Borrowing.' Excluding interest expense, total fund operating expenses of each
of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, MORTGAGE SECURITIES
INCOME and LIMITED MATURITY GOVERNMENT would be lower (see notes (d), (f), (g)
and (h) above) and the cumulative expenses shown in the Examples above with
respect to those Funds would be lower. The management fee rate of GLOBAL DOLLAR
GOVERNMENT is higher than that paid by most other investment companies, but
Alliance believes the fee is comparable to those paid by investment companies
of similar investment orientation. The expense ratios for Class B and Class C
shares of MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME are higher
than the expense ratios of most other mutual funds, but are comparable to the
expense ratios of mutual funds whose shares are similarly priced. The Examples
set forth above assume reinvestment of all dividends and distributions and
utilize a 5% annual rate of return as mandated by Commission regulations. THE
EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE EXPENSES;
ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
6
FINANCIAL HIGHLIGHTS
_______________________________________________________________________________
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for SHORT-TERM U.S. GOVERNMENT has been audited by
Price Waterhouse LLP, the independent accountants for the Fund, and for U.S.
GOVERNMENT, LIMITED MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD
INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and CORPORATE BOND has been audited
by Ernst & Young LLP, the independent auditors for each Fund. A report of Price
Waterhouse LLP or Ernst & Young LLP, as the case may be, on the information
with respect to each Fund appears in the Fund's Statement of Additional
Information. The following information for each Fund should be read in
conjunction with the financial statements and related notes which are included
in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the 'Literature'
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- ----------------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT+
CLASS A
Year Ended 8/31/95 $ 9.67 $ .42 $ .05 $ .47 $ (.41) $0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/95 $ 9.78 $ .36 $ .04 $ .40 $ (.34) $0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/95 $ 9.77 $ .34 $ .06 $ .40 $ (.34) $0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/95 $ 7.84 $ .64 $ .13 $ .77 $ (.65) $0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88 8.90 .93 (.39) .54 (.93) 0.00
Year Ended 6/30/87 9.24 .98 (.34) .64 (.98) 0.00
12/1/85+ to 6/30/86 9.45 .63 (.21) .42 (.63) 0.00
CLASS B
Year Ended 6/30/95 $ 7.84 $ .58 $ .13 $ .71 $(.59) $0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/95 $ 7.83 $ .58 $ .14 $ .72 $(.59) $0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
4/30/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
LIMITED MATURITY GOVERNMENT
CLASS A
Year Ended 11/30/95 $ 9.51 $ .52(h) $ .02 $ .54 $(.50) $0.00
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
Year Ended 11/30/95 $ 9.52 $ .46(h) $ .01 $ .47 $(.44) $0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
Year Ended 11/30/95 $ 9.52 $ .46(h) $.01 $ .47 $(.44) $0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
MORTGAGE SECURITIES INCOME
CLASS A
Year Ended 12/31/95 $ 8.13 $ .57(h) $ .64 $1.21 $(.57) $0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87 9.74 1.00 (.68) .32 (1.00) (.03)
Year Ended 12/31/86 9.97 1.06 (.02) 1.04 (1.06) (.21)
CLASS B
Year Ended 12/31/95 $ 8.13 $ .51(h) $ .64 $1.15 $(.51) $0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
Year Ended 12/31/95 $ 8.13 $ .51(h) $ .64 $1.15 $(.51) $0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
WORLD INCOME
Year Ended 10/31/95 $ 1.88 $ .11(h) $(.23) $(.12) $0.00 $0.00
Year Ended 10/31/94 1.90 .18 (.12) .06 (.05) 0.00
Year Ended 10/31/93 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91 2.00 .14 (.03) .11 (.13) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
8
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
- ------------ -------- ------------- --------- --------------- ------------ ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.03) $0.00 $(.44) $ 9.70 5.14% $ 2,997 1.40%(d) 4.56% 15%
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40(d) 3.98 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$(.03) $0.00 $(.37) $ 9.81 4.32% $ 6,380 2.10%(d) 3.82% 15%
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10(d) 3.22 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$(.03) $0.00 $(.37) $ 9.80 4.33% $ 5,180 2.10%(d) 3.80% 15%
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10(d) 3.26 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $0.00 $(.65) $ 7.96 10.37% $463,660 1.01% 8.27% 190%
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
0.00 0.00 (.93) 8.51 6.41 529,909 1.14 10.70 149
0.00 0.00 (.98) 8.90 7.00 496,600 1.07(d) 10.36 255
0.00 0.00 (.63) 9.24 4.53 128,870 1.01*(d) 9.30* 193
$0.00 $0.00 $(.59) $ 7.96 9.52% $774,097 1.72% 7.57% 190%
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 .00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 .00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $0.00 $(.59) $ 7.96 9.67% $181,948 1.71% 7.59% 190%
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 .00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $(.03) $(.53) $ 9.52 5.91% $ 27,887 2.14%(e) 5.53% 293%
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $(.03) $(.47) $ 9.52 5.05% $84,362 2.85%(e) 4.83% 293%
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $(.03) $(.47) $ 9.52 5.06% $68,459 2.85%(e) 4.84% 293%
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.58*(e) 3.70* 499
$0.00 $(.02) $(.59) $ 8.75 15.34% $502,390 1.66%(e) 6.77% 285%
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
0.00 0.00 (1.03) 9.03 3.49 682,650 1.15 10.79 211
0.00 0.00 (1.27) 9.74 11.18 756,730 1.00 10.86 190
$0.00 $(.02) $(.53) $ 8.75 14.48% $737,593 2.37%(e) 6.06% 285%
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$0.00 $(.02) $(.53) $ 8.75 14.46% $ 45,558 2.35%(e) 6.07% 285%
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$0.00 $(.10) $(.10) $ 1.66 (6.35)% $55,778 1.97%(d) 6.46% N/A
0.00 (.03) (.08) 1.88 3.27 103,310 1.70(d) 3.96 N/A
0.00 0.00 (.07) 1.90 3.51 149,623 1.54(d) 5.14 N/A
0.00 0.00 (.09) 1.91 1.26 318,716 1.59(d) 7.21 N/A
0.00 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d) 7.29* N/A
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
9
<TABLE>
<CAPTION>
<CAPTION>
A NET NET NET
ASSET REALIZED AND INCREASE
VALUE UNREALIZED (DECREASE) IN DIVIDENDS FROM DISTRIBUTIONS
BEGINNING OF NET INVESTMENT GAIN (LOSS) ON NET ASSET VALUE NET INVESTMENT FROM NET
FISCAL YEAR OR PERIOD PERIOD INCOME (LOSS) INVESTMENTS FROM OPERATIONS INCOME REALIZED GAINS
- ----------------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MULTI-MARKET
CLASS A
Year Ended 10/31/95 $ 8.71 $ .46(h) $ (.98) $ (.52) $ 0.00 $0.00
Year Ended 10/31/94 9.25 .93 (.86) .07 0.00 0.00
Year Ended 10/31/93 9.25 .92 (.32) .60 (.60) 0.00
Year Ended 10/31/92 9.94 .91 (.86) .05 (.72) (.02)
Year Ended 10/31/91 9.89 .97 .06 1.03 (.97) (.01)
Year Ended 10/31/90 9.69 1.09 .19 1.28 (1.08) 0.00
5/5/89+ to 10/31/89 9.70 .53 (.01) .52 (.53) 0.00
CLASS B
Year Ended 10/31/95 $ 8.71 $ .41(h) $ (.99) $ (.58) $ 0.00 $0.00
Year Ended 10/31/94 9.25 .94 (.93) .01 0.00 0.00
Year Ended 10/31/93 9.25 .87 (.34) .53 (.53) 0.00
Year Ended 10/31/92 9.94 .84 (.86) (.02) (.65) (.02)
Year Ended 10/31/91 9.89 .89 .07 .96 (.90) (.01)
2/5/90++ to 10/31/90 9.77 .74 .12 .86 (.74) 0.00
CLASS C
Year Ended 10/31/95 $ 8.71 $ .39(h) $ (.97) $ (.58) $ 0.00 $0.00
Year Ended 10/31/94 9.25 .58 (.57) .01 0.00 0.00
5/3/93++ to 10/31/93 9.18 .28 .05 .33 (.26) 0.00
MULTI-MARKET STRATEGY
CLASS A
Year Ended 10/31/95 $ 8.04 $ .77(h) $(1.31) $ (.54) $ 0.00 $0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
Year Ended 10/31/95 $ 8.04 $ .44(h) $(1.05) $ (.61) $ 0.00 $0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
Year Ended 10/31/95 $ 8.04 $ .44(h) $(1.04) $ (.60) $ 0.00 $0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
Year Ended 11/30/95 $ 8.13 $1.18(h) $(1.59) $ (.41) $ 0.00 $0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
Year Ended 11/30/95 $ 8.13 $1.13(h) $(1.61) $ (.48) $ 0.00 $0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
Year Ended 11/30/95 $ 8.13 $1.13(h) $(1.61) $ (.48) $ 0.00 $0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/95 $ 9.14 $ .86 $(1.10) $ (.24) $ (.88) $0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/95 $ 9.14 $ .80 $(1.11) $ (.31) $ (.81) $0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/95 $ 9.14 $ .79 $(1.10) $ (.31) $ (.81) $0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/95 $12.51 $1.19 $ .36 $1.55 $(1.14) $0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
Year Ended 6/30/88 12.24 1.10 (.38) .72 (1.14) 0.00
Nine Months Ended 6/30/87 12.25 .86 (.06) .80 (.81) 0.00
Year Ended 9/30/86 11.52 1.20 .73 1.93 (1.20) 0.00
Year Ended 9/30/85 10.50 1.24 1.04 2.28 (1.26) 0.00
CLASS B
Year Ended 6/30/95 $12.50 $1.11 $ .36 $1.47 $(1.05) $0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/95 $12.50 $1.10 $ .38 $1.48 $(1.05) $0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/30/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
10
<TABLE>
<CAPTION>
DISTRIBUTIONS TOTAL NET ASSETS RATIO OF NET
IN EXCESS TOTAL INVESTMENT AT END OF RATIO INVESTMENT
OF NET RETURN DIVIDENDS NET ASSET RETURN PERIOD OF EXPENSES INCOME (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END BASED ON NET (000'S TO AVERAGE TO AVERAGE TURNOVER
INCOME CAPITAL DISTRIBUTIONS OF PERIOD ASSET VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
- ------------ -------- ------------- --------- --------------- ------------ ----------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $(.72) $ (.72) $ 7.47 (5.74)% $ 320,333 1.23% 7.39% 230%
0.00 (.61) (.61) 8.71 .84 593,677 1.13 7.28 109
0.00 0.00 (.60) 9.25 6.67 953,571 1.16 8.26 182
0.00 0.00 (.74) 9.25 .49 1,596,903 1.10 9.00 133
0.00 0.00 (.98) 9.94 10.91 2,199,393 1.09 9.64 146
0.00 0.00 (1.08) 9.89 13.86 1,346,035 1.18 10.81 152
0.00 0.00 (.53) 9.69 5.57 210,294 1.14* 10.83* 10
$0.00 $(.66) $ (.66) $ 7.47 (6.50)% $ 523,530 1.95% 6.69% 230%
0.00 (.55) (.55) 8.71 .12 1,003,633 1.85 6.58 109
0.00 0.00 (.53) 9.25 5.91 1,742,703 1.87 7.57 182
0.00 0.00 (.67) 9.25 (.24) 2,966,071 1.81 8.28 133
0.00 0.00 (.91) 9.94 10.11 3,754,003 1.81 8.87 146
0.00 0.00 (.74) 9.89 9.07 1,950,330 1.86* 9.90* 152
$0.00 $(.66) $ (.66) $ 7.47 (6.49)% $3,416 1.92% 6.66% 230%
0.00 (.55) (.55) 8.71 .12 8,136 1.83 6.50 109
0.00 0.00 (.26) 9.25 3.66 5,538 1.82* 7.19* 182
$0.00 $(.67) $ (.67) $ 6.83 (6.47)% $ 76,837 1.60%(f) 8.56% 400%
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$0.00 $(.60) $ (.60) $ 6.83 (7.31)% $ 116,551 2.29%(f) 7.53% 400%
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$0.00 $(.61) $ (.61) $ 6.83 (7.29)% $ 786 2.29%(f) 7.55% 400%
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10% 605%
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
$0.00 $(.97) $ (.97) $ 6.75 (3.59)% $ 252,608 2.62%(f) 18.09% 180%
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93* 86
$0.00 $(.90) $ (.90) $ 6.75 (4.63)% $1,123,074 3.33%(f) 17.31% 180%
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16* 86
$0.00 $(.90) $ (.90) $ 6.75 (4.63)% $ 219,009 3.33%(f) 17.32% 180%
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
$0.00 $0.00 $ (.88) $ 8.02 (1.48)% $ 12,020 1.93% 11.25% 301%
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$0.00 $0.00 $ (.81) $ 8.02 (2.40)% $ 62,406 2.64% 10.52% 301%
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$0.00 $0.00 $ (.81) $ 8.02 (2.36)% $ 9,330 2.63% 10.46% 301%
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$0.00 $0.00 $(1.14) $12.92 13.26% $ 230,750 1.24% 9.70% 387%
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
0.00 0.00 (1.14) 11.82 6.24 37,587 1.81 9.24 98
0.00 0.00 (.81) 12.24 7.32 41,072 1.27 9.17 95
0.00 0.00 (1.20) 12.25 17.19 45,178 1.08 9.80 240
0.00 0.00 (1.26) 11.52 22.66 40,631 1.15 11.00 142
$0.00 $0.00 $(1.05) $12.92 12.54% $ 241,393 1.99% 9.07% 387%
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (.50) 14.15 17.75 55,508 2.10* 7.18* 579
$0.00 $0.00 $(1.05) $12.93 12.62% $ 51,028 1.84% 8.95% 387%
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
11
+ PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
('EQUITABLE') SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
'TRUST'), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER OF THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL FOR
THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B AND
$(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING AN INITIAL INVESTMENT MADE
AT THE NET ASSET VALUE AT THE BEGINNING OF THE PERIOD, REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AT THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) 'TOTAL DIVIDENDS AND DISTRIBUTIONS' INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME WITH RESPECT TO CLASS A SHARES,
FOR THE YEAR ENDED APRIL 30, 1994, OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994,
3.71% FOR THE YEAR ENDED AUGUST 31, 1995; WITH RESPECT TO CLASS B SHARES, 4.81%
(ANNUALIZED) FOR 1993, 3.21% FOR THE YEAR ENDED APRIL 30, 1994, 3.60%
(ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994, 4.33% FOR THE YEAR ENDED
AUGUST 31, 1995; AND WITH RESPECT TO CLASS C SHARES, 3.10% (ANNUALIZED) FOR THE
YEAR ENDED APRIL 30, 1994, 3.64% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31,
1994, 4.23% FOR THE YEAR ENDED AUGUST 31, 1995. IF U.S. GOVERNMENT HAD BORNE
ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN 1.22% FOR 1986 AND 1.09% FOR
1987. IF LIMITED MATURITY GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.55% (ANNUALIZED) FOR 1992;
AND WITH RESPECT TO CLASS B SHARES, 2.28% (ANNUALIZED) FOR 1992. THE RATIO OF
NET INVESTMENT INCOME TO AVERAGE NET ASSETS FOR LIMITED MATURITY GOVERNMENT
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 6.47% (ANNUALIZED) FOR 1992;
AND WITH RESPECT TO CLASS B SHARES, 5.86% (ANNUALIZED) FOR 1992. IF WORLD
INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN 1.87% FOR
1992, 1.92% FOR 1993, 2.08% FOR 1994, AND 2.35% FOR 1995. IF NORTH AMERICAN
GOVERNMENT INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN
WITH RESPECT TO CLASS A SHARES, 2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT
TO CLASS B SHARES, 3.16% (ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD
BORNE ALL EXPENSES FOR THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.91%
(ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 2.63% (ANNUALIZED); AND WITH
RESPECT TO CLASS C SHARES, 2.59% (ANNUALIZED).
(E) INCLUDES INTEREST EXPENSES. IF LIMITED MATURITY GOVERNMENT HAD NOT BORNE
INTEREST EXPENSES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN
WITH RESPECT TO CLASS A SHARES, 1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993,
1.20% FOR 1994, AND 1.41% FOR 1995; WITH RESPECT TO CLASS B SHARES, 2.10%
(ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91% FOR 1994, AND 2.11% FOR 1995; AND
WITH RESPECT TO CLASS C SHARES, 1.74% (ANNUALIZED), FOR 1993, 1.89% FOR 1994,
2.10% FOR 1995. IF MORTGAGE SECURITIES INCOME FUND HAD NOT BORNE INTEREST
EXPENSE THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES .97% FOR 1994, AND 1.03% FOR 1995; WITH RESPECT TO
CLASS B SHARES, 1.68% FOR 1994, AND 1.74% FOR 1995; AND WITH RESPECT TO CLASS C
SHARES 1.69% FOR 1994, AND 1.73% FOR 1995.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE INTEREST
EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE
BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991, 1.33% FOR
1992, 1.40% FOR 1993 AND 1.30% FOR 1994, 1.55% FOR 1995; WITH RESPECT TO CLASS
B SHARES, 2.05% (ANNUALIZED) FOR 1991, 2.05% FOR 1992, 2.11% FOR 1993 AND 2.01%
FOR 1994, 2.22% FOR 1995; AND WITH RESPECT TO CLASS C SHARES, 2.11%
(ANNUALIZED) FOR 1993 AND 1.99% FOR 1994, 2.24% FOR 1995. IF NORTH AMERICAN
GOVERNMENT INCOME HAD NOT BORNE INTEREST EXPENSES, THE RATIO OF EXPENSES (NET
OF INTEREST EXPENSES) TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO
CLASS A SHARES, 1.66% (ANNUALIZED) FOR 1992, 1.33% FOR 1993 AND 1.37% FOR 1994,
1.51% FOR 1995; WITH RESPECT TO CLASS B SHARES, 2.35% (ANNUALIZED) FOR 1992,
2.04% FOR 1993 AND 2.07% FOR 1994, 2.22% FOR 1995; AND WITH RESPECT TO CLASS C
SHARES, 2.04% (ANNUALIZED) FOR 1993 AND 2.06% FOR 1994, 2.21% FOR 1995.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
(H)BASED ON AVERAGE SHARES OUTSTANDING.
12
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under 'Description of the Funds-Additional
Investment Practices' and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the Funds'
investment policies may be determined by Alliance to be of equivalent quality
to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or above), HIGH
GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by, as the case
may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated securities,
as defined below. In the case of 'split-rated' fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to be the most
appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba and BB or below, or
determined by Alliance to be of equivalent quality and are commonly referred to
as 'junk bonds.'
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled for
sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities,
SMRS, which are stripped mortgage-related securities,
CMOS, which are collateralized mortgage obligations,
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association,
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association, and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and another of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch Investors Service, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps. HIGHER
QUALITY COMMERCIAL PAPER is commercial paper rated at least Prime-2 by Moody's,
A-2 by S&P, Fitch-2 by Fitch or Duff 2 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the 'SECURITIES ACT').
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
13
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are 'fundamental' and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ('Short-Term U.S. Government') seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. The Fund's investment objective is not
fundamental.
In addition to investing in U.S. Government securities, the
Fund may invest a portion of its assets in securities of non-governmental
issuers. Although these investments will be of high quality at the time of
purchase, they generally involve higher levels of credit risk than do U.S.
Government securities, as well as the risk (present with all fixed-income
securities) of fluctuations in value as interest rates change. The Fund will
not be obligated to dispose of any security whose credit quality falls below
high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales 'against the
box,' (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements,
(vi) purchase and sell futures contracts for hedging purposes, (vii) purchase
and sell call and put options on futures contracts or on securities, for
hedging purposes or to earn additional income, (viii) make secured loans of
portfolio securities, (ix) enter into repurchase agreements, and (x) purchase
securities for future delivery. The Fund may not invest more than 5% of its
total assets in securities the disposition of which is restricted under Federal
securities laws (excluding, to the extent permitted by applicable law, Rule
144A securities). For additional information on the use, risks and costs of
these practices, see 'Additional Investment Practices.'
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ('U.S. Government') seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see 'Additional Investment Practices.' The Fund's investment
objective is not fundamental.
Counsel to the Fund has advised the Fund that, in their view, shares of the
Fund are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United
States, (ii) savings and loan associations chartered under the laws of Arizona,
Arkansas, California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas,
Louisiana, Maine, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New
Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee,
Texas, Utah and Washington, (iii) credit unions chartered under the laws of
California, Florida*, Kentucky, Maine, Maryland*, Minnesota, Nevada, New York,
Ohio*, Pennsylvania*, Rhode Island, Tennessee, Utah and West Virginia, and (iv)
commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Delaware, Florida, Hawaii*, Illinois, Indiana, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York,
North Carolina*, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island,
Tennessee, Texas, Vermont, Washington, West Virginia and Wyoming. Institutions
in the asterisked(*) states should obtain prior state regulatory approval
before investing in shares of the Fund. In addition, the Fund believes that it
is currently a legal investment for savings and loan associations, credit
unions and commercial banks chartered under the laws of certain other states.
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund, Inc. ('Limited Maturity Government')
seeks the highest level of current income, consistent with low volatility of
net asset value. As a matter of fundamental policy, the Fund normally has at
least 65% of the value of its total assets invested in U.S. Government
securities, including mortgage-related securities, and repurchase agreements
relating to U.S. Government securities. For a description of these securities,
see 'Additional Investment Practices.'
In pursuing its investment objective and policies, the Fund takes advantage of
a wide range of maturities of debt securities and adjusts the dollar-weighted
average maturity of its portfolio from time to time, depending on its
assessment of
14
relative yields on securities of different maturities and the expected effect
of future changes in interest rates on the market value of the Fund's
portfolio. At all times, however, each security held by the Fund has either a
final maturity of not more than 10 years or a duration not exceeding that of a
10-year Treasury note. Duration is a measure that relates the price volatility
of a security to changes in interest rates. The duration of a debt security is
the weighted average term to maturity, expressed in years, of the present value
of all future cash flows, including coupon payments and principal repayments.
Thus, by definition, duration is always less than or equal to full maturity.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
The Fund may invest up to 35% of its total assets in (i) high quality
asset-backed securities, including mortgage-related securities that are not
U.S. Government securities, (ii) Treasury securities issued by private
corporate issuers, (iii) certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of domestic and foreign banks having total
assets of more than $1 billion, (iv) higher quality commercial paper or, if not
rated, issued by companies that have outstanding high quality debt issues and
(v) high quality debt securities of corporate issuers.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these investment practices, see 'Additional Investment Practices.'
The Fund may invest up to 15% of the value of its total assets in debt
securities denominated in U.S. Dollars or in foreign currencies and issued or
guaranteed by foreign governments or issued by foreign non-governmental
issuers, provided that such foreign debt securities are of high quality. The
percentage of the Fund's assets invested in foreign debt securities will vary
and its portfolio of foreign debt securities may include those of a number of
foreign countries or, depending upon market conditions, those of a single
country. See 'Risk Considerations-Foreign Investment.'
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ('Mortgage Securities Income')
is a diversified investment company that seeks a high level of current income
to the extent consistent with prudent investment risk. The Fund invests
primarily in a diversified portfolio of mortgage-related securities, including
CMOs, and, as a matter of fundamental policy, maintains at least 65% of its
total assets in mortgage-related securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See 'Risk Considerations-Securities Ratings' and '-Investment in
Lower-Rated Fixed-Income Securities.' The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
'Additional Investment Practices.'
MULTI-MARKET FUNDS
The Multi-Market Funds are non-diversified investment companies that have been
designed to offer investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund.
ALLIANCE WORLD INCOME TRUST
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance World Income Trust, Inc. ('World Income'), Alliance Short-Term Multi-
Market Trust, Inc. ('Short-Term Multi-Market') and Alliance Multi-Market
Strategy Trust, Inc. ('Multi-Market Strategy') each seek the highest level of
current income, consistent with what Alliance considers to be prudent
investment risk, that is available from a portfolio of high quality debt
securities having remaining maturities of not more than,
15
with respect to WORLD INCOME, one year, with respect to SHORT-TERM
MULTI-MARKET, three years, and with respect to MULTI-MARKET STRATEGY, five
years. Each Fund seeks high current yields by investing in a portfolio of debt
securities denominated in the U.S. Dollar and selected foreign currencies. The
Multi-Market Funds seek investment opportunities in foreign, as well as
domestic, securities markets. WORLD INCOME, which is not a money market fund,
will maintain at least 35% of its net assets in U.S. Dollar-denominated
securities. SHORT-TERM MULTI-MARKET will normally maintain a substantial
portion of its assets in debt securities denominated in foreign currencies but
will invest at least 25% of its net assets in U.S. Dollar-denominated
securities. MULTI-MARKET STRATEGY normally expects to maintain at least 70% of
its assets in debt securities denominated in foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to
minimize credit risk and fluctuations in net asset value by investing only in
short-term debt securities. Normally, a high proportion of these Funds'
portfolios consists of money market instruments. Alliance actively manages the
Multi-Market Funds' portfolios in accordance with a multi-market investment
strategy, allocating a Fund's investments among securities denominated in the
U.S. Dollar and the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. Alliance adjusts
each Multi-Market Fund's exposure to each currency such that the percentage of
assets invested in securities of a particular country or denominated in a
particular currency varies in accordance with Alliance's assessment of the
relative yield and appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength, credit quality
and interest rate trends are the principal factors considered by Alliance in
determining whether to increase or decrease the emphasis placed upon a
particular type of security or industry sector within the Fund's investment
portfolio. None of the Multi-Market Funds invests more than 25% of its net
assets in debt securities denominated in a single currency other than the U.S.
Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
'cross-hedges' (see 'Additional Investment Practices-Forward Foreign Currency
Exchange Contracts'), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of a Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to a Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, a Fund could be in a less advantageous
position than if such a hedge had not been established.
Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition
to the U.S. Dollar, such currencies include, among others, the Australian
Dollar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish
Krone, Dutch Guilder, European Currency Unit ('ECU'), French Franc, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian
Krone, Spanish Peseta, Swedish Krona, Swiss Franc and German Mark.
An issuer of debt securities purchased by a Multi-Market Fund may be domiciled
in a country other than the country in whose currency the instrument is
denominated. In addition, the Funds may purchase debt securities (sometimes
referred to as 'linked' securities) that are denominated in one currency while
the principal amounts of, and value of interest payments on, such securities
are determined with reference to another currency. In this regard, as of the
date of this Prospectus each Fund has invested in U.S. Dollar denominated
securities issued by Mexican issuers and/or Peso-linked securities. The value
of these investments may fluctuate inversely in correlation with changes in the
Peso-Dollar exchange rate and with the general level of interest rates in
Mexico. For a general description of Mexico, see Appendix B and each
Multi-Market Fund's Statement of Additional Information.
Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a 'basket' consisting of specified amounts of the currencies of
certain of the member states of the European Union, a fifteen-nation
organization engaged in cooperative economic activities. The specific amounts
of currencies comprising the ECU may be adjusted by the Council of Ministers of
the European Union to reflect changes in relative values of the underlying
currencies.
Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and
Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and WORLD INCOME will
invest 65% (and normally substantially all) of its total assets in high quality
income-producing debt securities. Accordingly, the Multi-Market Funds'
portfolio securities will consist of (i) U.S. Government securities, (ii) high
quality foreign government securities, (iii)
16
obligations issued by supranational entities and corporate debt securities
having a triple-A rating, with respect to WORLD INCOME, or a high quality
rating, with respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, (iv)
certificates of deposit and bankers' acceptances issued or guaranteed by, or
time deposits maintained at, banks (including foreign branches of foreign
banks) having total assets of more than $1 billion, with respect to WORLD
INCOME, or $500 million, with respect to SHORT-TERM MULTI-MARKET and
MULTI-MARKET STRATEGY, and determined by Alliance to be of high quality, and
(v) prime commercial paper or, if not rated, determined by Alliance to be of
equivalent quality and issued by U.S. or foreign companies having outstanding:
in the case of WORLD INCOME, triple-A debt securities; in the case of
MULTI-MARKET STRATEGY, high quality debt securities; and in the case of
SHORT-TERM MULTI-MARKET, high grade debt securities.
As a matter of fundamental policy, each Multi-Market Fund concentrates at least
25% of its total assets in debt instruments issued by domestic and foreign
companies engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in 'Additional
Investment Practices-Repurchase Agreements.' See 'Risk
Considerations-Investment in the Banking Industry.'
Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign currencies,
(iv) purchase or sell forward foreign currency exchange contracts, (v) with
respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, enter into
interest rate swaps, caps and floors, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) make secured loans of its portfolio
securities, and (viii) enter into repurchase agreements. A Multi-Market Fund
will not invest in illiquid securities if, as a result, more than 10% of its
assets would be so invested. For additional information on the use, risks and
costs of these practices, see 'Additional Investment Practices.' MULTI-MARKET
STRATEGY maintains borrowings of approximately 25% of its total assets less
liabilities (other than the amount borrowed). See 'Risk Considerations-Effects
of Borrowing.'
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ('North American
Government Income') seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ('Government securities'). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ('Argentine Government securities'). The Fund expects that it will
not retain a debt security which is down-graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current state of the Mexican
economy.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities.
17
For a general description of Canada, Mexico and Argentina, see Appendix B and
the Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of Canada or any of
its provinces and Government of Canada bonds and Government of Canada Treasury
bills. Canada Treasury bills are debt obligations with maturities of less than
one year. A new issue of Government of Canada bonds frequently consists of
several different bonds with maturities ranging from one to 25 years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bono de Inversion y Crecimiento ('BIC'),
which are investment and growth bonds issued directly by the Argentine
Government with maturities of up to ten years, (ii) Bono de Consolidacion
Economica ('BOCON'), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years and (iii) Bono de
Credito a la Exportacion ('BOCREX'), which are export credit bonds issued
directly by the Argentine government with maturities of up to four years. To
date, Argentine Government securities are not rated by either S&P, Moody's,
Duff & Phelps or Fitch. Alliance, however, believes, that there are Argentine
Government securities that are of investment grade quality.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if, as a result, 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practices, see
'Additional Investment Practices.' The Fund also maintains borrowings of
approximately one-third of the Fund's total assets less liabilities (other than
the amount borrowed). See 'Risk Considerations-Effects of Borrowing.'
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ('Global Dollar Government') seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as 'Brady Bonds' that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ('collateralized Brady Bonds'). See 'Additional
Investment Practices-Brady Bonds.' The Fund may also invest up to 35% of its
total assets in U.S. and non-U.S. corporate fixed-income securities. See 'Risk
Considerations-U.S. Corporate Fixed-Income Securities.' The Fund will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate
fixed-income securities to U.S. Dollar-denominated securities. Alliance expects
that, based upon current market conditions, the Fund's portfolio of U.S.
fixed-income securities will have an average maturity range of approximately
nine to 15 years and the Fund's portfolio of non-U.S. fixed-income securities
will have an average maturity range of approximately 15 to 25 years. Alliance
anticipates that the Fund's portfolio of sovereign debt obligations will have a
longer average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the
18
event of adverse business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal. For a
description of bond ratings, see Appendix A. The Fund may also invest in
investment grade securities. Unrated securities will be considered for
investment by the Fund when Alliance believes that the financial condition of
the issuers of such obligations and the protection afforded by the terms of the
obligations themselves limit the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's investment
objectives and policies. As of August 31, 1995, the percentages of the Fund's
assets invested in securities rated (or considered by Alliance to be of
equivalent quality to securities rated) in particular rating categories were 3%
in A and above, 57% in Ba or BB, 34% in B, 4% in Caa or CCC, and 2% in
non-rated. See 'Risk Considerations-Securities Ratings,' '-Investment in
Fixed-Income Securities Rated Baa and BBB,' '-Investment in Lower-Rated
Fixed-Income Securities' and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
initial investment focus is expected to be in securities or obligations of
Argentina, Brazil, Mexico, Morocco, the Philippines and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. See Appendix A to the Fund's
Statement of Additional Information for information about those six countries.
Alliance anticipates that other countries that will provide initial investment
opportunities for the Fund include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand,
Turkey and Uruguay. See 'Additional Investment Practices-Brady Bonds.'
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, each of which
is an emerging market country, and the Fund will limit investments in the
sovereign debt obligations of each such country (or of any other single foreign
country) to less than 25% of its total assets. The Fund expects that it will
not invest more than 10% of its total assets in the sovereign debt obligations
and corporate fixed-income securities of issuers in any other single foreign
country and is not required to invest any minimum amount of its assets in the
securities or obligations of issuers located in any particular country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ('Discount
Obligations') and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of 'original issue discount'
previously accrued thereon, i.e., purchased at a 'market discount.'
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
'Additional Investment Practices.' While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See 'Risk
Considerations-Effects of Borrowing.'
CORPORATE BOND FUND
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ('Corporate Bond') is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and
19
policies may best be implemented by investing at least 65% of its total assets
in fixed-income securities considered investment grade or higher. The remainder
of the Fund's assets may be invested in lower-rated fixed-income securities.
See 'Risk Considerations-Securities Ratings,' '-Investment in Fixed-Income
Securities Rated Baa and BBB,' '-Investment in Lower-Rated Fixed-Income
Securities' and Appendix A. During the fiscal year ended June 30, 1995, on a
weighted average basis, the percentages of the Fund's assets invested in
securities rated (or considered by Alliance to be of equivalent quality to
securities rated) in particular rating categories were 23% in A and above, 44%
in Baa or BBB, 25% in Ba or BB, and 8% in B. The Fund did not invest in
securities rated below B by each of Moody's, S&P, Duff & Phelps and Fitch or,
if not rated, considered by Alliance to be of equivalent quality to securities
so rated.
The Fund has complete flexibility as to the types of securities in which it
will invest and the relative proportions thereof, and the Fund plans to vary
the proportions of its holdings of long-and short-term fixed-income securities
and of equity securities in order to reflect its assessment of prospective
cyclical changes even if such action may adversely affect current income.
However, substantially all of the Fund's investments will be income producing.
The average weighted maturity of the Fund's portfolio of fixed-income
securities is expected to vary between one year or less and 30 years.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities
and sovereign debt obligations. Not more than 15% of the Fund's total assets
may be invested in these other sovereign debt obligations, which may be lower
rated and considered to be predominantly speculative as regards the issuer's
capacity to pay interest and repay principal.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through. As a matter
of fundamental policy, the Fund will not purchase illiquid securities. For
additional information on the use, risks and costs of these practices, see
'Additional Investment Practices.'
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. Alliance is not an aggressive user of
derivatives with respect to any of the Funds. However, a Fund may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions. The MULTI-MARKET FUNDS in
particular generally make extensive use of carefully selected forwards and
other derivatives to achieve the currency hedging that is an integral part of
their investment strategy. Alliance's use of derivatives is subject to
continuous risk assessment and control from the standpoint of each Fund's
investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments-options, futures,
forwards and swaps-from which virtually any type of derivative transaction can
be created.
. OPTIONS-An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, while 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
would be obligated to sell (in the case
20
of a call option) or to purchase (in the case of a put option) the underlying
asset (or settle for cash an amount based on an underlying asset, rate or
index).
. FUTURES-A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. FORWARDS-A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
. SWAPS-A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the 'notional' principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to calculate
the payment streams but is not exchanged. With respect to currency swaps,
actual principal amounts of currencies may be exchanged by the counterparties
at the initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as 'structured securities.' An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See 'Indexed Commercial Paper'
and 'Structured Securities' below. The term 'derivative' is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under 'Mortgage-Related Securities' and 'Other
Asset-Backed Securities.'
While the judicious use of derivatives by highly experienced investment
managers such as Alliance can be quite beneficial, derivatives also involve
risks different from, and, in certain cases, greater than, the risks presented
by more traditional investments. Following is a general discussion of important
risk factors and issues concerning the use of derivatives that investors should
understand before investing in a Fund.
. MARKET RISK-This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
. MANAGEMENT RISK-Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio and
the ability to forecast price, interest rate or currency exchange rate
movements correctly.
. CREDIT RISK-This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a 'counterparty') to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
. LIQUIDITY RISK-Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction
or liquidate a position at an advantageous price.
. LEVERAGE RISK-Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
. OTHER RISKS-Other risks in using derivatives include the risk of mispricing
or improper valuation of derivatives and the
21
inability of derivatives to correlate perfectly with underlying assets, rates
and indices. Many derivatives, in particular privately negotiated derivatives,
are complex and often valued subjectively. Improper valuations can result in
increased cash payment requirements to counterparties or a loss of value to a
Fund. Derivatives do not always perfectly or even highly correlate or track the
value of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a Fund is 'covered' if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option
it has written. A put option written by a Fund is covered if the Fund holds a
put option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as 'cross-hedging.' A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved from other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and CORPORATE BOND generally
purchase or write privately negotiated options on securities. A Fund that
purchases or writes privately negotiated options on securities will effect such
transactions only with investment dealers and other financial institutions
(such as commercial banks or savings and loan institutions) deemed creditworthy
by Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Fund may be illiquid, and it may not be possible for the Fund
to effect a closing transaction at an advantageous time. See 'Illiquid
Securities' below. Neither MORTGAGE SECURITIES INCOME nor CORPORATE BOND will
purchase an option on a security if, immediately thereafter, the aggregate cost
of all outstanding options purchased by such Fund would exceed 2% of the Fund's
total assets. Nor will either such Fund write an option if, immediately
thereafter, the aggregate value of the Fund's portfolio securities subject to
outstanding options would exceed 15% of the Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants for debt securities or for equity
securities that are acquired in connection with debt instruments. Warrants do
not carry with them dividend or voting rights with respect to the underlying
securities, or any rights in the assets of the issuer. As a result, an
investment in warrants may be
22
considered more speculative than certain other types of investments. In
addition, the value of a warrant does not necessarily change with the value of
the underlying securities, and a warrant ceases to have value if it is not
exercised prior to its expiration date.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or
purchased by a Fund will be traded on U.S. or foreign exchanges and, except
with respect to SHORT-TERM U.S. GOVERNMENT, will be used only for hedging
purposes.
LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME will not enter into
a futures contract or option on a futures contract if immediately thereafter
the market values of the outstanding futures contracts of the Fund and the
currencies and futures contracts subject to outstanding options written by the
Fund would exceed 50% of its total assets. Nor will LIMITED MATURITY
GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY or NORTH AMERICAN GOVERNMENT INCOME do so if immediately
thereafter the aggregate of initial margin deposits on all the outstanding
futures contracts of the Fund and premiums paid on outstanding options on
futures contracts would exceed 5% of the market value of the total assets of
the Fund. In addition, MORTGAGE SECURITIES INCOME will not enter into (i) any
futures contract other than one on fixed-income securities or based on interest
rates, (ii) any futures contract if immediately thereafter the sum of the then
aggregate futures market prices of financial instruments required to be
delivered under open futures contract sales and the aggregate futures market
prices of instruments required to be delivered under open futures contract
purchases would exceed 30% of the value of the Fund's total assets, or (iii)
options on futures contracts.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
LIMITED MATURITY GOVERNMENT intends to use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR (to which many short-term
borrowings and floating rate securities in which the Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward contracts on foreign currencies ('forward contracts') attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to 'lock in' the U.S. Dollar price
of the security ('transaction hedge'). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount ('position hedge'). Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. Dollar amount where the Fund believes that
the U.S. Dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. Dollar value of the
currency in which portfolio securities of the Fund are denominated
('cross-hedge').
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a 'when-issued' basis or
purchases or sales on a 'delayed delivery' basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a 'when, as and if issued' trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
LIMITED MATURITY GOVERNMENT, NORTH AMERICAN GOVERNMENT INCOME or GLOBAL DOLLAR
GOVERNMENT if, as a result, the Fund's aggregate forward commitments under such
transactions would be more than 30% of its total assets.
23
A Fund's right to receive or deliver a security under a forward commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain
or loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or 'notional') amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT
INCOME may enter into interest rate swaps involving payments to the same
currency or in different currencies. SHORT-TERM U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT and
CORPORATE BOND will not enter into an interest rate swap, cap or floor
transaction unless the unsecured senior debt or the claims-paying ability of
the other party thereto is then rated in the highest rating category of at
least one nationally recognized rating organization. Each of SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME will
enter into interest rate swap, cap or floor transactions with its respective
custodian, and with other counterparties, but only if: (i) for transactions
with maturities under one year, such other counterparty has outstanding prime
commercial paper; or (ii) for transactions with maturities greater than one
year, the counterparty has outstanding high quality debt securities.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. No Fund will enter into a standby
commitment with a remaining term in excess of 45 days. The Funds will limit
their investments in standby commitments so that the aggregate purchase price
of the securities subject to the commitments does not exceed 20% of their
respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest and
principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
24
money market rate of return. A Fund will purchase such commercial paper for
hedging purposes only, not for speculation.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of the
issuer to borrow from the U.S. Treasury or backed only by the credit of the
issuing agency itself. These securities include:
(I) the following U.S. Treasury securities, which are backed
by the full faith and credit of the United States and differ only in their
interest rates, maturities and times of issuance: U.S. Treasury bills
(maturities of one year or less with no interest paid and hence issued at a
discount and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six months) and
U.S. Treasury bonds (generally maturities of greater than ten years with
interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the U.S.
Government, such as securities issued by GNMA, the Farmers Home Administration,
the Department of Housing and Urban Development, the Export-Import Bank, the
General Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit of the
U.S. Government, such as securities issued by FNMA and FHLMC, and governmental
CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
'Mortgage-Related Securities' below.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See 'Mortgage-Related Securities' below and 'Zero Coupon and
Principal-Only Securities' below. Although these stripped securities are
purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet developed and,
accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale to
investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
Although the market for mortgage-related securities is becoming increasingly
liquid, those of certain private organizations may not be readily marketable.
One type of mortgage-related security is of the 'pass-through' variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. Some mortgage-related securities, such as securities issued by
GNMA, are referred to as 'modified pass-through' securities. The holders of
these securities are entitled to the full and timely payment of principal and
interest, net of certain fees, regardless of
25
whether payments are actually made on the underlying mortgages. Another form of
mortgage-related security is a 'pay-through' security, which is a debt
obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer regardless of
whether payments are actually made on the underlying mortgages.
Collateralized mortgage obligations (CMOs) are the predominant type of
'pay-through' mortgage-related security. In a CMO, a series of bonds or
certificates is issued in multiple classes. Each class of a CMO, often referred
to as a 'tranche,' is issued at a specific coupon rate and has a stated
maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause it to be retired substantially earlier than the
stated maturities or final distribution dates. The principal and interest on
the underlying mortgages may be allocated among several classes of a series of
a CMO in many ways. In a common structure, payments of principal, including any
principal prepayments, on the underlying mortgages are applied to the classes
of the series of a CMO in the order of their respective stated maturities or
final distribution dates, so that no payment of principal will be made on any
class of a CMO until all other classes having an earlier stated maturity or
final distribution date have been paid in full. One or more tranches of a CMO
may have coupon rates that reset periodically, or 'float', at a specified
increment over an index such as LIBOR. Floating-rate CMOs may be backed by
fixed or adjustable rate mortgages. To date, fixed-rate mortgages have been
more commonly utilized for this purpose. Floating-rate CMOs are typically
issued with lifetime caps on the coupon rate thereon. These caps, similar to
the caps on adjustable-rate mortgages described below, represent a ceiling
beyond which the coupon rate on a floating-rate CMO may not be increased
regardless of increases in the interest rate index to which the floating-rate
CMO is tied. The collateral securing the CMOs may consist of a pool of
mortgages, but may also consist of mortgage-backed bonds or pass-through
securities. CMOs may be issued by a U.S. Government instrumentality or agency
or by a private issuer. Although payment of the principal of, and interest on,
the underlying collateral securing privately issued CMOs may be guaranteed by
GNMA, FNMA or FHLMC, these CMOs represent obligations solely of the private
issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC, any other
governmental agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets, while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Changes in
the values of IOs and POs can be substantial and occur quickly, such as
occurred in the first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this reason, none of the
Funds relies on IOs and POs as the principal means of furthering its investment
objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayment of the underlying mortgages. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event a Fund may
be unable to invest the proceeds from the early payment of the mortgage-related
securities in an investment that provides as high a yield as the
mortgage-related securities. Consequently, early payment associated with
mortgage-related securities causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments
26
tends to increase, thereby tending to decrease the life of mortgage-related
securities. During periods of rising interest rates, the rate of mortgage
prepayments usually decreases, thereby tending to increase the life of
mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, a Fund may not be able to realize the rate of return it
expected.
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 adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rate of
mortgage prepayments and early payment of mortgage-related securities generally
tends to decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as much
as the value of fixed-rate mortgage securities is affected by rising interest
rates, ARMS may still decline in value as a result of rising interest rates.
Although, as described above, the yield on ARMS varies with changes in the
applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome to perfect the interest of the security issuer in the underlying
collateral and the underlying collateral may become damaged or stolen.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and 'lock in' a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Currently the only U.S. Treasury security issued without coupons is
the Treasury bill. Although the U.S. Treasury does not itself issue Treasury
notes and bonds without coupons, under the U.S. Treasury STRIPS program
interest and principal payments on certain long-term Treasury securities may be
maintained separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years a number of
banks and brokerage firms have separated ('stripped') the principal portions
from the coupon portions of U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Commission has indicated
that, in its view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm involved and, therefore, should
not be included in a Fund's categorization of U.S. Government securities. The
Funds disagree with the staff's position but will not treat such securities as
U.S. Government securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the
27
distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see 'Dividends, Distributions and Taxes-Zero Coupon
Treasury Securities' in the Statement of Additional Information of each Fund
that is permitted to invest in such securities.
CORPORATE BOND may also invest in 'pay-in-kind' debentures (i.e., debt
obligations the interest on which may be paid in the form of obligations of the
same type rather than cash), which have characteristics similar to zero coupon
securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A 'variable' interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a 'floating'
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or 'cap.' The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT
and CORPORATE BOND may invest represent interests in entities organized and
operated solely for the purpose of restructuring the investment characteristics
of sovereign debt obligations, with respect to GLOBAL DOLLAR GOVERNMENT, or
foreign government securities, with respect to CORPORATE BOND. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans
or Brady Bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent
to that of the underlying instruments. Structured securities of a given class
may be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities. GLOBAL DOLLAR
GOVERNMENT may invest up to 25% of its total assets, and CORPORATE BOND may
invest without limit, in these types of structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender. The
assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT, or foreign government securities, with respect to CORPORATE
BOND, is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Fund may acquire an interest in a
loan is through a participation and not an assignment. A Fund may have
difficulty disposing of assignments and participations because to do so it will
have to assign such securities to a third party. Because there is no liquid
market for such securities, such securities can probably be sold only to a
limited number of institutional investors. The lack of a liquid secondary
market may have an adverse effect on the value of such securities and a Fund's
ability to dispose of particular assignments or participations when necessary
to meet its liquidity needs in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
28
GLOBAL DOLLAR GOVERNMENT may invest up to 25%, and CORPORATE BOND may invest up
to 15%, of their total assets, in loan participations and assignments. The
government that is the borrower on the loan will be considered by a Fund to be
the issuer of a loan participation or assignment for purposes of its
fundamental investment policy that it may not invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry (i.e., foreign government).
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the 'Brady Plan'). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to 'value
recovery payments' in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the 'residual risk'). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a convertible security will
normally vary with changes in the price of the underlying stock, although the
higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities tends to decline as interest rates increase and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings. For a description of these risks, see 'Risk
Considerations-Investment in Lower-Rated Fixed-Income Securities.'
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is 'against the box' if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales. If the price of the security sold short
increases between the time of the short sale and the time a Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Certain special federal income
tax considerations may apply to short sales entered into by a Fund. See
'Dividends, Distributions and Taxes' in the relevant Fund's Statement of
Additional Information.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining 'overnight' flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into
29
repurchase agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into
repurchase agreements on not more than 25% of its total assets. The Funds may
enter into repurchase agreements with member banks of the Federal Reserve
System or 'primary dealers' (as designated by the Federal Reserve Bank of New
York), although LIMITED MATURITY GOVERNMENT, WORLD INCOME, SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and
GLOBAL DOLLAR GOVERNMENT currently enter into repurchase agreements only with
their custodians and such primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the portfolio securities involved during the term of the reverse repurchase
agreement, while it will be able to keep the interest income associated with
those portfolio securities. Such transactions are advantageous only if the
interest cost to a Fund of the reverse repurchase transaction is less than the
cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund is compensated by the difference between the current sales price and the
lower forward price for the future purchase (often referred to as the 'drop')
as well as by the interest earned on the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative techniques and
are considered borrowings by the Funds. SHORT-TERM U.S. GOVERNMENT may enter
into reverse repurchase agreements with commercial banks and registered
broker-dealers in order to increase income, in an amount up to 33-1/3% of its
total assets. Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar rolls with respect
to greater than 50% of its total assets. Reverse repurchase agreements and
dollar rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not
exceed 33% of its total assets less liabilities (other than amounts borrowed).
See 'Risk Considerations-Effects of Borrowing.'
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high-grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 25%, with
respect to SHORT-TERM U.S. GOVERNMENT, and 20%, with respect to each of LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and
GLOBAL DOLLAR GOVERNMENT, of its total assets, nor will a Fund lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days. Rule
144A securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment
30
companies. In addition, under the 1940 Act the Fund may not own more than 3% of
the total outstanding voting stock of any investment company and not more than
5% of the value of the Fund's total assets may be invested in the securities of
any investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund or are not available but may yet be developed,
to the extent such investment practices are consistent with the Fund's
investment objective and legally permissible for the Fund. Such investment
practices, if they arise, may involve risks that exceed those involved in the
practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities including notes
and bonds. For Funds that may invest in foreign countries, such securities may
also include short-term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities, companies and
supranational organizations. For a complete description of the types of
securities in which a Fund may invest while in a temporary defensive position,
see the Fund's Statement of Additional Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under 'Financial
Highlights.' These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
'Dividends, Distributions and Taxes' in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
LIMITED MATURITY GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer or own more than 10% of the outstanding
voting securities of such issuer (other than U.S. Government securities),
except that up to 25% of the value of the Fund's total assets may be invested
without regard to the 5% and 10% limitations, (ii) invest 25% or more of its
total assets in securities of companies engaged principally in any one
industry, except that this restriction does not apply to investments in the
mortgage and mortgage-financed industry (in which more than 25% of the value of
the Fund's total assets will, except for temporary defensive positions, be
invested) or U.S. Government securities, (iii) borrow money except from banks
for emergency or temporary purposes in an amount not exceeding 5% of the value
of the total assets of the Fund, except that the Fund may engage in reverse
repurchase agreements and dollar rolls in an amount up to 50% of the Fund's
total assets, and (iv) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or U.S. Government securities,
(iii) borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might require the untimely
disposition of securities, borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not exceed 5% of the
value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made, outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any subsequent investments are made, (iv) pledge,
hypothecate, mortgage or otherwise encumber its assets, except in an amount of
not more than 15% of the value of its total assets to secure borrowings for
temporary or emergency purposes and except as provided in (vi) below, provided,
however, that this limitation does not apply to deposits made in connection
with the entering into and holding of interest rate futures contracts, (v)
invest more than 10% of the value of its total assets in the aggregate in
illiquid securities or other illiquid investments and repurchase agreements
maturing in more than seven days, or
31
(vi) lend its portfolio securities if immediately after such a loan more than
20% of the value of the Fund's total assets would be subject to such loans.
WORLD INCOME may not (i) invest 25% or more of its total assets in securities
of companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5% of the value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
SHORT-TERM MULTI-MARKET may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, (iv) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings, or (v)
purchase a security if, as a result (unless the security is acquired pursuant
to a plan of reorganization or an offer of exchange), the Fund would own more
than 3% of the total outstanding voting stock of any investment company or more
than 5% of the value of the Fund's net assets would be invested in securities
of any one or more investment companies.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities generally rise. Conversely,
during periods of rising interest rates, the values of a Fund's securities
generally decline. Changes in interest rates have a greater effect on
securities with longer maturities and durations than those with shorter
maturities and durations.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium-and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT invests may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities
32
may be more volatile to the extent that expected benefits from the
restructuring do not materialize. The Fund may also invest in U.S. corporate
fixed-income securities that are not current in the payment of interest or
principal or are in default, so long as Alliance believes such investment is
consistent with the Fund's investment objectives. The Fund's rights with
respect to defaults on such securities will be subject to applicable U.S.
bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. Securities settlements may in
some instances be subject to delays and related administrative uncertainties.
Furthermore, foreign investment in the securities markets of certain foreign
countries is restricted or controlled to varying degrees. These restrictions or
controls may at times limit or preclude investment in certain securities and
may increase the cost and expenses of a Fund. In addition, the repatriation of
investment income, capital or the proceeds of sales of securities from certain
of the countries is controlled under regulations, including in some cases the
need for certain advance government notification or authority, and if a
deterioration occurs in a country's balance of payments, the country could
impose temporary restrictions on foreign capital remittances. A Fund could be
adversely affected by delays in, or a refusal to grant, any required
governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. The
liquidity of a Fund's investments in any country in which any of these factors
exists could be affected and Alliance will monitor the effect of any such
factor or factors on a Fund's investments. Furthermore, transaction costs
including brokerage commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection
to security holders such as the Fund than that provided by U.S. laws.
WORLD INCOME may invest a portion of its net assets in securities denominated
in the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar manner.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated
in Canadian issuers or investments denominated in Canadian Dollars. The factors
described above are more likely to have a material adverse effect on the Fund's
investments in the securities of Mexican and other non-Canadian foreign
issuers, including investments in securities denominated in Mexican Pesos or
other non-Canadian foreign currencies. If not hedged, however, currency
fluctuations could affect the unrealized appreciation and depreciation of
Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks,
33
a Fund may engage in certain currency hedging transactions, which themselves,
involve certain special risks. See 'Additional Investment Practices' above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT will
invest. Reduced secondary market liquidity may have an adverse effect on the
market price and the Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific
economic events such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain sovereign debt obligations may
also make it more difficult for the Fund to obtain accurate market quotations
for the purpose of valuing its portfolio. Market quotations are generally
available on many sovereign debt obligations only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or prices
for actual sales.
By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Fund will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives.
The Fund may have limited legal recourse in the event of a default with respect
to certain sovereign debt obligations it holds. For example, remedies from
defaults on certain sovereign debt obligations, unlike those on private debt,
must, in some cases, be pursued in the courts of the defaulting party itself.
Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated
34
obligations may substantially increase relative to the foreign
currency-denominated obligations in which the Fund may be invested. To the
extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings
were to exceed the net return to shareholders, a Fund's use of leverage would
result in a lower rate of return than if a Fund were not leveraged. Similarly,
the effect of leverage in a declining market could be a greater decrease in net
asset value per share than if the Fund were not leveraged. In an extreme case
if a Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by either MULTI-MARKET
STRATEGY or NORTH AMERICAN GOVERNMENT INCOME could adversely affect the Funds'
shareholders, as noted above, or in anticipation of such changes, either Fund
may increase the percentage of its investment portfolio invested in U.S.
Government securities, which would tend to offset the negative impact of
leverage on Fund shareholders. Either Fund may also reduce the degree to which
it is leveraged by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is 'asset coverage,' as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance. In
the event that a Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the Fund to incur
related transaction costs and might cause the Fund to realize gains on
securities held for less than three months. Because not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company, such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might
adversely affect the Fund's yield. See 'Dividends, Distributions and Taxes.'
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL
DOLLAR GOVERNMENT may also borrow to repurchase its shares or to meet
redemption requests. In addition, each Fund may borrow for temporary purposes
(including the purposes mentioned in the preceding sentence) in an amount not
exceeding 5% of the value of the assets of the Fund. Borrowings for temporary
purposes are not subject to the 300% asset average limit described above. See
'Certain Fundamental Investment Policies.' SHORT-TERM U.S. GOVERNMENT,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT may also borrow through the use of reverse repurchase agreements,
and GLOBAL DOLLAR GOVERNMENT also through the use of dollar rolls to the extent
permitted by the 1940 Act. See 'Investment Objectives and Policies-Reverse
Repurchase Agreements and Dollar Rolls.'
INVESTMENT IN THE BANKING INDUSTRY. Due to the investment policies of
MULTI-MARKET STRATEGY, WORLD INCOME and SHORT-TERM MULTI-MARKET with respect to
investments in the banking industry, those Funds will have greater exposure to
the risk factors which are characteristic of such investments. In particular,
the value of and investment return on each Fund's shares will be affected by
economic or regulatory developments in or related to the banking industry.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. The banking
industry is also subject to the effects of: the concentration of loan
portfolios in particular business such as real estate, energy, agriculture or
high technology-related companies; national and local regulation; and
competition within those industries as well as with other types of financial
institutions. In addition, each Fund's investments in commercial banks located
in several foreign countries are subject to additional risks due to the
combination in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Funds will seek to minimize their
exposure to such risks by investing only in debt securities which are
determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as
35
lower-rated securities, as described below. Sustained periods of deteriorating
economic conditions or of rising interest rates are more likely to lead to a
weakening in the issuer's capacity to pay interest and repay principal than in
the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
Securities rated Ba or BB are judged to have speculative elements or to be
predominantly speculative with respect to the issuer's ability to pay interest
and repay principal. Securities rated B are judged to have highly speculative
elements or to be predominantly speculative. Such securities may have small
assurance of interest and principal payments. Securities rated Baa by Moody's
are also judged to have speculative characteristics.
The market for lower-rated securities may be thinner and less active than that
for higher-rated securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, a Fund may experience difficulty
in valuing such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and
CORPORATE BOND when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.
NON-DIVERSIFIED STATUS. Each of WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT is a 'non-diversified' investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, each Fund intends to conduct its
operations so as to qualify to be taxed as a 'regulated investment company' for
purposes of the Code, which will relieve the Fund of any liability for federal
income tax to the extent its earnings are distributed to shareholders. See
'Dividends, Distributions and Taxes' in each Fund's Statement of Additional
Information. To so qualify, among other requirements, each Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the Fund's total assets will be invested in the securities of
a single issuer, and (ii) with respect to 50% of its total assets, not more
than 5% of its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. A Fund's investments in U.S. Government
securities are not subject to these limitations. Because each of WORLD INCOME,
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL DOLLAR GOVERNMENT is a non-diversified investment company, it
may invest in a smaller number of individual issuers than a diversified
investment company, and an investment in such Fund may, under certain
circumstances, present greater risk to an investor than an investment in a
diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, NORTH AMERICAN GOVERNMENT INCOME will be required to diversify its
portfolio of foreign government securities in a manner which would not be
necessary if the Fund had made similar investments in U.S. Government
securities.
36
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund Distributors,
Inc. ('AFD'), each Fund's principal underwriter. The minimum initial investment
in each Fund (except WORLD INCOME) is $250. The minimum for subsequent
investments in each Fund is $50. Investments of $25 or more are allowed under
the automatic investment program of each Fund. Share certificates are issued
only upon request. See the Subscription Application and Statements of
Additional Information for more information.
Existing shareholders may make subsequent purchases by electronic funds
transfer if they have completed the Telephone Transactions section of the
Subscription Application or the Shareholder Options form obtained from Alliance
Fund Services, Inc. ('AFS'), each Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by calling (800)
221-5672, may not exceed $500,000, must be received by the Fund by 3:00 p.m.
Eastern time on a Fund business day and will be made at the next day's net
asset value (less any applicable sales charge).
Each Fund offers three classes of shares, Class A, Class B and Class C, except
that WORLD INCOME offers only one class of shares that you can purchase without
any initial sales charge or contingent deferred sales charge ('CDSC').
CLASS A SHARES-INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
-------------------------------- ---------- -------------- -----------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less than $250,000 3.36 3.25 3.00
$250,000 to less than $500,000 2.30 2.25 2.00
$500,000 to less than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a CDSC equal to 1% of the lesser of net asset value at the time of redemption
or original cost if you redeem within one year; Alliance may pay the dealer or
agent a fee of up to 1% of the dollar amount purchased. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in
accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain Retirement Plans,
Reinstatement Privilege and Sales at Net Asset Value programs. Consult the
Subscription Application and Statements of Additional Information.
CLASS B SHARES-DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. Shares obtained from dividend or distribution reinvestment are
not subject to the CDSC. The amount of the CDSC (expressed as a percentage of
the lesser of the current net asset value or original cost) will vary according
to the number of years from the purchase of Class B shares until the redemption
of those shares. The amount of the CDSC for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
Year Since Purchase CDSC
- -------------------------------
First 3.0%
Second 2.0%
Third 1.0%
Thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years (after which they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
CLASS C SHARES-ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares incur
higher distribution fees than Class A shares and do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans or pursuant to a monthly,
bimonthly or quarterly systematic withdrawal plan. See the Statements of
Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the New York Stock Exchange
(the 'Exchange') is open as of the close of regular trading (currently 4:00
p.m. Eastern time). The securities in a Fund are valued at their current market
value determined on the basis of market quotations or, if such quotations are
not readily available, such other methods as the Fund's Directors believe would
accurately reflect fair market value.
37
GENERAL
The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there are no initial or contingent deferred sales charges. Consult your
financial agent. Dealers and agents may receive differing compensation for
selling Class A, Class B or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is $250,000. The
maximum purchase of Class C shares is $5,000,000. The Funds may refuse any
order to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be utilized, in whole
or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may 'redeem', i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class A and Class B shares) next calculated after the Fund receives your
request in proper form. Proceeds generally will be sent to you within seven
days. However, for shares recently purchased by check or electronic funds
transfer, a Fund will not send proceeds until it is reasonably satisfied that
the check or electronic funds transfer has been collected (which may take up to
15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request before 4:00 p.m. Eastern time, and your
broker must transmit your request to the Fund by 5:00 p.m. Eastern time, for
you to receive that day's net asset value (less any applicable CDSC for Class A
and Class B shares). Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to AFS, along with
certificates, if any, that represent the shares you want to sell. For your
protection, signatures must be guaranteed by a bank, a member firm of a
national stock exchange or other eligible guarantor institution. Stock power
forms are available from your financial intermediary, AFS, and many commercial
banks. Additional documentation is required for the sale of shares by
corporations, intermediaries, fiduciaries and surviving joint owners. For
details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672.
Telephone redemption requests must be made by 4 p.m. Eastern time on a Fund
business day in order to receive that day's net asset value and may be made
only once in any 30 day period. A shareholder who has completed the Telephone
Transactions section of the Subscription Application, or the Shareholder
Options form obtained from AFS, can elect to have the proceeds of their
redemption sent to their bank via an electronic funds transfer. Proceeds of
telephone redemptions also may be sent by check to a shareholder's address of
record. Redemption requests by electronic funds transfer may not exceed
$100,000 and redemption requests by check may not exceed $50,000. Telephone
redemption is not available for shares held in nominees or 'street name'
accounts or retirement plan accounts or shares held by a shareholder who has
changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described
38
in the attached Application. A shareholder's manual explaining all available
services will be provided upon request. To request a shareholder manual, call
800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of WORLD INCOME for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request. Telephone exchange requests must be received by
AFS by 4:00 p.m. Eastern time on a Fund Business day in order to receive that
day's net asset value.
Class A and Class B shares will continue to age without regard to exchanges for
the purpose of determining the CDSC, if any, upon redemption and, in the case
of Class B shares, for the purpose of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ('original shares').
When redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the 'Advisory Agreement') to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustees of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of December 31, 1995 totaling more than $146 billion
(of which more than $48 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations
and endowment funds. The 51 registered investment companies managed by Alliance
comprising 107 separate investment portfolios currently have over two million
shareholders. As of December 31, 1995, Alliance was retained as an investment
manager for 29 of the Fortune 100 companies.
Alliance Capital Management Corporation ('ACMC'), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ('Equitable'), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a French insurance holding
company. Certain information concerning the ownership and control of Equitable
by AXA is set forth in each Fund's Statement of Additional Information under
'Management of the Fund.'
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with Alliance
Government -Senior Vice President since March 1992;
prior thereto, a
managing director
and portfolio manager for
Hyperion Capital
since March 1991 and a
managing director
with Fischer, Francis,
Trees & Watts
Paul A. Ullman Associated with
since 1995-Vice President Alliance since
March 1992; prior
thereto, a director and
portfolio manager for
Hyperion Capital since
July 1990 and a
Vice President at
Salomon Brothers Inc.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance
Paul J. DeNoon since Associated with Alliance
January 1992- since January 1992;
Vice President prior thereto, a
Vice President at
Manufacturers Hanover Trust
Limited Maturity Patricia J. Young since (see above)
Government inception -(see above)
Paul A. Ullman (see above)
since inception-
(see above)
Mortgage Patricia J. Young since (see above)
Securities Income March 1992-(see above)
Paul A. Ullman since (see above)
March 1992-(see above)
World Income Douglas J. Peebles since Associated with
inception-Vice President Alliance
39
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term Douglas J. Peebles since (see above)
Multi-Market 1995-(see above)
Multi-Market Douglas J. Peebles since (see above)
Strategy inception-(see above)
North American Wayne D. Lyski since inception (see above)
Government Income -(see above)
Global Dollar Wayne D. Lyski since inception (see above)
Government -(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since (see above)
January 1992-(see above)
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more 'Rule
12b-1 plans' (for each Fund, a 'Plan') and has entered into a Distribution
Services Agreement (the 'Agreement') with AFD. Pursuant to its Plan, a Fund
pays to AFD a Rule 12b-1 distribution services fee, which may not exceed for
each Fund other than WORLD INCOME an annual rate of .30% (.50% with respect to
SHORT-TERM U.S. GOVERNMENT) of the Fund's aggregate average daily net assets
attributable to the Class A shares, 1.00% of the Fund's aggregate average daily
net assets attributable to the Class B shares and 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares, and for WORLD
INCOME may not exceed an annual rate of .90% of the Fund's aggregate average
daily net assets, for distribution expenses. The Trustees of SHORT-TERM U.S.
GOVERNMENT currently limit payments with respect to Class A shares under the
Plan to .30% of the Fund's aggregate average daily net assets attributable to
Class A shares. The Plans provide that a portion of the distribution services
fee in an amount not to exceed .25% of the aggregate average daily net assets
of each Fund attributable to each class of shares constitutes a service fee
used for personal service and/or the maintenance of shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to,
with respect to each Fund other than WORLD INCOME, .25%, annualized, with
respect to Class A shares and Class B shares, and 1.00%, annualized, with
respect to Class C shares, and, with respect to WORLD INCOME, .90%, annualized,
of the assets maintained in a Fund by their customers. Distribution services
fees received from WORLD INCOME and the other Funds, except SHORT-TERM U.S.
GOVERNMENT, with respect to Class A shares will not be used to pay any interest
expenses, carrying charges or other financing costs or allocation of overhead
of AFD. Distribution services fees received from the Funds, with respect to
Class B and Class C shares, may be used for these purposes. The Plans also
provide that Alliance may use its own resources to finance the distribution of
each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
shares, payments received from CDSCs. The excess will be carried forward by AFD
and reimbursed from distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B shares, payments
subsequently received through CDSCs, so long as the Plan is in effect. Since
AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT is not
directly tied to its expenses incurred, the amount of compensation received
by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except
SHORT-TERM U.S. GOVERNMENT), were, as of that time, as follows:
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
----------------------------------------------
Class B Class C
- ------------------------------------------------------------------------
Short-Term U.S.
Government $ 348,789 (5.47%) $ 500,617 (9.67%)
U.S. Government $13,511,108 (1.75%) $2,224,264 (1.22%)
Limited Maturity
Government $ 785,406 (.93%) $2,304,343 (3.37%)
Mortgage Securities
Income $15,837,781 (2.15%) $2,076,306 (4.56%)
Short-Term Multi-Market $28,259,365 (5.40%) $1,036,535 (30.35%)
Multi-Market Strategy $10,014,626 (8.59%) $ 330,171 (42.03%)
North American
Government Income $36,368,974 (3.24%) $2,736,736 (1.25%)
Global Dollar Government $ 1,832,927 (2.94%) $ 174,111 (1.87%)
Corporate Bond $ 5,476,418 (2.27%) $ 607,167 (1.19%)
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a
40
mutual fund may pay on a class of shares to .75% and .25%, respectively, of the
average annual net assets attributable to that class. The rules also limit the
aggregate of all front-end, deferred and asset-based sales charges imposed with
respect to a class of shares by a mutual fund that also charges a service fee
to 6.25% of cumulative gross sales of shares of that class, plus interest at
the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that
a change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the twentieth day of
each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as of the payment
date of the dividend or distribution equal to the cash amount thereof.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to Alliance, with appropriate instructions, the check representing such
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
'pass through' to the Fund's shareholders credits for foreign income taxes
paid, but there can be no assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a 'regulated investment company'
under the Code. To the extent that a Fund distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends from certain
Funds may be eligible for the dividends-received deduction, except that the
amount eligible for the deduction is limited to the amount of qualifying
dividends received by the Fund. A corporation's dividends-received deduction
will be disallowed unless the corporation holds shares in the Fund at least 46
days. Furthermore, the dividends-received deduction will be disallowed to the
extent a corporation's investment in shares of a Fund is financed with
indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by each Fund to its shareholders as capital
gains distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her
stock. Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during
41
October, November or December of a year to shareholders of record as of a
specified date in such a month that is paid during January of the following
year is includable in the prior year's taxable income of shareholders that
are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. If a shareholder held shares six months or less and
during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during
such six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, 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.
Distributions by a Fund may be subject to state and local taxes. U.S.
GOVERNMENT, LIMITED MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, WORLD
INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and CORPORATE BOND are qualified to do business in the
Commonwealth of Pennsylvania and, therefore, are subject to the Pennsylvania
foreign franchise and corporate net income tax in respect of their business
activities in Pennsylvania. Accordingly, shares of such Funds are exempt from
Pennsylvania personal property taxes. These Funds anticipate continuing such
business activities but reserve the right to suspend them at any time,
resulting in the termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers
to enter into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE LIMITED MATURITY
GOVERNMENT FUND, INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
(1983), ALLIANCE WORLD INCOME TRUST, INC. (1990), ALLIANCE SHORT-TERM
MULTI-MARKET TRUST, INC. (1989), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC.
(1991), ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST, INC. (1992) and
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND, INC. (1993). Prior to March 1, 1996,
ALLIANCE LIMITED MATURITY GOVERNMENT FUND, INC. was known as Alliance Mortgage
Strategy Trust, Inc. Prior to January 4, 1993, CORPORATE BOND PORTFOLIO was
known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND is
a series of The Alliance Portfolios, a Massachusetts business trust that was
organized in 1987. Prior to August 2, 1993, The Alliance Portfolios was known
as The Equitable Funds and SHORT-TERM U.S. GOVERNMENT was known as The
Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal, or in the case
of the Funds organized as Maryland corporations, state law. Shareholders have
available certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented
by the redeemed shares less any applicable CDSC. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of shares. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors, that affect each portfolio
and class in substantially the same manner. Class A, Class B and Class C shares
have identical voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses. Each class of
shares votes separately with respect to a Fund's Rule 12b-1 distribution plan
and other matters for which separate class voting is appropriate under
applicable law. Shares are freely transferable, are entitled to dividends as
determined by the Directors and, in liquidation of a Fund, are entitled to
receive the net assets of the Fund. Since this Prospectus sets forth
information about all the Funds, it is theoretically possible that a Fund might
be liable for any materially inaccurate or incomplete disclosure in this
Prospectus concerning another Fund. Based on the advice of counsel, however,
the Funds believe that the potential liability of each Fund with respect to
42
the disclosure in this Prospectus extends only to the disclosure relating to
that Fund. Certain additional matters relating to a Fund's organization are
discussed in its Statement of Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995, a Consolidated and Supplemental Class Action Complaint
('Complaint') styled IN RE ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the United States District Court for
the Southern District of New York against the Fund, Alliance, ACMC, AFD, The
Equitable Companies Incorporated, a parent of Alliance, certain officers of the
Fund, certain current and former directors of the Fund, certain current and
former officers of ACMC and certain directors of ACMC, alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection with
the Fund's investments in Mexican and Argentine securities. The Complaint seeks
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994. The
Complaint alleges that as of the date of the Complaint, the Fund's losses
exceeded $750,000,000. The Complaint seeks as relief unspecified damages, costs
and attorneys' fees.
The principal allegations of the Complaint are that upon the advice of Alliance
the Fund purchased debt securities issued by the Mexican and Argentine
governments in amounts that were not permitted by the Fund's investment
objective, and that there was no shareholder vote to change the investment
objective to permit purchases in such amounts. The Complaint further alleges
that the decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment of the
Fund's shareholders.
On September 26, 1995, defendants jointly filed a motion to dismiss the
Complaint in its entirety. The Fund and Alliance believe that the allegations
in the Complaint are without merit and intend to vigorously defend against
these claims.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their 'yield' and 'total return,' which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an 'actual distribution rate' for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed separately for Class A,
Class B and Class C shares. Advertisements of a Fund's total return disclose
its average annual compounded total return for the periods prescribed by the
Commission. A Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid. A Fund's advertisements may quote
performance rankings or ratings of a Fund by financial publications or
independent organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. or compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
43
APPENDIX A:
BOND RATINGS
_______________________________________________________________________________
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating-When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note-Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation and
CCC the highest. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major exposures
to adverse conditions.
A-1
CI-The rating CI is reserved for income bonds on which no interest is being
paid.
D-Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR-Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA-Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- -High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.
A+, A, A- -Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
B+, B, B- -Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctutate widely according
to economic cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or into a higher
or lower rating grade
CCC-Well below investment grade securities. Considerable uncertainty exists as
to timely payment of principal or interest. Protection factors are narrow and
risk can be substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD-Defaulted debt obligations. Issuer failed to meet scheduled principal and/or
interest payments.
FITCH INVESTORS SERVICE, INC.
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)-Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR-Indicates that Fitch does not rate the specific issue.
A-2
APPENDIX B:
GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
_______________________________________________________________________________
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system, with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed-country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. During the last several years, Canada has experienced a weakening
of its currency. In January 1995, the Canadian Dollar fell to a nine-year low
against the U.S. Dollar, decreasing in value compared to the U.S. Dollar by
approximately 25% from October 1991, but from January 20, 1995, through
February 15, 1996, the Canadian Dollar increased in value by approximately 3.4%
against the U.S. Dollar. The range of fluctuation that occurred in the past is
not necessarily indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be accurately predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ('Mexico') is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
While in recent years the Mexican economy has experienced improvement in a
number of areas, including seven consecutive years (1987-1994) of growth in
gross domestic product and a substantial reduction in the rate of inflation and
in public sector financial deficit, beginning in 1994, Mexico has experienced
an economic crisis that led to the devaluation of the Peso in December 1994.
Much of the past improvement in the Mexican economy has been attributable to a
series of economic policy initiatives initiated by the Mexican government over
the past decade, which seek to modernize and reform the Mexican economy,
control inflation, reduce the financial deficit, increase public revenues
through the reform of the tax system, establish a competitive and stable
currency exchange rate, liberalize trade restrictions and increase investment
and productivity, while reducing the government's role in the economy. In this
regard, the Mexican government has been proceeding with a program for
privatizing certain state owned enterprises, developing and modernizing the
securities markets, increasing investment in the private sector and permitting
increased levels of foreign investment. The recent adoption by Canada, the
United States and Mexico of the North American Free Trade Agreement could also
contribute to the growth of the Mexican economy.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely. Growing
trade and current account deficits, which could no longer be financed by
inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a large
decline in foreign reserves followed by a sharp and rapid devaluation of the
Mexican Peso. The ensuing economic and financial crisis resulted in higher
inflation and domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic program; and a new
social accord among the government, business and labor sectors of the country
was entered into in an effort to stabilize the economy and the financial
markets. To help relieve Mexico's liquidity crisis and restore financial
stability to Mexico's economy, the Mexican government also obtained financial
assistance from the United States, other countries and certain international
agencies conditioned upon the implementation and continuation of the economic
reform program.
While the Mexican economy has stabilized, it is still in a recession and
suffers from high inflation and high interest rates. In October 1995, the
Mexican government announced a new accord designed to encourage economic growth
and reduce inflation. It cannot be accurately predicted whether this accord
will achieve its purpose. Mexico's economy may also be influenced by
international economic conditions, particularly those in the United States, and
by world prices for oil and other commodities. The recovery of the economy will
require
B-1
continued economic and fiscal discipline as well as stable political and social
conditions. There is no assurance that Mexico's economic policy initiatives
will be successful or that succeeding administrations will continue these
initiatives.
In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since December 1987, the
Mexican government introduced a series of schedules allowing for the gradual
devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 20, 1994, the Mexican
government announced a new policy that would allow a more substantial yet still
controlled devaluation of the Mexican Peso. On December 22, 1994, the Mexican
government announced that it would not continue with the policy announced two
days earlier and would instead permit the Peso to float against other
currencies, resulting in a continued decline against the U.S. Dollar. From
December 22, 1994 through February 15, 1996, the Mexican Peso decreased in
value compared to the U.S. Dollar by approximately 60%.
In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's ability to
obtain U.S. Dollars in exchange for Mexican Pesos.]
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ('Argentina') consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 62 years. The most
recent military government ruled the country from 1976 to 1983. Four
unsuccessful military uprisings have occurred since 1983, the most recent in
December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including a large privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the current announcement of a new economic plan in March
1991, the Argentine economy was characterized by low and erratic growth,
declining investment rates and rapidly worsening inflation. Despite its
strengths, which include a well-balanced natural resource base and a high
literacy rate, the Argentine economy failed to respond to a series of economic
plans in the 1980's. The Economy Minister's plan represented a pronounced
departure from its predecessors in calling for raised revenues, reduced
expenditures and a reduced public deficit. The extensive privatization program
commenced in 1989 was accelerated, the domestic economy deregulated and opened
up to foreign trade and the frame-work for foreign investment reformed. As a
result of the economic stabilization reforms, gross domestic product has
increased and inflation has decreased.
Significant progress was also made in 1992 in rescheduling Argentina's debt
with both external and domestic creditors, which improved fiscal cash flows in
the medium terms and allowed a return to voluntary credit markets. Further
reforms are currently being implemented in order to sustain and continue the
progress to date. There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations will
continue these initiatives.
In 1995 economic policy was directed toward the effects of the Mexican currency
crisis. The Mexican currency crisis led to a run on bank deposits, which was
brought under control by a series of measures designed to strengthen the
financial system. The measures included the 'dollarization' of banking
reserves, the establishment of two trust funds, and the implementation of
limited deposit insurance.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by foreign exchange reserves, in an effort
to make the Argentine Peso fully convertible into the U.S. Dollar at a rate of
one to one.
The Argentine Peso has been the Argentine currency since January 1, 1992. Since
that date, the rate of exchange from the Argentine Peso to the U.S. Dollar has
remained approximately one to one. The fixed exchange rate has been
instrumental in stabilizing the economy, but has not reduced pressures from a
slow-growth economy and record unemployment. It is not clear that the
government will be able to resist pressure to devalue the currency. However,
the historic range is not necessarily indicative of fluctuations that may occur
in the exchange rate over time and future rates of exchange cannot be
accurately predicted. The Argentine foreign exchange market was highly
controlled until December 1989, when a free exchange rate was established for
all foreign currency transactions. Argentina has eliminated restrictions on
foreign direct investment and capital repatriation. On September 8, 1993,
legislation was adopted abolishing previous requirements of a three-year
waiting period for capital repatriation. Under the new legislation, foreign
investors will be permitted to remit profits at any time.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE 'GENERAL INFORMATION-ORGANIZATION.'
B-2
C. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account.Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions:
. Review the information in the Prospectus about telephone transaction services.
. If you select the telephone purchase or redemption privilege, you must write
'VOID' across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
PURCHASES AND REDEMPTIONS VIA EFT
__ I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to withdraw
money or credit money for such shares via EFT from the bank account I have
selected.
D. BANK INFORMATION
This bank account information will be used for:
__ Distributions (Section 3)
__ Automatic Investments (Section 4A)
__ Systematic Withdrawals (Section 4B)
__ Telephone Transactions (Section 4C)
Please attach a voided check:
TAPE PRE-PRINTED VOIDED CHECK HERE.
We Cannot Establish These Services Without it.
_______________________________________________________________________________
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order to have EFT transactions processed to your fund account.
For EFT transactions, the fund requires signatures of bank account owners
exactly as they appear on bank records.
E. THIRD PARTY PAYMENT DETAILS
This third party payee information will be used for:
__ Distributions (Section 3)
__ Systematic Withdrawals (Section 4B)
_________________________________________________
Name
_________________________________________________
Address - Line 1
_________________________________________________
Address - Line 2
_________________________________________________
Address - Line 3
F. REDUCED CHARGES (CLASS A ONLY)
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge.Please complete the Right of
Accumulation section or the Statement of Intent section.
A. RIGHT OF ACCUMULATION
__ Please link the tax identification numbers or account numbers listed below
for Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
B. STATEMENT OF INTENT
__ I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000q __$250,000q __$500,000q __$1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
________________________ ________________________ ___________________________
Tax ID or Account # Tax ID or Account # Tax ID or Account #
1
5. SHAREHOLDER AUTHORIZATION THIS SECTION MUST BE COMPLETED
_______________________________________________________________________________
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000.
This service can be enacted once every 30 days.
__ I do NOT elect the telephone exchange service.
__ I do NOT elect the telephone redemption by check service.
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
________________________________________ _________________
Signature Date
________________________________________ _________________ __________________
Signature Date Acceptance Date
DEALER/AGENT AUTHORIZATION FOR SELECTED DEALERS OR AGENTS ONLY.
_______________________________________________________________________________
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_____________________________________ ________________________________________
Dealer/Agent Firm Authorized Signature
_____________________________________ _____________ _________________________
Representative First Name MI Last Name
_______________________________________________________________________________
Representative Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________________________________________
City State Zip Code
_______________________________________(_____)_________________________________
Branch Number Branch Phone
The payment of funds is authorized by the signature(s) appearing on the reverse
side.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated.If
no indication is given, all checks will require all signatures.Each signatory
guarantees the genuineness of the other signatures.
The Bank is hereby appointed agent by the person(s) signing this card (the
'Depositor[s]') and, as agent, is authorized and directed to present checks
drawn on this checking account to Alliance __________________________________
('the Fund') or its transfer agent as requests to redeem shares of 'the Fund'
registered in the name of the Depositor(s) in the amounts of such checks and to
deposit the proceeds of such redemptions in this checking account. The Bank
shall be liable only for its own negligence.The Depositor(s) agrees to be
subject to the rules and regulations of the Bank pertaining to this checking
account as amended from time to time. The Bank and 'the Fund' reserve the right
to change, modify or terminate this checking account and authorization at any
time.
Checks may not be for less than $500 or such other minimum amount as may from
time to time be established by 'the Fund' upon prior written notice to its
shareholders. Shares purchases by check (including certified or cashier's
check) will not be redeemed within 15 calendar days of such purchase by
checkwriting or any other method of redemption.
No checkwriting available on Alliance World Income and Alliance Corporate Bond.
ENCLOSE THIS CARD WITH THE APPLICATION FORM
2
ALLIANCE SUBSCRIPTION APPLICATION
_______________________________________________________________________________
THE ALLIANCE BOND FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
WORLD INCOME TRUST
SHORT-TERM MULTI-MARKET TRUST
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
CORPORATE BOND PORTFOLIO
INFORMATION AND INSTRUCTIONS
_______________________________________________________________________________
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and For certified or overnight deliveries,
mail it to: send to:
ALLIANCE FUND SERVICES, INC. ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520 500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07096-1520 SECAUCUS, NEW JERSEY07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices.To ensure proper tax reporting to the IRS:
Individuals, Joint Tenants and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security card.
Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED)
Complete in full.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each fund in which you are investing: 1) Write the dollar amount of your
initial purchase in the column corresponding to the class of shares you have
chosen (If you are eligible for a reduced sales charge, you must also complete
Section 4F) 2) Circle a distribution option for your dividends 3) Circle a
distribution option for your capital gains.All distributions (dividends and
capital gains) will be reinvested into your fund account unless you direct
otherwise. If you want distributions sent directly to your bank account, then
you must complete Section 4D and attach a voided check for that account. If you
want your distributions sent to a third party you must complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and capital
gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the appropriate
portion of Section 4A.
B. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account (currently
Classes A and C only) or by check.
C. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a pre-printed voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED)
All owners must sign.If it is a custodial, corporate, or trust account, the
custodian, an authorized officer, or the trustee respectively must sign.
Investments made by check or EFT will not be made available for up to 15
CALENDAR DAYS, following the purchase date.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT:(800)
221-5672.
3
SUBSCRIPTION APPLICATION
_______________________________________________________________________________
THE ALLIANCE BOND FUNDS
(SEE INSTRUCTIONS AT THE FRONT OF THE APPLICATION)
1. YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
_______________________________________________________________________________
__ INDIVIDUAL OR JOINT ACCOUNT
_______________________________________________________________________________
Owner's Name (First Name) (MI) (Last Name)
____________-________-________________
Social Security Number (Required to open account)
_______________________________________________________________________________
Joint Owner's Name* (First Name ) (MI) (Last Name)
*JOINT TENANTS WITH RIGHT OF SURVIVORSHIP UNLESS ALLIANCE FUND SERVICES IS
INFORMED OTHERWISE.
__ GIFT/TRANSFER TO A MINOR
_______________________________________________________________________________
Custodian - One Name Only(First Name) (MI) (Last Name)
_______________________________________________________________________________
Minor (First Name) (MI) (Last Name)
____________-________-________________
Minor's Social Security Number (Required to open account)
Under the State of ____(Minor's Residence)Uniform Gifts/Transfer to Minor's Act
__ TRUST ACCOUNT
_______________________________________________________________________________
Name of Trustee
_______________________________________________________________________________
Name of Trust
_______________________________________________________________________________
Name of Trust (cont'd)
___________________ __________________________________________________________
Trust Dated Tax ID or Social Security Number (Required to open account)
__ OTHER
_______________________________________________________________________________
Name of Corporation, Partnership or other Entity
____________________
Tax ID Number
2. YOUR ADDRESS
_______________________________________________________________________________
_______________________________________________________________________________
Street
_______________________________________________________________________________
City State Zip Code
_______________________________________________________________________________
If Non-U.S., Specify Country
____-____-_____ _____-____-______
Daytime Phone Evening Phone
I am a: __ U.S. Citizen __ Non-Resident Alien __ Resident Alien __ Other
For Alliance Use Only
4
3. YOUR INITIAL INVESTMENT
_______________________________________________________________________________
THE MINIMUM INVESTMENT IS $250 PER FUND.THE MAXIMUM INVESTMENT IN CLASS B IS
$250,000; CLASS C IS $5,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in
Section 2.(Complete Section 4D for direct deposit to your bank account.Complete
Section 4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND.Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
BROKER/DEALER USE ONLY
WIRE CONFIRM #
MAKE ALL CHECKS PAYABLE TO:
ALLIANCE FUND SERVICES
<TABLE>
<CAPTION>
CLASS OF SHARES DISTRIBUTIONS
CONTINGENT OPTIONS
INITIAL SALES DEFERRED ASSET-BASED *CIRCLE*
CHARGE SALES CHARGE SALES CHARGE ------------------------
ALLIANCE FUND NAME A B C DIVIDENDS CAPITAL GAINS
- -------------------------- ------- ------------- ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Short-Term U.S. Government $(37) $(51) $(337) RCD RCD
U.S. Government (46) (76) (346) RCD RCD
Limited Maturity Gov't. (88) (89) (388) RCD RCD
Mortgage Securities Income (52) (63) (352) RCD RCD
World Income (54) not offered not offered RCD RCD
Short-Term Multi-Market (70) (68) (370) RCD RCD
Multi-Market Strategy (22) (23) (322) RCD RCD
North American Government (55) (56) (355) RCD RCD
Global Dollar Government (166) (266) (366) RCD RCD
Corporate Bond (95) (295) (395) RCD RCD
TOTAL INVESTMENT $ $ $
</TABLE>
SIGNATURE CARD NAME OF FUND:
CLASS A OR CLASS C ACCOUNT #
(if known)
_______________________________________________________________________________
ACCOUNT NAME(S) AS REGISTERED
_______________________________________________________________________________
SOCIAL SECURITY NUMBER
_______________________________________________________________________________
AUTHORIZED SIGNATURE(S)
- - for joint accounts, all owners, or their legal representatives, must sign
this card.
1._____________________________________________________________________________
2._____________________________________________________________________________
3._____________________________________________________________________________
Check One Box
__ All the above signatures are required on checks written against this account.
__ Any one signature is acceptable on checks written against this account.
__ A combination of signatures is required (specify number).
SUBJECT TO CONDITIONS PRINTED ON REVERSE SIDE.STATE STREET BANK AND TRUST
COMPANY
FOR CLASS A AND C ONLY:
To apply for checkwriting privileges, please complete the signature card to the
left. The minimum amount any check can be written for is $500.The checkwriting
privilege is not transferable to any other fund account.
+ Checkwriting service not offered on Corporate Bond Fund and World Income
Trust.
5
MY SOCIAL SECURITY (TAX IDENTIFICATION ) NUMBER IS:
4. YOUR SHAREHOLDER OPTIONS
_______________________________________________________________________________
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use and attach a voided check).
Monthly Dollar
Amount Day of Withdrawal* Circle 'all' or applicable
Fund Name ($25 minimum) (1st thru 31st) months
____________ _________________ ___________________ All J F M A M J J A S O N D
____________ _________________ ___________________ All J F M A M J J A S O N D
____________ _________________ ___________________ All J F M A M J J A S O N D
____________ _________________ ___________________ All J F M A M J J A S O N D
*If my bank is not a member of the National Automated Clearing House
Association (NACHA), I understand that the withdrawal(s) will occur on or about
the 20th of the month.
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to another Alliance fund within the same class of shares.
'From' Fund
'From' Fund Account #
Name (if existing) 'To' Fund Name 'To' Fund Account # (if existing)
__New
____________ _________________ _______________ __ Existing ____________________
__New
____________ _________________ _______________ __ Existing ____________________
__New
____________ _________________ _______________ __ Existing ____________________
__New
____________ _________________ _______________ __ Existing ____________________
__ EXCHANGE SHARES MONTHLY
I authorize Alliance to transact monthly exchanges between my fund accounts as
listed below.
<TABLE>
<CAPTION
'From' Fund
'From' Fund Account # Dollar Amount Day of Exchange** 'To' Fund Account #
Name (if existing) ($25 minimum) (1st thru 31st) 'To' Fund Name (if existing)
<S> <C> <C> <C> <C> <C>
__New
____________ ______________ _______________ __________________ ________________ __ Existing ______
__New
____________ ______________ _______________ __________________ ________________ __ Existing ______
__New
____________ ______________ _______________ __________________ ________________ __ Existing ______
__New
____________ ______________ _______________ __________________ ________________ __ Existing ______
</TABLE>
**Shares exchanged will be redeemed at the net asset value on the 'Day of
Exchange' (If the 'Day of Exchange' is not a fund business day, the exchange
transaction will be processed on the next fund business day). The exchange
privilege is not available if stock certificates have been issued. Only
available within the same class of shares.
B. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains
and own or purchase shares of the Fund having a current net asset value of at
least:
.$10,000 for monthly payments,
.$5,000 for bi-monthly payments,
.$4,000 for quarterly or less frequent payments
SWPs on Class B shares of up to approximately 12% (annualized) of the current
market value of an account will be processed free of a contingent deferred
sales charge (CDSC). Under this plan, you may withdraw a maximum of 1% monthly,
2% bi-monthly or 3% quarterly, of the value of your class B shares acquired
after July 1, 1995, without the imposition of a CDSC. Withdrawals in excess of
these amounts will continue to be charged the applicable CDSC.Your bank must be
a member of the National Automated Clearing House Association (NACHA) in order
for you to receive SWP proceeds directly into your checking account.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
Dollar Amount Circle 'all' or
Fund Name and Class of Shares ($50 minimum) applicable months
______________________________ ___________________ All J F M A M J J A S O N D
______________________________ ___________________ All J F M A M J J A S O N D
______________________________ ___________________ All J F M A M J J A S O N D
______________________________ ___________________ All J F M A M J J A S O N D
PLEASE SEND MY PROCEEDS TO:
__ MY CHECKING ACCOUNT (VIA EFT) - Currently Class A and C only
I would like to have these payments occur on or about the____(1st-31st) of the
months circled above.(Complete Section 4D for the bank account you wish to use
and attach a voided check)
__ MY ADDRESS OF RECORD (VIA CHECK)
__ THE PAYEE AND ADDRESS SPECIFIED IN SECTION 4E (VIA CHECK)
6
5
<PAGE>
ALLIANCE MORTGAGE SECURITIES
INCOME FUND, INC.
(LOGO)(R)
_________________________________________________________________
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
_________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1996
_________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the Fund's
current Prospectus. A copy of the Prospectus may be obtained by
contacting Alliance Fund Services, Inc. at the address or
"Literature" telephone number listed above.
TABLE OF CONTENTS
Page
Description of the Fund.........................
Management of the Fund..........................
Expenses of the Fund............................
Purchase of Shares..............................
Redemption and Repurchase of Shares.............
Shareholder Services............................
Net Asset Value.................................
Dividends, Distributions and Taxes..............
Portfolio Transactions..........................
General Information.............................
Report of Independent Auditors and
Financial Statements..........................
Appendix A (Mortgage-Related Securities)........ A-1
<PAGE>
Appendix B (Futures Contracts).................. B-1
_____________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
DESCRIPTION OF THE FUND
_________________________________________________________________
Except as otherwise indicated, the investment policies
of Alliance Mortgage Securities Income Fund, Inc. (the "Fund")
are not "fundamental policies" and may, therefore, be changed by
the Board of Directors without a shareholder vote. However, the
Fund will not change its investment policies without
contemporaneous written notice to its shareholders. The Fund's
investment objective may not be changed without shareholder
approval. There can be, of course, no assurance that the Fund
will achieve its investment objective.
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide
shareholders a high level of current income to the extent
consistent with prudent investment risk.
HOW THE FUND PURSUES ITS OBJECTIVE
In seeking to achieve its objective, the Fund will
invest primarily in a diversified portfolio of mortgage-related
securities, and, as a matter of fundamental investment policy,
will have at least 65% of the value of its total assets invested
in mortgage-related securities, except when the Fund assumes a
temporary defensive position. This fundamental investment policy
may not be changed without shareholder approval. For this
purpose (and for the purpose of changing the Fund's investment
restrictions and approving the Fund's advisory agreement, each as
more fully described below), "shareholder approval" means the
affirmative vote of (i) 67% or more of the shares represented at
a meeting at which more than 50% of the outstanding shares are
present in person or by proxy, or (ii) more than 50% of the
outstanding shares, whichever is less.
MORTGAGE-RELATED SECURITIES. The mortgage-related
securities in which the Fund principally invests provide funds
for mortgage loans made to residential home buyers. These
include securities which represent interests in pools of mortgage
loans made by lenders such as savings and loan institutions,
mortgage bankers, commercial banks and others. Pools of mortgage
loans are assembled for sale to investors (such as the Fund) by
various governmental, government-related and private
organizations.
Interests in pools of mortgage-related securities differ
from other forms of debt securities, which normally provide for
2
<PAGE>
periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities, such as securities issued by the
Government National Mortgage Association ("GNMA"), are described
as "modified pass-through." These securities entitle the holder
to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether or not
the mortgagor actually makes the payment.
The average life of pass-through pools varies with the
maturities of the underlying mortgage instruments. In addition,
a pool's term may be shortened by unscheduled or early payments
of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. As prepayment rates of individual
pools vary widely, it is not possible to accurately predict the
average life of a particular pool. For pools of fixed-rate
30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of
mortgages with other maturities or different characteristics will
have varying average life assumptions. The assumed average life
of pools of mortgages having terms of less than 30 years, is less
than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted
by investment dealers and vendors based on the maturity of the
underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of
prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.
Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield to differ from
the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund. The
compounding effect from reinvestment of monthly payments received
by the Fund will increase the yield to shareholders compared with
bonds that pay interest semi-annually.
3
<PAGE>
The principal governmental (i.e., backed by the full
faith and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly-owned
United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government,
the timely payment of principal and interest on securities issued
by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed
by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith
and credit of the United States Government) guarantors include
the Federal National Mortgage Association and the Federal Home
Loan Mortgage Corporation. The Federal National Mortgage
Association ("FNMA") is a government-sponsored corporation owned
entirely by private stockholders. It is subject to general
regulation by the Secretary of Housing and Urban Development.
FNMA purchases residential mortgages from a list of approved
seller/servicers which include state and federally-chartered
savings and loan associations, mutual savings banks, commercial
banks and credit unions and mortgage bankers. Pass-through
securities issued by FNMA are guaranteed as to timely payment of
principal and interest by FNMA but are not backed by the full
faith and credit of the United States Government. The Federal
Home Loan Mortgage Corporation ("FHLMC") is a corporate
instrumentality of the United States Government whose stock is
owned by the twelve Federal Home Loan Banks. Participation
certificates issued by FHLMC, which represent interests in
mortgages from FHLMC's national portfolio, are guaranteed by
FHLMC as to the timely payment of interest and ultimate
collection of principal but are not backed by the full faith and
credit of the United States Government.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may also
be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities. Pools created
by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because
there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and
principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's investment quality
4
<PAGE>
standards. There can be no assurance that the private insurers
can meet their obligations under the policies. The Fund may buy
mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of
the poolers Alliance Capital Management L.P., the Fund's
investment adviser (the "Adviser"), determines that the
securities meet the Fund's quality standards. Although the
market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be
readily marketable. The Fund will not purchase mortgage-related
securities or any other assets which in the Adviser's opinion are
illiquid if, as a result, more than 10% of the value of the
Fund's total assets will be illiquid. In any event, the Fund
will not maintain more than 15% of its net assets in illiquid
securities.
The Fund expects under normal circumstances to have
substantially all of its assets invested in high-grade mortgage-
related securities either (i) issued by United States Government
sponsored corporations or (ii) rated A or better by Moody's
Investors Services, Inc. ("Moody's") or Standard & Poor's Ratings
Services ("S&P") or, if not rated, are of equivalent investment
quality as determined by the Adviser. At times the Fund may
invest in mortgage-related securities not meeting the foregoing
investment quality standards when deemed by the Adviser to be
consistent with the Fund's objective of high current income to
the extent consistent with prudent investment risk; however, no
such investments would be made in excess of 20% of the value of
the Fund's total assets. (Such investments would be considered
mortgage-related securities for purposes of the policy that the
Fund invest at least 65% of the value of its total assets in
mortgage-related securities.) The Adviser will monitor
continuously the ratings of securities held by the Fund and the
creditworthiness of their issuers. For further information about
the characteristics of mortgage-related securities, see
Appendix A and for a description of the ratings used by Moody's,
S&P, Duff & Phelps Inc. ("Duff & Phelps") and Fitch Investors
Service, Inc. ("Fitch"), see Appendix A to the Prospectus.
Mortgage-related securities in which the Fund may invest
may also include collateralized mortgage obligations ("CMOs").
CMOs are debt obligations issued generally by finance
subsidiaries or trusts that are secured by mortgage-backed
certificates, including, in many cases, certificates issued by
government-related guarantors, including GNMA, FNMA and FHLMC,
together with certain funds and other collateral. Although
payment of the principal of and interest on the mortgage-backed
certificates pledged to secure the CMOs may be guaranteed by
GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FNMA, FHLMC or
any other governmental agency, or by any other person or entity.
5
<PAGE>
The issuers of CMOs typically have no significant assets other
than those pledged as collateral for the obligations.
The Fund also expects that governmental, government-
related or private entities may create mortgage loan pools
offering pass-through investments in addition to those described
above. The mortgages underlying these securities may be
alternative mortgage instruments, that is, mortgage instruments
whose principal or interest payments may vary or whose terms to
maturity may differ from customary long-term fixed rate
mortgages. As new types of mortgage-related securities are
developed and offered to investors, the Adviser will, consistent
with the Fund's investment objective, policies and quality
standards, consider making investments in such new types of
securities.
OTHER SECURITIES. The Fund may invest up to 35% of the
value of its total assets in (i) securities issued or guaranteed
by the United States Government, its agencies and
instrumentalities, (ii) certificates of deposit, bankers'
acceptances and interest-bearing savings deposits of banks having
total assets of more than $1 billion and which are members of the
Federal Deposit Insurance Corporation, (iii) commercial paper of
prime quality rated A-1 or higher by S&P, Duff & Phelps and Fitch
or Prime-1 or higher by Moody's or, if not rated, issued by
companies which have an outstanding debt issue rated AA or higher
by S&P or Aa or higher by Moody's, and (iv) debt securities
which, although not mortgage-related securities, are secured by
mortgages on commercial real estate or residential rental
properties, provided such securities are rated A or better by
Moody's or S&P or, if not rated, are of equivalent investment
quality as determined by the Adviser; such securities may entitle
the holder to participate in income derived from the mortgaged
properties or from sales thereof. When business or financial
conditions warrant, the Fund may take a temporary defensive
position and invest without limit in the foregoing securities.
ASSET-BACKED SECURITIES. The securitization techniques
used to develop mortgage-related securities are now being applied
to a broad range of financial assets. Through the use of trusts
and special purpose corporations, various types of assets,
including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables are
being securitized in structures similar to the structures used in
mortgage securitizations. These asset-backed securities are
subject to risks associated with changes in interest rates and
prepayment of underlying obligations similar to the risks of
investments in mortgage-related securities discussed above.
In general, the collateral supporting asset-backed
securities is of shorter maturity than mortgage loans and is less
6
<PAGE>
likely to experience unexpected levels of prepayments. As with
mortgage-related securities, asset-backed securities are often
backed by a pool of assets representing the obligations of a
number of different parties and use similar credit enhancement
techniques.
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 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. Most issuers of
automobile receivables permit the servicers to retain possession
of the underlying obligations. If the servicer were to sell
these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the
holders of the related automobile receivables. In addition,
because of the large number of vehicles involved in a typical
issuance and the technical requirements of state laws, the
trustee for the holders of the automobile receivables may not
have a perfected security interest in all of the obligations
backing such receivables. Therefore, there is the possibility
that recoveries on repossessed collateral may not, in some cases,
be available to support payments on these securities.
ADDITIONAL INVESTMENT POLICIES AND PRACTICES
DIRECT INVESTMENT IN MORTGAGES. The Fund may invest up
to 10% of the value of its total assets directly in mortgages
securing residential real estate (i.e., the Fund becomes the
mortgagee). Such investments are not "mortgage-related
securities" as described above. They are normally available from
lending institutions which group together a number of mortgages
for resale (usually from 10 to 50 mortgages) and which act as
servicing agent for the purchaser with respect to, among other
things, the receipt of principal and interest payments. (Such
investments are also referred to as "whole loans".) The vendor
of such mortgages receives a fee from the Fund for acting as
servicing agent. The vendor does not provide any insurance or
guarantees covering the repayment of principal or interest on the
mortgages. Unlike pass-through securities, whole loans
7
<PAGE>
constitute direct investment in mortgages inasmuch as the Fund,
rather than a financial intermediary, becomes the mortgagee with
respect to such loans purchased by the Fund. At present, such
investments are considered to be illiquid by the Adviser. The
Fund will invest in such mortgages only if the Adviser has
determined through an examination of the mortgage loans and their
originators (which may include an examination of such factors as
percentage of family income dedicated to loan service and
relationship between loan value and market value) that the
purchase of the mortgages should not present a significant risk
of loss to the Fund. The Fund has no present intention of making
any direct investments in mortgages.
REPURCHASE AGREEMENTS. The Fund may invest in
repurchase agreements pertaining to the types of securities in
which it invests. A repurchase agreement arises when a buyer
purchases a security and simultaneously agrees to resell it to
the vendor at an agreed-upon future date, normally one day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon market rate which is effective
for the period of time the buyer's money is invested in the
security and which is not related to the coupon rate on the
purchased security. Such agreements permit the Fund to keep all
of its assets at work while retaining "overnight" flexibility in
pursuit of investments of a longer-term nature. The Fund
maintains procedures for evaluating and monitoring the
creditworthiness of vendors of repurchase agreements. In
addition, the Fund requires continual maintenance of collateral,
in an amount equal to, or in excess of, the market value of the
securities which are the subject of the agreement. In the event
that a vendor defaulted on its repurchase obligation, the Fund
might suffer a loss to the extent that the proceeds from the sale
of the collateral were less than the repurchase price. In the
event of a vendor's bankruptcy, the Fund might be delayed in, or
prevented from, selling the collateral, for the Fund's benefit.
Repurchase agreements may be entered into with member banks of
the Federal Reserve System or "primary dealers" (as designated by
the Federal Reserve Bank of New York) in United States Government
securities. It is the Fund's current practice to enter into
repurchase agreements only with such primary dealers.
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS. The
Fund may purchase securities offered on a "when-issued" basis and
may purchase or sell securities on a "forward commitment" basis.
When such transactions are negotiated, the price, which is
generally expressed in yield terms, is fixed at the time the
commitment is made, but delivery and payment for the securities
take place at a later date. Normally, the settlement date occurs
within two months after the transaction, but delayed settlements
beyond two months may be negotiated. During the period between a
commitment and settlement, no payment is made for the securities
8
<PAGE>
purchased by the purchaser and, thus, no interest accrues to the
purchaser from the transaction.
The use of when-issued transactions and forward
commitments enables the Fund to hedge against anticipated changes
in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, the Fund might sell
securities in its portfolio on a forward commitment basis to
limit its exposure to falling bond prices. In periods of falling
interest rates and rising bond prices, the Fund might sell a
security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby
obtaining the benefit of currently higher cash yields. However,
if the Adviser were to forecast incorrectly the direction of
interest rate movements, the Fund might be required to complete
such when-issued or forward transactions at prices less favorable
than current market values.
When-issued securities and forward commitments may be
sold prior to the settlement date, but the Fund enters into when-
issued transactions and forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a separate account of the Fund,
portfolio securities having value equal to, or greater than, any
commitments to purchase securities on a when-issued or forward
commitment basis and, with respect to forward commitments to sell
portfolio securities of the Fund, the portfolio securities
themselves. If the Fund, however, chooses to dispose of the
right to acquire a when-issued security prior to its acquisition
or dispose of its right to deliver or receive against a forward
commitment, it may incur a gain or loss. At the time the Fund
makes the commitment to purchase or sell a security on a when-
issued or forward commitment basis, it records the transaction
and reflects the value of the security purchased or, if a sale,
the proceeds to be received, in determining its net asset value.
When-issued securities may include bonds purchased on a "when, as
and if issued" basis under which the issuance of the securities
depends upon the occurrence of a subsequent event, such as
approval of a proposed financing by appropriate authorities. Any
significant commitment of the Fund's assets to the purchase of
securities on a "when, as and if issued" basis may increase the
volatility of its net asset value.
PUTS AND CALLS. The Fund may purchase put and call
options written by others and write covered put and call options
overlying the types of securities in which the Fund may invest. A
put option (sometimes called a "standby commitment") gives the
buyer of such option, upon payment of a premium, the right to
deliver a specified amount of a security to the writer of the
option on or before a fixed date at a predetermined price. A
9
<PAGE>
call option written by the Fund is "covered" if the Fund owns the
underlying security covered by the call or has an absolute and
immediate right to acquire that security without additional cash
consideration (or for additional cash consideration held in a
segregated account by its Custodian) upon conversion or exchange
of other securities held in its portfolio. A call option is also
covered if the Fund holds a call on the same security and in the
same principal amount as the call written where the exercise
price of the call held (a) is equal to or less than the exercise
price of the call written or (b) is greater than the exercise
price of the call written if the difference is maintained by the
Fund in cash and liquid high-grade securities in which the Fund
can invest, in a segregated account with its Custodian. A put
option written by the Fund is "covered" if the Fund maintains
cash not available for investment or liquid high-grade securities
in which the Fund can invest, with a value equal to the exercise
price in a segregated account with its Custodian, or else holds a
put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written. The
premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the
remaining term of the option, supply and demand and interest
rates. A call option (sometimes called a "reverse standby
commitment") gives the purchaser of the option, upon payment of a
premium, the right to call upon the writer to deliver a specified
amount of a security on or before a fixed date, at a
predetermined price. The Fund will not purchase any option if,
immediately thereafter, the aggregate cost of all outstanding
options purchased by the Fund would exceed 2% of the value of its
total assets; the Fund will not write any option if, immediately
thereafter, the aggregate value of the Fund's portfolio
securities subject to outstanding options would exceed 15% of its
total assets.
The Fund will purchase put and call options to provide
protection against adverse price or yield effects from
anticipated changes in prevailing interest rates. In purchasing
a call option, the Fund would be in a position to realize a gain
if, during the option period, the price of the security increased
by an amount in excess of the premium paid. It would realize a
loss if the price of the security declined or remained the same
or did not increase during the period by more than the amount of
the premium. By purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the security declined by an amount in excess of the
premium paid. It would realize a loss if the price of the
security increased or remained the same or did not decrease
during that period by more than the amount of the premium. If a
put or call option purchased by the Fund were permitted to expire
10
<PAGE>
without being sold or exercised, its premium would represent a
loss to the Fund.
The Fund will seek additional return on its portfolio
securities by writing put and call options covering the types of
securities in which the Fund may invest. When the Fund writes a
put option it maintains in a segregated account cash or readily
marketable securities in an amount adequate to purchase the
underlying security should the put be exercised. When the Fund
writes a call option it must own at all times during the option
period either the underlying securities or an offsetting call
option on the same securities. If a put option written by the
Fund were exercised the Fund would be obligated to purchase the
underlying security at the exercise price. If a call option
written by the Fund were exercised the Fund would be obligated to
sell the underlying security at the exercise price.
The risk involved in writing a put option is that there
could be a decrease in the market value of the underlying
security caused by rising interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold to the Fund at a higher price than
its current market value. The risk involved in writing a call
option is that there could be an increase in the market value of
the underlying security caused by declining interest rates or
other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the Fund at a
lower price than its current market value. These risks could be
reduced by entering into a closing transaction as described
below. The Fund retains the premium received from writing a put
or call option whether or not the option is exercised.
The Fund may dispose of an option which it has purchased
by entering into a "closing sale transaction" with the writer of
the option. A closing sale transaction terminates the obligation
of the writer of the option and does not result in the ownership
of an option. The Fund realizes a profit or loss from a closing
sale transaction if the premium received from the transaction is
more than or less than the cost of the option.
The Fund may terminate its obligation to the holder of
an option written by the Fund through a "closing purchase
transaction." The Fund may not, however, effect a closing
purchase transaction with respect to such an option after it has
been notified of the exercise of such option. The Fund realizes
a profit or loss from a closing purchase transaction if the cost
of the transaction is more than or less than the premium received
by the Fund from writing the option.
The Fund generally purchases or writes options, other
than options on futures, in negotiated transactions. The Fund
11
<PAGE>
effects such transactions only with investment dealers and other
financial institutions (such as commercial banks or savings and
loan institutions) deemed creditworthy by the Adviser. The
Adviser has also adopted procedures for monitoring the
creditworthiness of such entities. Options purchased or written
by the Fund in negotiated transactions are illiquid and it may
not be possible for the Fund to effect a closing purchase
transaction at a time when the Adviser believes it would be
advantageous to do so.
INTEREST RATE TRANSACTIONS. The Fund may, without
limit, enter into interest rate swaps and may purchase or sell
interest rate caps and floors. The Fund expects to enter into
these transactions primarily to preserve a return or spread on a
particular investment or portion of its portfolio. The Fund may
also enter into these transactions to protect against any
increase in the price of securities the Fund anticipates
purchasing at a later date. The Fund does not intend to use
these transactions in a speculative manner. Interest rate swaps
involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments. The
purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on a contractually-based
principal amount from the party selling the interest rate cap.
The purchase of an interest rate floor entitles the purchaser, to
the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on a
contractually-based principal amount from the party selling the
interest rate floor.
The Fund may enter into interest rate swaps, caps and
floors on either an asset-based or liability-based basis,
depending on whether it is hedging its assets or its liabilities,
and will usually enter into interest rate swaps on a net basis,
i.e., the two payment streams are netted out, with the Fund
receiving or paying, as the case may be, only the net amount of
the two payments. The net amount of the excess, if any, of the
Fund's obligations over its entitlements with respect to each
interest rate swap will be accrued on a daily basis and an amount
of cash or high-quality liquid debt securities having an
aggregate net asset value at least equal to the accrued excess
will be maintained in a segregated account by the Fund's
custodian. If the Fund enters into an interest rate swap on
other than a net basis, the Fund will maintain a segregated
account in the full amount accrued on a daily basis of the Fund's
obligations with respect to the swap. The Fund will not enter
into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other
party thereto is rated in the highest rating category of at least
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<PAGE>
one nationally recognized rating organization. The Adviser will
monitor the creditworthiness of counterparties on an ongoing
basis. If there were a default by such counterparty, the Fund
would have contractual remedies. The swap market has grown
substantially in recent years with a large number of banks and
investment banking firms acting both as principals and agents
utilizing standardized swap documentation. The Adviser has
determined that, as a result, the swap market has become
relatively liquid. Caps and floors are more recent innovations
for which documentation is not as standardized and, accordingly,
they are less liquid than swaps. To the extent the Fund sells
(i.e., writes) caps and floors, it will maintain in a segregated
account cash or high-quality liquid debt securities having an
aggregate net asset value at least equal to the full amount,
accrued on a daily basis, of the Fund's obligations with respect
to the caps or floors. The use of interest rate swaps is a
highly specialized activity which involves investment techniques
and risks different from those associated with ordinary portfolio
securities transactions. If the Adviser is incorrect in its
forecasts of market values, interest rates and other applicable
factors, the investment performance of the Fund would diminish
compared with what it would have been if these investment
techniques were not used. Moreover, even if the Adviser is
correct in its forecasts, there is a risk that the swap position
may correlate imperfectly with the price of the asset or
liability being hedged.
There is no limit on the amount of interest rate swap
transactions that may be entered into by the Fund. These
transactions do not involve the delivery of securities or other
underlying assets or principal. Accordingly, the risk of loss
with respect to interest rate swaps is limited to the net amount
of interest payments that the Fund is contractually obligated to
make. If the other party to an interest rate swap defaults, the
Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive. The
Fund may purchase and sell (i.e., write) caps and floors without
limitation, subject to the segregated account requirement
described above.
INTEREST RATE FUTURES CONTRACTS. The Fund also may
enter into contracts for the future delivery of fixed-income
securities commonly referred to as "interest rate futures
contracts." These futures contracts will be used only as a hedge
against anticipated interest rate changes. The Fund will not
enter into an interest rate futures contract if immediately
thereafter more than 5% of the value of the Fund's total assets
will be committed to margin. The Fund will also not enter into
an interest rate futures contract if immediately thereafter the
sum of the then aggregate futures market prices of financial
instruments required to be delivered under open futures contract
13
<PAGE>
sales and the aggregate futures market prices of instruments
required to be delivered under open futures contract purchases
would exceed 30% of the value of the Fund's total assets. For a
detailed discussion of futures contracts and the risks of
investing therein, see Appendix B.
LENDING OF PORTFOLIO SECURITIES. The Fund may from time
to time lend securities from its portfolio to brokers, dealers
and financial institutions and receive collateral in the form of
cash or United States Government obligations. Under the Fund's
current practices (which are subject to change), the loaned
collateral must be maintained at all times in an amount equal to
at least 100% of the current market value of the loaned
securities. In determining whether to lend securities to a
particular broker-dealer or financial institution, the Adviser
will consider all relevant facts and circumstances, including the
creditworthiness of the broker-dealer or financial institution.
The Fund may pay reasonable finders, administrative and custodial
fees in connection with a loan. The Fund will not lend portfolio
securities in excess of 20% of the value of its total assets, nor
will the Fund lend its portfolio securities to any officer,
director, employee or affiliate of either the Fund or the
Adviser.
ILLIQUID SECURITIES. The Fund will not invest in
illiquid securities if immediately after such investment more
than 10% of the Fund's total assets (taken at market value) would
be invested in such securities. In addition, the Fund will not
maintain more than 15% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others,
(a) direct placements or other securities which are subject to
legal or contractual restrictions on resale or for which there is
no readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (b) options
purchased by the Fund over-the-counter and the cover for options
written by the Fund over-the-counter, and (c) repurchase
agreements not terminable within seven days. See "Additional
Investment Policies and Practices," below. Securities that have
legal or contractual restrictions on resale but have a readily
available market are not deemed illiquid for purposes of this
limitation.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
14
<PAGE>
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 bond 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.
The Fund may invest up to 5% of its total assets (taken
at market value) in restricted securities issued under Section
4(2) of the Securities Act, which exempts from registration
"transactions by an issuer not involving any public offering."
Section 4(2) instruments are restricted in the sense that they
can only be resold through the issuing dealer and only to
institutional investors and in private transactions; they cannot
be resold to the general public without registration.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of
the Securities Act for resales of certain securities to qualified
institutional buyers. An insufficient number of qualified
institutional buyers interested in purchasing certain restricted
securities held by the Fund, however, could affect adversely the
marketability of such portfolio securities and the Fund might be
unable to dispose of such securities promptly or at reasonable
prices. Rule 144A has already produced enhanced liquidity for
many restricted securities, and market liquidity for such
securities may continue to expand as a result of this regulation
and the consequent inception of the PORTAL System, an automated
system for the trading, clearance and settlement of unregistered
securities of domestic and foreign issuers which is sponsored by
15
<PAGE>
the National Association of Securities Dealers, Inc. (the
"NASD").
The 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 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 Securities and Exchange Commission (the "Commission")
interpretation or position with respect to such type of
securities.
PORTFOLIO TURNOVER. The investment activities described
above are likely to result in the Fund engaging in a considerable
amount of trading of securities held for less than one year.
Management anticipates that the annual turnover in the Fund will
be approximately 600%. An annual turnover rate of 600% occurs,
for example, when all the securities in the Fund's portfolio are
replaced six times in a period of one year. A high rate of
portfolio turnover involves correspondingly greater expenses than
a lower rate, which expenses must be borne by the Fund and its
shareholders. High portfolio turnover also may result in the
realization of substantial net short-term capital gains. The
annual portfolio turnover rates of securities in the Fund for
fiscal years ended December 31, 1994 and December 31, 1995 were
438% and 285%, respectively. See "Dividends, Distributions and
Taxes" and "General Information-Portfolio Transactions."
FUNDAMENTAL INVESTMENT POLICIES
The following investment restrictions may not be changed
without shareholder approval which means the affirmative vote of
(i) 67% or more of the shares represented at a meeting at which
more than 50% of the outstanding shares are present in person or
by proxy, or (ii) more than 50% of the outstanding shares,
whichever is less.
As a matter of fundamental policy, the Fund may not:
(i) invest more than 5% of the value of its total assets in the
securities of any one issuer, other than securities issued or
guaranteed by the United States Government, its agencies or
instrumentalities, except that up to 25% of the value of the
Fund's total assets may be invested without regard to this
16
<PAGE>
limitation; (ii) invest more than 25% of the value of its total
assets in the securities of issuers conducting their principal
business activities in a single industry, except that this
limitation shall not apply to investments in the mortgage and
mortgage-financed industry (in which more than 25% of the value
of the Fund's total assets will, except for temporary defensive
positions, be invested) or securities issued or guaranteed by the
United States Government, its agencies or instrumentalities;
(iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which
might require the untimely disposition of securities; borrowing
in the aggregate may not exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of
the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the
borrowing is made; outstanding borrowings in excess of 5% of the
value of the Fund's total assets will be repaid before any
subsequent investments are made; (iv) pledge, hypothecate,
mortgage or otherwise encumber its assets, except in an amount of
not more than 15% of the value of its total assets to secure
borrowings for temporary or emergency purposes and except as
provided in (vi) below, provided, however, that this limitation
does not apply to deposits made in connection with the entering
into and holding of interest rate futures contracts; (v) invest
more than 10% of the value of its total assets in the aggregate
in illiquid securities or other illiquid investments and
repurchase agreements maturing in more than seven days; or
(vi) lend its portfolio securities if immediately after such a
loan more than 20% of the value of the Fund's total assets would
be subject to such loans.
In addition, the Fund may not:
1. Make loans except through (i) the purchase of
qualified debt obligations referred to under "Investment
Objective and Policies", (ii) entry into repurchase agreements,
and (iii) the lending of portfolio securities; and
2. (a) Purchase or sell real estate, except that it
may invest in mortgage-related securities and whole loans and
purchase and sell securities of companies which deal in real
estate or interests therein; (b) invest in commodities or
commodities contracts, except that it may invest in interest rate
futures contracts; (c) invest in interests in oil, gas or other
mineral exploration or development programs; (d) sell securities
short or purchase securities on margin; (e) act as an underwriter
of securities, except that, subject to investment restriction in
the Prospectus, the Fund may acquire restricted securities under
circumstances in which, if such securities are sold, the Fund
might be deemed to be an underwriter for purposes of the
Securities Act; (f) invest in companies for the purpose of
17
<PAGE>
exercising control; and (g) invest in the securities of other
investment companies, except securities acquired as a result of a
merger, consolidation or acquisition of assets.
Whenever any investment policy or restriction states a
minimum or maximum percentage of the Fund's assets which may be
invested in any security or other asset, it is intended that such
minimum or maximum percentage limitation be determined
immediately after and as a result of the Fund's acquisition of
such security or other asset. Accordingly, any later increase or
decrease in percentage beyond the specified limitations resulting
from a change in values or net assets will not be considered a
violation.
_________________________________________________________________
MANAGEMENT OF THE FUND
_________________________________________________________________
ADVISER
Alliance Capital Management L.P., a New York Stock
Exchange listed company with principal offices at 1345 Avenue of
the Americas, New York, New York 10105, has been retained under
an advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and
investment program of the Fund under the supervision and control
of the Fund's Board of Directors.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
December 31, 1995 of more than $146 billion (of which more than
$48 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of December 31,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 51
registered investment companies comprising 107 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
18
<PAGE>
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
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 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1995, approximately 33% and 8%
of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation (one of
which, Belgica Insurance Holding S.A., a Belgian corporation,
owned 34.1%). As of January 1, 1995, 62.1% of the issued shares
(representing 75.7% of the voting power) of Finaxa were owned by
five French mutual insurance companies (the "Mutuelles AXA") (one
of which, AXA Assurances I.A.R.D. Mutuelle, owned 31.8% of the
issued shares) (representing 39.0% of the voting power), and
26.5% of the issued shares (representing 16.6% of the voting
power) of Finaxa were owned by Banque Paribas, a French bank.
Including the shares owned by Midi Participations as of January
1, 1995, the Mutuelles AXA directly or indirectly owned 51.3% of
the issued shares (representing 65.8% of the voting power) of
AXA. In addition, certain subsidiaries of AXA own 0.4% of the
shares of AXA which are not entitled to be voted. Acting as a
group, the Mutuelles AXA control AXA, Midi Participations and
Finaxa.
Under the Advisory Agreement, the 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 Adviser. The Adviser
or its affiliates also, without charge, furnishes the Fund
management supervision and assistance and office facilities.
19
<PAGE>
Under the Advisory Agreement, the Fund pays a quarterly fee to
the Adviser on the first business day of January, April, July and
October equal to .1375 of 1% (approximately .55 of 1% on an
annual basis) of the net asset value of the Fund at the end of
the previous quarter up to $500,000,000 and .125 of l%
(approximately .50 of l% on an annual basis) of the Fund's net
asset value in excess of $500,000,000 at the end of the previous
quarter. For the fiscal years ended December 31, 1993, December
31, 1994 and December 31, 1995, the Adviser received advisory
fees of $11,651,682, $9,620,756 and $7,177,437, respectively.
The Advisory Agreement provides that the Adviser will
reimburse the Fund for its expenses (exclusive of interest,
taxes, brokerage, expenditures pursuant to the Distribution
Services Agreement described below, and extraordinary expenses,
all to the extent permitted by applicable state securities laws
and regulations) which in any year exceed the limits prescribed
by any state in which the Fund's shares are qualified for sale.
The Fund may not qualify its shares for sale in every state. The
Fund believes that presently the most restrictive expense ratio
limitations imposed by any state in which the Fund has qualified
its shares for sale is 2.5% of the first $30 million of the
Fund's aggregate average daily net assets, 2.0% of the next $70
million of its average daily net assets and 1.5% of its average
daily net assets in excess of $100 million. Expense
reimbursements, if any, are accrued daily and paid monthly. No
such reimbursements were required for the fiscal years ended
December 31, 1993, 1994 and 1995.
The Advisory Agreement became effective on July 22,
1992. The Advisory Agreement was approved by the unanimous vote,
cast in person, of the Fund's Directors, including the Directors
who are not parties to the Advisory Agreement or interested
persons of any such party, at a meeting called for such purpose
and held on September 11, 1991. At a meeting held on June 11,
1992, a majority of the outstanding voting securities of the Fund
approved the Advisory Agreement.
The Advisory Agreement continues in effect for
successive twelve-month periods (computed from each January 1),
provided that such continuance is specifically approved at least
annually by the Fund's Directors or by a majority vote of the
holders of the outstanding voting securities of the Fund, and, in
either case, by a majority of the Directors who are not parties
to the Advisory Agreement or interested persons as defined in the
Investment Company Act of 1940, as amended (the "1940 Act") of
any such party. Most recently, the continuance of the Advisory
Agreement until December 31, 1996 was approved by a vote, cast in
person, by the Directors, including a majority of the Directors
who are not parties to the Advisory Agreement or interested
20
<PAGE>
persons of any such party, at a meeting called for that purpose
and held on December 13, 1995.
The Advisory Agreement 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 Adviser on 60 days' written notice,
and will automatically terminate in the event of its assignment.
The Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is the investment adviser to ACM Institutional Reserves,
Inc., AFD Exchange Reserves, The Alliance Fund, Inc., Alliance
All-Asia Investment Fund, Inc., Alliance Balanced Shares, Inc.,
Alliance Bond Fund, Inc., Alliance Capital Reserves, Alliance
Counterpoint Fund, Alliance Developing Markets Fund, Inc.,
Alliance Global Dollar Government Fund, Inc., Alliance Global
Small Cap Fund, Inc., Alliance Global Strategic Income Trust,
Inc., Alliance Government Reserves, Alliance Growth and Income
Fund, Inc., Alliance Income Builder Fund, Inc., Alliance
International Fund, Alliance Limited Maturity Government Fund,
Inc., Alliance Money Market Fund, Alliance Multi-Market Strategy
Trust, Inc., Alliance Municipal Income Fund, Inc., Alliance
Municipal Income Fund II, Alliance Municipal Trust, Alliance New
Europe Fund, Inc., Alliance North American Government Income
Trust, Inc., Alliance Premier Growth Fund, Inc., Alliance Quasar
Fund, Inc., Alliance Short-Term Multi-Market Trust, Inc.,
Alliance Technology Fund, Inc., Alliance Utility Income Fund,
Inc., Alliance Variable Products Series Fund, Inc., Alliance
World Income Trust, Inc., Alliance Worldwide Privatization Fund,
21
<PAGE>
Inc., Fiduciary Management Associates, 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 Income
Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM Municipal
Securities Income Fund, Inc., Alliance All-Market Advantage Fund,
Inc., Alliance Global Environment 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.
22
<PAGE>
DIRECTORS AND OFFICERS
The Directors and principal officers of the Fund, their
ages and their primary occupations during the past five years are
set forth below. Each such Director and officer is also a
director, trustee or officer of other registered investment
companies sponsored by the Adviser. Unless otherwise specified,
the address of each of the following persons is 1345 Avenue of
the Americas, New York, New York 10105.
DIRECTORS
JOHN D. CARIFA,* 50, CHAIRMAN OF THE BOARD AND PRESIDENT
of the Fund, is the President and the Chief Operating Officer and
a Director of ACMC with which he has been associated since prior
to 1991.<R/>
RUTH BLOCK, 65, is a Director of Ecolab Incorporated
(specialty chemicals) and Amoco Corporation (oil and gas).
Previously, she was an Executive Vice President and the Chief
Insurance Officer of The Equitable Life Assurance Society of the
United States since prior to 1991. Her address is P. O. Box
4653, Stamford, Connecticut 06903.
DAVID H. DIEVLER, 66, was formerly Chairman and
President of the Fund, and a Senior Vice President of ACMC with
which he had been associated since prior to 1991 through 1994. He
is currently an independent consultant. His address is P. O.
Box 167, Spring Lake, New Jersey 07762.
JAMES R. GREENE, 74, is an independent financial
consultant since prior to 1991. He is also a Director of ASARCO,
Incorporated (metals smelting and refining), Bank Leumi Trust
Co., Buck Engineering Company (manufacturing), American Reliance
Insurance Co. and United Tote (computer software). His address
is 134 Buttonwood Drive, Fair Haven, New Jersey 07701.
DR. JAMES M. HESTER, 71, is President of the Harry Frank
Guggenheim Foundation and a Director of Union Carbide Corporation
with which he has been associated since prior to 1991. He was
formerly President of New York University, The New York Botanical
Garden and Rector of the United Nations University. His address
is 45 East 89th Street, Apt. 39C, New York, New York 10128.
_______________________________
* An "interested person" of the Fund as defined in the 1940
Act.
23
<PAGE>
CLIFFORD L. MICHEL, 56, is a partner in the law firm of
Cahill Gordon & Reindel with which he has been associated since
prior to 1991. He is also Chief Executive Officer of Wenonah
Development Company (investments) and a Director of Placer Dome,
Inc. (mining) and Faber-Castell Corporation (writing products).
His address is 80 Pine Street, New York, New York 10005.
EUGENE F. O'NEIL, 71, is Managing Director of O'Neil
Asset Management (private investments) with which he has been
associated since prior to 1991. His address is 24 Byfield Lane,
Greenwich, Connecticut 06830.
ROBERT C. WHITE, 75, is currently an independent
consultant. He was formerly Vice President and the Chief
Financial Officer of the Howard Hughes Medical Institute since
prior to 1991. Prior thereto, he was an Assistant Treasurer of
the Ford Motor Company. His address is 30825 River Crossing,
Bingham Farms, Michigan 48025.
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT, see biography,
above.
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 54, is an
Executive Vice President of ACMC with which he has been
associated since prior to 1991.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 35, is a
Senior Vice President of ACMC since July 1993. Prior thereto,
she was employed by Equitable Capital since prior to 1991.
PATRICIA J. YOUNG, SENIOR VICE PRESIDENT, 41, is a
Senior Vice President of ACMC with which she has been associated
since March 1992. Previously, she was a Managing Director and
Portfolio Manager for Hyperion Capital since March 1991. Prior
thereto, she was a managing Director with Fischer, Francis, Trees
& Watts since prior to 1991.
PAUL A. ULLMAN, VICE PRESIDENT, 38, is a Vice President
of ACMC with which he has been associated since March 1992.
Previously, he was a Director and Portfolio Manager at Hyperion
Capital since July 1991. Prior thereto, he was a Vice President
at Salomon Brothers since prior to 1991.
EDMUND P. BERGAN, JR., SECRETARY, 45, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
with which he has been associated since prior to 1991.
DOMENICK PUGLIESE, ASSISTANT SECRETARY, 34, is Vice
President and Associate General Counsel of Alliance Fund
24
<PAGE>
Distributors, Inc. with which he has been associated since May
1995. Previously, he was Vice President and Counsel of Concord
Financial Holding Corporation since 1994, Vice President and
Associate General Counsel of Prudential Securities since 1991 and
an associate with Battle Fowler since prior to 1991.
MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
45, is a Vice President of Alliance Fund Distributors, Inc. and a
Senior Vice President of Alliance Fund Services, Inc. with which
he has been associated since prior to 1991.
PATRICK J. FARRELL, CONTROLLER, 36, is a Vice President
of Alliance Fund Services, Inc. with which he has been associated
since prior to 1991.
JOSEPH J. MANTINEO, ASSISTANT CONTROLLER, 36, is a Vice
President of Alliance Fund Services, Inc. with which he has been
associated since prior to 1991.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended December 31, 1995, and
the aggregate compensation paid to each of the Directors during
calendar year 1995 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Directors serves as a director or trustee are
set forth below. Neither the Fund nor any other fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number of Funds
Total in the Alliance Fund
Compensation Complex, Including
Aggregate from the Alliance the Fund, as to which
Name of Director Compensation Fund Complex, the Director is a
of the Fund from the Fund Including the Fund Director or Trustee
_______________ _____________ __________________ ______________________
John D. Carifa $-0- $-0- 49
Ruth Block $3,236 $159,000 36
David H. Dievler $3,236 $179,200 42
James R. Greene $3,375 $ 77,500 11
Dr. James M. Hester $3,236 $156,000 37
Clifford L. Michel $3,236 $131,500 36
Eugene F. O'Neil $3,500 $ 20,500 5
Robert C. White $3,236 $133,200 36
25
<PAGE>
As of February 15, 1996, the Directors and officers of
the Fund as a group owned less than 1% of the shares of the
Fund.
_________________________________________________________________
EXPENSES OF THE FUND
_________________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributor, Inc.,
the Fund's principal underwriter (the "Principal Underwriter"),
to permit the Fund directly or indirectly to pay expenses
associated with the distribution of its shares in accordance with
a plan of distribution included in the Agreement and has been
duly adopted and approved in accordance with Rule 12b-1 adopted
by the Commission under the 1940 Act (the "Rule 12b-1 Plan").
Distribution services fees are accrued daily and paid
monthly and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and, in the case of Class C shares, without
the assessment of a contingent deferred 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 the distribution services fee on the Class C
shares, are the same as those of the initial sales charge (or
contingent deferred sales charge, when applicable) and
distribution services fee with respect to the Class A shares and
that in each case the sales charge and/or distribution services
fee provide for the financing of the distribution of the Fund's
shares.
Under the Agreement, the Treasurer of the Fund reports
the amounts expended under the Rule 12b-1 Plan and the purposes
for which such expenditures were made to the Directors of the
Fund for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not interested persons of the Fund (as defined in the 1940 Act)
are committed to the discretion of such disinterested Directors
then in office.
The Agreement became effective on July 22, 1992, and was
amended as of April 30, 1993 to permit the distribution of an
26
<PAGE>
additional class of shares, Class C shares. The amendment to the
Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
and held on February 23, 1993, and by the initial holder of Class
C shares of the Fund on April 30, 1993.
The Adviser may, from time to time and from its own
funds or such other resources as may be permitted by rules of the
Commission, make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
During the Fund's fiscal year ended December 31, 1995,
with respect to Class A shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$1,586,741, which constituted .30 of 1% of the Fund's average
daily net assets attributable to Class A shares during such
fiscal year, and the Adviser made payments from its own resources
aggregating $380,064. Of the $1,966,805 paid by the Fund and the
Adviser under the Plan with respect to Class A shares, $98,387
was spent on advertising, $19,409 on the printing and mailing of
prospectuses for persons other than current shareholders,
$1,495,304 for compensation to broker-dealers and other financial
intermediaries (including $229,460 to the Fund's Principal
Underwriter), $21,051 for compensation to sales personnel, and
$332,654 was spent on the printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
During the Fund's fiscal year ended December 31, 1995,
with respect to Class B shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$8,376,517, which constituted 1% of the Fund's average daily net
assets attributable to Class B shares during such fiscal year,
and the Adviser made payments from its own resources aggregating
$-0-. Of the $7,842,182 paid by the Fund and the Adviser under
the Plan with respect to Class B shares, $109,783 was spent on
advertising, $20,466 on the printing and mailing of prospectuses
for persons other than current shareholders, $1,058,478 for
compensation to broker-dealers and other financial intermediaries
(including $263,892 to the Fund's Principal Underwriter), $17,327
for compensation to sales personnel, $370,137 was spent on the
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses and $6,265,991 was spent
on financing of interest relating to Class B shares. The
additional $534,335 in payments to the Principal Underwriter will
be carried forward and offset against future distribution service
fees payable under the Plan.
During the Fund's fiscal year ended December 31, 1995,
with respect to Class C shares, distribution services fees for
27
<PAGE>
expenditures payable to the Principal Underwriter amounted to
$513,701, which constituted 1% of the Fund's average daily net
assets attributable to Class C shares during such fiscal year,
and the Adviser made payments from its own resources aggregating
$617,288. Of the $1,130,989 paid by the Fund and the Adviser
under the Plan with respect to Class C shares, $83,163 was spent
on advertising, $22,779 on the printing and mailing of
prospectuses for persons other than current shareholders,
$703,886 for compensation to broker-dealers and other financial
intermediaries (including $191,663 to the Fund's Principal
Underwriter), $11,670 for compensation to sales personnel, and
$309,491 was spent on the printing of sales literature, travel,
entertainment, due diligence and other promotional expenses.
The Agreement will continue in effect for successive
twelve-month periods (computed from each January 1) with respect
to each class of the Fund, provided, however, that such
continuance is specifically approved at least annually by the
Directors of the Fund or by vote of the holders of a majority of
the outstanding voting securities (as defined in the 1940 Act) of
that class, and in either case, by a majority of the Directors of
the Fund who are not parties to this Agreement or interested
persons, as defined in the 1940 Act, of any such party (other
than as directors of the Fund) and who have no direct or indirect
financial interest in the operation of the Rule 12b-1 Plan or any
agreement related thereto. Most recently the Directors approved
the continuance of the Agreement until December 31, 1996 at their
meeting held on December 13, 1995.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the
outstanding shares of the Fund, voting separately by class. The
Agreement may be terminated (a) by the Fund without penalty at
any time by a majority vote of the disinterested Directors who
28
<PAGE>
have no direct or indirect financial interest in the Rule 12b-1
Plan, the Agreement or any related agreement or by a majority
vote of the outstanding shares of the Fund, voting separately by
class, or (b) by the Principal Underwriter. To terminate the
Agreement, either party must give the other party 60 days'
written notice; to terminate the Rule 12b-1 Plan only, the Fund
is not required to give prior written notice to the Principal
Underwriter. The Rule 12b-1 Plan will terminate automatically in
the event of its assignment.
TRANSFER AGENCY AGREEMENT
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder for each of the Class A shares, Class B shares and
Class C shares of the Fund, plus reimbursement for out-of-pocket
expenses. The transfer agency fee with respect to the Class B
shares is higher than the transfer agency fee with respect to the
Class A shares or Class C shares reflecting the additional costs
associated with Class B contingent deferred sales charge. For
the fiscal year ended December 31, 1995, the Fund paid Alliance
Fund Services, Inc. $1,210,760 for transfer agency services.
_________________________________________________________________
PURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the headings "Purchase and Sale of
Shares -- How To Buy Shares, How To Sell Shares, and Shareholder
Services."
GENERAL
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase (the "initial sales charge
alternative"), with a contingent deferred sales charge (the
"deferred sales charge alternative"), or without any initial or
contingent deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of the Fund are
offered on a continuous basis through (i) investment dealers that
are members of the NASD and have entered into selected dealer
agreements with the Principal Underwriter ("selected dealers"),
(ii) depository institutions and other financial intermediaries
or their affiliates, that have entered into selected agent
agreements with the Principal Underwriter ("selected agents"), or
(iii) the Principal Underwriter. The minimum for initial
investments is $250; subsequent investments (other than
reinvestment of dividends and capital gains distributions in
29
<PAGE>
shares) must be in the minimum amount of $50. As described under
"Shareholder Services," the Fund offers an automatic investment
program and a 403(b)(7) retirement plan which permit investments
of $25 or more. The subscriber may use the Subscription
Application found in the Prospectus for his or her initial
investment. Sales personnel of selected dealers and agents
distributing the Fund's shares may receive differing compensation
for selling Class A, Class B or Class C shares.
Investors may purchase shares of the Fund in the United
States either through selected dealers or agents or directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible. The Fund may refuse any
order for the purchase of shares. The Fund reserves the right to
suspend the sale of the Fund'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 Fund is their
net asset value, plus, in the case of most purchases of Class A
shares, a sales charge which will vary depending on the purchase
alternative chosen by the investor and the amount of the
purchase, as shown in the table below under "Initial Sales Charge
Alternative--Class A Shares." On each Fund business day on which
a purchase or redemption order is received by the Fund and
trading in the types of securities in which the Fund invests
might materially affect the value of Fund shares, the per share
net asset value is computed in accordance with the 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
Fund's total assets, less its liabilities, by the total number of
its shares then outstanding. The respective per share net asset
values of the Class A, Class B and Class C shares are expected to
be substantially the same. Under certain circumstances, however,
the per share net asset values of the Class B and Class C shares
may be lower than the per share net asset value of the Class A
shares as a result of the daily expense accruals of the
distribution and transfer agency fees applicable with respect to
the Class B and Class C shares. Even under those circumstances,
the per share net asset values of the three classes eventually
will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense
accrual differential among the classes. A Fund business day is
any weekday, exclusive of national holidays on which the Exchange
is closed and Good Friday. For purposes of this computation, the
securities in the Fund are valued at their current market value
determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the
Directors believe would accurately reflect fair market value.
30
<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
or agents, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer or
agent receives the order prior to the close of regular trading on
the Exchange and transmits it to the Principal Underwriter prior
to its close of business that same day (normally 5:00 p.m.
Eastern time). The selected dealer or agent is responsible for
transmitting such orders by 5:00 p.m. If the selected dealer or
agent fails to do so, the investor's right to that day's closing
price must be settled between the investor and the selected
dealer or agent. If the selected dealer or agent receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "Literature" telephone number
shown on the cover of this Statement of Additional Information. A
telephone purchase order may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic
Funds Transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
31
<PAGE>
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc. an affiliate of the
Principal Underwriter, in connection with the sale of shares of
the Fund. Such additional amounts may be utilized, in whole or
in part, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions,
such cash or other incentives will be conditioned upon the sale
of a specified minimum dollar amount of the shares of the Fund
and/or other Alliance Mutual Funds, as defined below, during a
specific period of time. On some occasions such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performance, or
payment for travel, lodging entertainment incurred in connection
with travel by persons associated with a dealer or agent and
their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
ALTERNATIVE PURCHASE ARRANGEMENTS
The Fund issues three classes of shares: Class A shares
are sold to investors choosing the initial sales charge
alternative, Class B shares are sold to investors choosing the
deferred sales charge alternative, and Class C shares are sold to
investors choosing the asset-based sales charge alternative. The
three classes of shares each represent an interest in the same
portfolio of investments of the Fund, have the same rights and
are identical in all respects, except that (i) Class A shares
bear the expense of the initial sales charge (or contingent
deferred sales charge, when applicable) and Class B shares bear
the expense of the contingent deferred sales charge, (ii) Class B
shares and Class C shares each bear the expense of a higher
distribution services fee and, in the case of Class B shares,
higher transfer agency costs, (iii) each class has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid which
relates to a specific 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 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, and
(iv) only the Class B shares are subject to a conversion feature.
32
<PAGE>
Each class has different exchange privileges and certain
different shareholder service options available.
The alternative purchase arrangements permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee 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) for more than $250,000 for Class B
shares. Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. In addition, the Principal Underwriter will reject any
order for more than $5,000,000 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, most investors purchasing Class A shares would not
have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge for a three-year period. 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
33
<PAGE>
accumulated distribution services fee of Class A shares. In this
example, an investor intending to maintain his or her investment
for a longer period might consider purchasing Class A shares.
This example does not take into account the time value of money,
which further reduces the impact of the Class C distribution
services fees on the investment, fluctuations in net asset value
or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
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.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B and Class C shares. On an ongoing basis, the Directors
of the Fund, pursuant to their fiduciary duties under the 1940
Act and state laws, will seek to ensure that no such conflict
arises.
During the Fund's fiscal periods ended December 31,
1995, 1994 and 1993, the aggregate amount of underwriting
commission payable with respect to shares of the Fund in each
year was $275,029, $1,906,578 and $5,910,718, respectively. Of
that amount, the Principal Underwriter received $15,075, $68,298
and $44,509, respectively, representing that portion of the Class
A sales charges paid on the Class A shares of the Fund sold
during the year which was not reallowed to selected dealers (and
was, accordingly, retained by the Principal Underwriter).
During the fiscal period ended December 31, 1995, the
Principal Underwriter received $1,596,882 in contingent deferred
sales charges from redemptions of Class B shares.
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for
purchasers choosing the initial sales charge alternative is the
net asset value plus a sales charge, as set forth below.
34
<PAGE>
INITIAL 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, and such charge will be applied to
redemptions of shares by shareholders who hold both Class A and
Class B shares, as described below under "Deferred Sales Charge
Alternative--Class B Shares." Proceeds from the contingent
deferred sales charge on Class A shares are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services to the Fund in connection with the
sales of Class A shares, such as the payment of compensation to
selected dealers and agents for selling Class A shares. With
respect to purchases of $1,000,000 or more made through selected
dealers or agents, the Adviser may, pursuant to the Agreement
described above, pay such dealers or agents from its own
resources a fee of up to 1% of the amount invested to compensate
35
<PAGE>
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, or (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. The Fund receives the entire net asset value of
its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. The Principal Underwriter may, however, elect to reallow
the entire sales charge to selected dealers and agents for all
sales with respect to which orders are placed with the Principal
Underwriter. A selected dealer who receives reallowance in
excess of 90% of such a sales charge may be deemed to be an
"underwriter" under the Securities Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth in
the Prospectus at a price based upon the net asset value of
Class A shares of the Fund on December 31, 1995.
Net Asset Value per Class A
Share at December 31, 1995 $8.75
Per Share Sales Charge - 4.25%
of offering price (4.44%
of net asset value per share) .39
______
Class A Per Share Offering Price $9.14
to the Public
=====
An investor choosing the initial sales charge
alternative may under certain circumstances be entitled to pay
(i) no initial sales charge (but be subject in most cases to a
contingent deferred sales charge) or (ii) a reduced initial sales
charge. The circumstances under which an investor may pay a
reduced initial sales charge or no initial sales charge are
described below.
36
<PAGE>
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
Fund into a single "purchase," if the resulting "purchase" totals
at least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or to concurrent purchases, which in
the aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
37
<PAGE>
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced 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 "Literature" telephone number shown on
the front cover of this Statement of Additional Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all Class A, Class B and
Class C shares of the Fund held by the investor
and (b) all shares of any other Alliance Mutual
Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
38
<PAGE>
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced initial sales charges shown in the table above
by means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and/or
Class C shares) of the Fund or any other Alliance Mutual Fund.
Each purchase of shares under a Statement of Intention will be
made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar
amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will be necessary to invest
only a total of $60,000 during the following 13 months in shares
of the Fund or any other Alliance Mutual Fund, to qualify for the
3.25% initial sales charge on the total amount being invested
(the initial 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 initial sales
39
<PAGE>
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 initial sales
charge, if necessary. Dividends on escrowed shares, whether paid
in cash or reinvested in additional Fund shares, are not subject
to escrow. When the full amount indicated has been purchased,
the escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the initial sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The difference in
the initial sales charge will be used to purchase additional
shares of the Fund subject to the rate of the initial sales
charge applicable to the actual amount of the aggregate
purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced initial sales
charge on a monthly basis during the 13-month period following
such a plan's initial purchase. The initial sales charge
applicable to such initial purchase of shares of the Fund will be
that normally applicable, under the schedule of the initial 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 current month's purchase
multiplied by the number of months (including the current month)
remaining in the 13-month period, and (ii) the total purchase
previously made during the 13-month period. Sales charges
previously paid during such period will not be retroactively
adjusted on the basis of later purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A shares of the Fund to be
redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that such
reinvestment is made within 120 calendar days after the
redemption or repurchase date. Shares are sold to a reinvesting
shareholder at the net asset value next determined as described
40
<PAGE>
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 tax
purposes except that no loss will be recognized to the extent
that the proceeds are reinvested in shares of the Fund. The
reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased,
except that the privilege may be used without limit in connection
with transactions whose sole purpose is to transfer a
shareholder's interest in the Fund to his or her individual
retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written
request sent to the Fund at the address shown on the cover of
this Statement of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment advisory
clients of the 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 Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present and full-time
employees of selected dealers or agents; or the spouse, sibling,
direct ancestor or direct descendant (collectively "relatives")
of any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, the Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates;
certain employee benefit plans for employees of the Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer and
approved by the Principal Underwriter, pursuant to which such
persons pay an asset-based fee to such broker-dealer, or its
affiliate or agent, for services in the nature of investment
advisory or administrative services; (v) 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 (vi) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7) retirement plans and individual retirement accounts
41
<PAGE>
(including individual retirement accounts to which simplified
employee pension (SEP) contributions are made), if such plans or
accounts are established or administered under programs sponsored
by administrators or other persons that have been approved by the
Principal Underwriter.
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Fund will receive the full amount of the
investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which
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 an investor purchased 100 Class B
shares at $10 per share (at a cost of $1,000) and in the second
year after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired 10 additional Class B
shares upon dividend reinvestment. If at such time the investor
makes his or her first redemption of 50 Class B shares (proceeds
of $600), 10 Class B shares will not be subject to charge because
of dividend reinvestment. With respect to the remaining 40
Class B shares, the charge is applied only to the original cost
of $10 per share and not to the increase in net asset value of $2
42
<PAGE>
per share. Therefore, $400 of the $600 redemption proceeds will
be charged at a rate of 2.0% (the applicable rate in the second
year after purchase).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred
Sales Charge as a %
of Dollar Amount
Year Since Purchase Subject to Charge
___________________ ____________________
First 3.0%
Second 2.0%
Third 1.0%
Thereafter None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed that the
redemption is first of any shares in the shareholder's Fund
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for over two years and
third of Class A shares that are subject to a contingent deferred
sales charge held shortest during the one-year period during
which such shares are subject to the sales charge. When Class B
shares acquired in an exchange are redeemed, the applicable
contingent deferred sales charge and conversion schedules will be
the schedules that applied to Class B shares of the Alliance
Mutual Fund originally purchased by the shareholder at the time
of their purchase.
The contingent deferred sales charges on Class A and
Class B shares are 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
or Trustees 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. At the end of the period ending six
years after the end of the calendar month in which the
43
<PAGE>
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 be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other
charge. The purpose of the conversion feature is to reduce the
distribution services fee paid by holders of Class B shares that
have been outstanding long enough for the Principal Underwriter
to have been compensated for distribution expenses incurred in
the sale of such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and
(ii) 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.
ASSET-BASED SALES CHARGE ALTERNATIVE--CLASS C SHARES
Investors choosing the asset-based sales charge
alternative 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 upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and without a contingent deferred sales charge so that the
investor will receive as proceeds upon redemption the entire net
asset value of his or her Class C shares. The Class C
distribution services fee enables the Fund to sell Class C shares
without either an initial or contingent deferred sales charge.
44
<PAGE>
Class C shares do not convert to any other class of shares of the
Fund and incur higher distribution services fees than Class A
shares, and will thus have a higher expense ratio and pay
correspondingly lower dividends than Class A shares.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How to Sell Shares."
REDEMPTION
Subject only to the limitations described below, the
Fund's Articles of Incorporation require that the Fund redeem the
shares of the Fund 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 or Class B shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A shares and Class B
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment 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
45
<PAGE>
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no stock
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer, once in any 30-day period, of shares for which no
stock certificates have been issued by telephone at (800) 221-
5672 by a shareholder who has completed the appropriate portion
of the Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption request may not
exceed $100,000, 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. Except as noted below,
each Fund shareholder is eligible to request redemption, by
check, once in any 30-day period, of Fund shares for which no
stock certificates have been issued by telephone at (800) 221-
5672 before 4:00 p.m. Eastern time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record.
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. 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.
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
46
<PAGE>
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate its telephone redemption service at
any time without notice. Neither the Fund nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
may charge a commission for handling telephone requests for
redemptions.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
certificate or certificates, endorsed in blank or with blank
stock powers attached, to the Fund with the request that the
shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each
stock certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter 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 shares and
Class B 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
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Fund to the Principal Underwriter either directly
or through a selected dealer or agent. Neither the Fund nor the
47
<PAGE>
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 shares and Class B
shares). Normally, if shares of the Fund are offered through a
selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
GENERAL
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
_________________________________________________________________
SHAREHOLDER SERVICES
_________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- Shareholder Services."
SHAREHOLDER SERVICES APPLICABLE TO ALL THREE CLASSES
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts 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. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made 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
48
<PAGE>
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
EXCHANGE PRIVILEGE
Class A shareholders of the Fund can exchange their
Class A shares for Class A shares of any other Alliance Mutual
Fund that offers Class A shares and for shares of Alliance World
Income Trust, Inc. without the payment of any sales or service
charges. For purposes of applying applicable contingent deferred
sales charges upon the newly acquired Class A shares, the period
of time the Class A shares surrendered in the exchange have been
held is added to the period of time the newly acquired shares
have been held. Prospectuses for each Alliance Mutual Fund may
be obtained by contacting Alliance Fund Services, Inc. at the
address shown on the cover of this Statement of Additional
Information or by telephone at (800) 227-4618 or, in Illinois,
(800) 227-4170.
Class B shareholders of the Fund can exchange their
Class B shares ("original Class B shares") for Class B shares of
any other Alliance Mutual Fund that offers Class B shares ("new
Class B shares") without the payment of any contingent deferred
sales or service charges. For purposes of computing both the
time remaining before the new Class B shares convert to Class A
shares of that fund and the contingent deferred sales charge
payable upon disposition of the new Class B shares, the period of
time for which the original Class B shares have been held is
added to the period of time for which the new Class B shares have
been held. After an exchange, new Class B shares will
automatically convert into Class A shares in accordance with the
conversion schedule applicable to the Alliance Mutual Fund Class
B shares originally purchased for cash, and when redemption
occurs, the contingent deferred sales charge schedule applicable
to the Class B shares originally purchased for cash is applied.
Class C shareholders of the Fund can exchange their
Class C shares for Class C shares of any other Alliance Mutual
Fund that offers Class C shares.
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
49
<PAGE>
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for Federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer or agent, 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
between 9:00 a.m. and 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 following
Fund business day.
Neither the Alliance Funds nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
50
<PAGE>
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers or agents
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 Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "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 Fund 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-
51
<PAGE>
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by the qualified plan reaches $5
million on or before December 15 in any year, all Class B shares
and C shares of the Fund held by such plan can be exchanged at
the Plan's request, without any sales charge, for Class A shares
of such Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation, minimum $25 per pay
period, may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to
certain Code requirements in addition to normal redemption
procedures. For additional information please contact Alliance
Fund Services, Inc.
SYSTEMATIC WITHDRAWAL PLAN
GENERAL. Any shareholder who owns or purchases shares
of the Fund having a current net asset value of at least $4,000
(for quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less
than $50 on a selected date. Systematic withdrawal plan
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
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<PAGE>
withdrawal payments and such payments will be subject to any
taxes applicable to redemptions and, except as discussed below,
any applicable contingent deferred sales charge. Shares acquired
with reinvested dividends and distributions will be liquidated
first to provide such withdrawal payments and thereafter other
shares will be liquidated to the extent necessary, and depending
upon the amount withdrawn, the investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares -- General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "Literature" telephone number shown on the cover of this
Statement of Additional Information.
CLASS B CDSC WAIVER FOR SHARES ACQUIRED AFTER JULY 1,
1995. 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 shares in a shareholder's account acquired after
July 1, 1995 may be redeemed free of any contingent deferred
sales charge. Class B shares acquired after July 1, 1995 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 these limitations.
Remaining Class B shares acquired after July 1, 1995 that are
held the longest will be redeemed next. Redemptions of Class B
shares acquired after July 1, 1995 in excess of the foregoing
limitations and redemptions of Class B shares acquired before
July 1, 1995 will be subject to any otherwise applicable
contingent deferred sales charge.
53
<PAGE>
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B or Class C Fund account, a Class A,
Class B or Class C account with one or more other Alliance Mutual
Funds may direct that income dividends and/or capital gains paid
on his or her Class A, Class B or Class C Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting Alliance Fund Services, Inc. at the
address or the "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 Fund receives semi-annual and
annual reports which include a portfolio of investments,
financial statements and, in the case of the annual report, the
report of the Fund's independent 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.
SHAREHOLDER SERVICES APPLICABLE TO
CLASS A AND CLASS C SHAREHOLDERS ONLY
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 Fund 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 Fund account should contact the Fund by
telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
54
<PAGE>
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the Fund 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 Fund 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
_________________________________________________________________
Securities, including put and call options, which are
traded over-the-counter and on a national securities exchange
will be valued according to the broadest and most representative
market, and it is expected that for the fixed-income securities
and options in which the Fund invests this ordinarily will be the
over-the-counter market. However, fixed-income securities may be
valued on the basis of prices provided by a pricing service when
such prices are believed by the Adviser to reflect the fair
market value of such securities. The prices provided by a
pricing service take into account institutional size trading in
similar groups of securities and any developments related to
specific securities. Securities not priced in this manner are
valued at the most recent quoted bid price, or, when stock
exchange valuations are used, at the latest quoted sale price on
the day of valuation. If there is no such reported sale, the
latest quoted bid price will be used. Interest rate futures
contracts will be valued in a like manner, except that open
futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recent quoted asked price. Portfolio instruments having less
than 60 days remaining until maturity are valued at amortized
cost, unless the Board of Directors determines that such cost
does not represent fair value. Other assets and securities for
55
<PAGE>
which no quotations are readily available will be valued in good
faith at fair value using methods determined by the Board of
Directors.
The assets belonging to the Class A shares, the Class B
shares and the Class C shares will be invested together in a
single portfolio. The net asset value of each class will be
determined separately by subtracting the accrued expenses and
liabilities allocated to that class from the assets belonging to
that class pursuant to an order issued by the Commission.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
The Fund intends to qualify for tax treatment as a
"regulated investment company" under the Code for each taxable
year. Such qualification does not, of course, involve
governmental supervision of management or investment practices or
policies. Investors should consult their own counsel for a
complete understanding of the requirements the Fund must meet to
qualify for such treatment. The information set forth in the
Prospectus and the following discussion relates solely to Federal
income taxes on dividends and distributions by the Fund and
assumes that the Fund qualifies as a regulated investment
company. Investors should consult their own counsel for further
details and for the application of state and local tax laws to
his or her particular situation.
Since the Fund 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 Fund's dividends
or distributions will qualify for the dividends-received
deduction for corporations.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders as capital gains distributions will not be
taxable to the Fund but will be taxable to the shareholders as
long-term capital gains, irrespective of the length of time a
shareholder may have held his or her Fund shares. Any dividend
or distribution received by a shareholder on shares of the Fund
shortly after the purchase of such shares by him or her will have
the effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. If a shareholder has
held shares in the Fund for six months or less and during that
period has received a distribution taxable to the shareholder as
a long-term capital gain, any loss recognized by the shareholder
on the sale of those shares during the six-month period will be
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<PAGE>
treated as a long-term capital loss to the extent of the
distribution.
Dividends and distributions are taxable in the manner
discussed regardless of whether they are paid to the shareholder
in cash or are reinvested in additional shares of the Fund.
For Federal income tax purposes, when over-the-counter
put and call options which the Fund has purchased expire
unexercised, the premiums paid by the Fund give rise to short- or
long-term capital losses at the time of expiration (depending on
the length of time the Fund held the put or call). When put and
call options written by the Fund expire unexercised, the premiums
received by the Fund give rise to short-term capital gains at the
time of expiration. When the Fund exercises a call, the purchase
price of the security purchased is increased by the amount of the
premium paid by the Fund. When the Fund exercises a put, the
proceeds from the sale of the related security are decreased by
the premium paid. When a put or call written by the Fund is
exercised, the purchase price (selling price in the case of a
call) of the security is decreased (increased in the case of a
call) for tax purposes by the premium received. There may be
short- or long-term gains and losses associated with closing
purchase or sale transactions.
_________________________________________________________________
PORTFOLIO TRANSACTIONS
_________________________________________________________________
Subject to the general supervision of the Board of
Directors of the Fund, the Adviser is responsible for the
investment decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund'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 Fund, and brokerage commissions are payable with respect to
transactions in exchange-traded interest rate futures contracts.
During the fiscal year ended December 31, 1995, the Fund incurred
no brokerage commissions.
The Adviser makes the Fund's portfolio decisions and
determines the brokers or dealer to be used in each specific
transaction. Most of the Fund's transactions, including
transactions in listed securities, are executed in the over-the-
counter market by approximately fifteen (15) principal market
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<PAGE>
maker dealers with whom the Adviser maintains regular contact.
Most transactions made by the Fund will be principal transactions
at net prices and the Fund 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 Adviser believes a better price and
execution is available elsewhere. Purchases from underwriters of
newly-issued securities for inclusion in a Portfolio usually will
include a concession paid to the underwriter by the issuer and
purchases from dealers serving as market makers will include the
spread between the bid and asked price.
The Fund has no obligation to enter into transactions in
portfolio 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, dealer, the Adviser may, in its discretion, purchase and
sell securities through brokers and dealers who provide research,
statistical and other information to the Adviser. Such services
may be used by the Adviser for all of its investment advisory
accounts and, accordingly, not all such services may be used by
the Adviser in connection with the Fund. The supplemental
information received from a dealer is in addition to the services
required to be performed by the Adviser under the Advisory
Agreement, and the expenses of the Adviser will not necessarily
be reduced as a result of the receipt of such information.
_________________________________________________________________
GENERAL INFORMATION
_________________________________________________________________
CAPITALIZATION
The authorized capital stock of the Fund currently
consists of 600,000,000 shares of Class A Common Stock, $.01 par
value, 600,000,000 shares of Class B Common Stock, $.01 par
value, and 600,000,000 shares of Class C Common Stock, $.01 par
value. Class A, Class B and Class C shares each represent
interests in the assets of the Fund 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
58
<PAGE>
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 Fund's Class
A, Class B and Class C Common Stock.
The Board of Directors is authorized to reclassify and
issue any unissued shares to any number of additional series
without shareholder approval. Accordingly, the Directors in the
future, for reasons such as the desire to establish one or more
additional portfolios of the Fund 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 Advisory Agreement and changes in investment
policy, shares of each portfolio would vote as separate series.
Procedures for calling a shareholders meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
As of the close of business on February 15, 1996, there
were 142,163,140 shares of common stock outstanding. Of this
amount, 56,317,442 shares were Class A shares, 80,734,250 shares
were Class B shares and 5,111,448 shares were Class C shares. To
the knowledge of the Fund, the following persons owned of record,
and no person owned beneficially, 5% or more of the outstanding
shares of the Fund as of February 15, 1996:
59
<PAGE>
No. of % of % of % of
Name and Address Shares Class A Class B Class C
________________ ______ _______ _______ _______
Merrill Lynch 15,292,938 18.94%
Mutual Fund Operations
4800 Deer Lake Dr. East,
3rd Floor
Jacksonville, FL 32246-6486
Merrill Lynch 2,201,830 43.08%
Mutual Fund Operations
4800 Deer Lake Dr. East,
3rd Floor
Jacksonville, FL 32246-6486
60
<PAGE>
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin
Street, Boston, Massachusetts 02110, acts as Custodian for the
securities and cash of the Fund, but plays no part in deciding on
the purchase or sale of portfolio securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter and as such may solicit orders from the
public to purchase shares of the Fund. Alliance Fund
Distributors, Inc. is not obligated to sell any specific amount
of shares and will purchase shares for resale only against orders
for shares. Under the Agreement between the Fund and the
Principal Underwriter, 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 common stock offered hereby are passed upon by Seward &
Kissel, One Battery Park Plaza, New York, New York 10004. Seward
& Kissel has relied upon the opinion of Venable, Baetjer and
Howard, LLP, 1800 Mercantile Bank & Trust Building, 2 Hopkins
Plaza, Baltimore, Maryland 21201, for matters relating to
Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, 787 Seventh Avenue, New York, New
York 10019, have been appointed independent auditors for the
Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time the Fund advertises its "yield,"
"actual distribution rate" and "total return." The Fund will
compute its yield, actual distribution rate and total return
separately for Class A, Class B and Class C shares. The Fund's
yield for any 30-day (or one-month) period is computed by
dividing the net investment income per share earned during such
period by the maximum public offering price per share on the last
day of the period, and then annualizing such 30-day (or one-
month) yield in accordance with a formula prescribed by the
Commission which provides for compounding on a semi-annual basis.
The Fund's "actual distribution rate," which may be advertised in
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<PAGE>
items of sales literature, is computed in the same manner as
yield except that actual income dividends declared per share
during the period in question are substituted for net investment
income per share. The actual distribution rate is compounded
separately for Class A, Class B and Class C shares.
Advertisements of the Fund's total return disclose its average
annual compounded total return for its most recently completed
one- and five-fiscal years (or the period since the Fund's
inception). The Fund's total return for each such period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of such investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to
have been reinvested when received and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been
paid.
The Fund's yield for the period ended December 31, 1995,
was 5.96% for Class A shares, 5.52% for Class B shares and 5.52%
for Class C shares. The Fund's actual distribution rate for such
period was 6.46% for Class A shares, 6.02% for Class B shares and
6.02% for Class C shares. The Fund's average annual total return
for the one-year period ended December 31, 1995, was 10.45%; for
the five-year period ended December 31, 1995, was 7.26% and for
the ten-year period December 31, 1995 was 8.14% for Class A
shares; the average annual total return for the one year ended
December 31, 1995 was 11.48% for Class B shares and for the
period from January 30, 1992 (commencement of distributions)
through December 31, 1995, was 6.02%; and the average annual
total return for the one-year period ended December 31, 1995, was
14.46% for Class C shares and for the period from May 3, 1993
(commencement of distributions) through December 31, 1995, was
4.08%.
Yield and total return are computed separately for Class
A, Class B and Class C shares. The Fund'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 in the Fund's portfolio, the Fund's average portfolio
maturity and its expenses. Yield and total return information is
useful in reviewing the Fund's performance but such information
may not provide a basis for comparison with bank deposits or
other investments which pay a fixed yield for a stated period of
time. An investor's principal invested in the Fund is not fixed
and will fluctuate in response to prevailing market conditions.
Advertisements quoting performance rankings of the Fund
as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. ("Lipper")
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<PAGE>
and Morningstar, Inc. and advertisements presenting the
performance information of the Fund may also from time to time be
sent to investors or placed in newspapers, magazines such as
Barron's, Business Week, Changing Times, Fortune, Forbes, Money
Magazine, The New York Times, The Wall Street Journal or other
media on behalf of the Fund. The Fund has been ranked by Lipper
in the category known as "U.S. mortgage bond funds."
In addition, Lipper has ranked the Fund #32 for Class A
shares, #44 for Class B shares and #44 for Class C shares,
respectively, out of 58 U.S. mortgage funds for the fiscal year
ended December 31, 1995. The Morningstar ratings and the Lipper
rankings may be used in advertisements and sales literature
relating to the Fund. Lipper rankings are based upon changes in
net asset value with all dividends reinvested. They do not
include the effect of sales charges; if they had, results may
have been less favorable. Past performance is no guarantee of
future results.
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 of 1933. Copies
of the Registration Statement may be obtained at a reasonable
charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
63
<PAGE>
PORTFOLIO OF INVESTMENTS
DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- ---------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-93.4%
FEDERAL HOME LOAN MORTGAGE CORP.-44.1%
7.00%, 8/01/09-1/01/11 (GOLD) $188,861 $192,460,332
7.50%, 2/01/23-8/01/25 (GOLD) 165,496 169,685,137
8.00%, 11/01/22-10/01/25 (GOLD) 169,984 176,145,943
10.50%, 9/01/19-10/01/20 9,084 10,031,951
11.50%, 10/01/10-6/01/20 4,830 5,446,259
12.25%, 8/01/13-7/01/14 993 1,132,352
12.50%, 6/01/19-6/15/19 6,061 7,015,289
12.75%, 6/01/12-2/01/14 341 394,070
13.00%, 5/01/14-12/15/18 2,416 2,827,658
13.50%, 1/01/12-10/01/16 597 707,269
14.75%, 3/01/10 85 101,237
Total Federal Home Loan Mortgage Corp.
(cost $557,978,233) 565,947,497
FEDERAL NATIONAL MORTGAGE ASSOCIATION-17.0%
8.00%, 3/01/23-11/01/25 102,326 105,971,046
8.50%, 6/01/24-9/01/25 102,383 106,862,462
11.50%, 1/01/99 5,093 5,806,144
12.00%, 2/01/98-7/01/00 70 73,977
Total Federal National Mortgage Association
(cost $214,166,513) 218,713,629
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-15.2%
7.00%, 7/20/25-8/20/25 (a) 47,751 48,765,708
8.00%, 4/15/17-10/15/24 (a) 42,543 44,328,366
8.50%, 9/15/24-12/15/24 93,767 98,455,407
9.00%, 12/15/19 5 5,737
10.00%, 10/15/17-6/15/20 1,694 1,864,916
11.00%, 1/20/01 16 16,853
11.50%, 3/15/10-11/15/15 1,217 1,392,624
12.00%, 2/15/14 336 390,063
12.50%, 3/15/11-5/15/15 343 404,565
13.00%, 11/15/99-1/15/00 34 35,764
15.00%, 2/15/12 1 620
Total Government National Mortgage Association
(cost $186,051,378) 195,660,623
COLLATERALIZED MORTGAGE OBLIGATIONS-14.5%
Countrywide Funding Corp.
Series 1995-2 Cl.A4
8.50%, 6/25/25 15,809 16,191,894
Donaldson, Lufkin & Jenrette
Series 1994-Q12
7.787%, 9/25/24 (c) 46,072 47,252,905
Series 1994-QE1 Cl.A1
7.907%, 4/25/24 (c)(d) 12,019 12,101,720
Series 1994-QE2 Cl.A1
8.017%, 7/25/24 (c)(d) 21,101 21,299,215
Federal Home Loan Mortgage Corp.
Series 1664 Cl.A (P/O)
Zero coupon, 12/15/23 13,893 13,146,440
Independent National Mortgage Corp.
Series 1995-E Cl.A1
7.744%, 4/25/25 (b) 40,104 40,630,501
Merrill Lynch Mortgage Investors, Inc.
Series 1995-C3 Cl.A3
7.089%, 12/26/25 35,598 36,737,137
Total Collateralized Mortgage Obligations
(cost $186,261,047) 187,359,812
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- ---------------------------------------------------------------------------
COMMERCIAL MORTGAGE BACKED SECURITIES-2.6%
Donaldson, Lufkin & Jenrette
Series 1995-CF2 Cl.A3
6.85%, 11/17/05(d) $ 26,300 $ 26,891,750
Federal Home Loan Bank
Series 20-1
7.61%, 4/25/02 6,547 6,647,932
Total Commercial Mortgage Backed Securities
(cost $33,342,424) 33,539,682
Total Mortgage-Related Securities
(cost $1,177,799,595) 1,201,221,243
U.S. TREASURY SECURITIES-12.3%
U.S. Treasury Note
5.875%, 11/15/05 (e)
(cost $154,037,909) 154,310 157,781,975
ASSET BACKED SECURITIES-1.3%
Brazos Student Finance Corporation
Series 1995-A4 FRN 6.20%, 12/01/25
(cost $16,900,000) 16,900 16,905,240
SHORT TERM INVESTMENTS-5.1%
REPURCHASE AGREEMENT-5.1%
Prudential Securities
5.95%, dated 12/29/95, due 1/02/96,
collateralized by $50,000,000 FHLMC 1008F
6.95% (c), 10/15/20 and $28,756,000 FNMA
1991-34F 6.74% (c), 4/25/21
(amortized cost $65,026,000) $ 65,026 $ 65,026,000
TOTAL INVESTMENTS-112.1%
(cost $1,413,763,504) 1,440,934,458
Other assets less liabilities-(12.1%) (155,393,645)
NET ASSETS-100% $1,285,540,813
(a) Adjustable rate mortgages; stated interest rate in effect at December 31,
1995.
(b) Interest rate is indexed to a one year constant maturity treasury plus a
premium; stated interest rate in effect at December 31, 1995.
(c) Interest rate is indexed to London Interbank Offered Rate plus a premium;
stated interest rate in effect at December 31, 1995.
(d) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At December 31, 1995,
these securities amounted to $60,292,685 or 4.7% of net assets.
(e) Securities, or a portion thereof, loaned at December 31, 1995 with an
aggregate market value of $157,781,975 and cash collateral received from the
counterparty of Bear Stearns in the amount of $157,203,313.
Glossary of Terms:
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association.
FRN - Floating Rate Note.
P/O - Principal Only.
See notes to financial statements.
6
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $1,413,763,504) $1,440,934,458
Cash 1,657,874
Interest receivable 9,514,609
Receivable for investment securities sold 6,646,333
Receivable for capital stock sold 205,326
Other assets 15,326
Total assets 1,458,973,926
LIABILITIES
Deposit for securities loaned 157,338,887
Payable for investment securities purchased 6,658,995
Dividends payable 4,360,957
Payable for capital stock redeemed 2,908,970
Advisory fee payable 1,669,816
Distribution fee payable 152,004
Accrued expenses and other liabilities 343,484
Total liabilities 173,433,113
NET ASSETS $1,285,540,813
COMPOSITION OF NET ASSETS
Capital stock, at par $ 1,469,610
Additional paid-in capital 1,460,031,465
Distributions in excess of net investment income (4,360,957)
Accumulated net realized loss on investments (198,770,259)
Net unrealized appreciation of investments 27,170,954
$1,285,540,813
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share($502,390,341/
57,432,532 shares of capital stock issued and outstanding) $8.75
Sales charge-4.25% of public offering price .39
Maximum offering price $9.14
CLASS B SHARES
Net asset value and offering price per share($737,592,512/
84,320,400 shares of capital stock issued and outstanding) $8.75
CLASS C SHARES
Net asset value, redemption and offering price per share($45,557,960/
5,208,111 shares of capital stock issued and outstanding) $8.75
See notes to financial statements.
7
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $119,489,457
EXPENSES
Advisory fee $ 7,177,437
Distribution fee - Class A 1,586,741
Distribution fee - Class B 8,376,517
Distribution fee - Class C 513,701
Transfer agency 1,942,545
Custodian 362,869
Administrative 290,012
Printing 206,144
Audit and legal 170,003
Registration 131,488
Taxes 124,200
Directors' fees 23,530
Miscellaneous 50,802
Total expenses before interest 20,955,989
Interest expense 8,880,561
Total expenses 29,836,550
Net investment income 89,652,907
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 16,064,347
Net change in unrealized appreciation of investments 92,126,997
Net gain on investments 108,191,344
NET INCREASE IN NET ASSETS FROM OPERATIONS $197,844,251
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
DEC. 31,1995 DEC. 31,1994
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 89,652,907 $ 125,266,296
Net realized gain (loss) on investments 16,064,347 (211,057,813)
Net change in unrealized appreciation
(depreciation) of investments 92,126,997 (66,518,327)
Net increase (decrease) in net assets from
operations 197,844,251 (152,309,844)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (35,713,261) (47,603,015)
Class B (50,484,743) (71,792,708)
Class C (3,099,100) (5,089,134)
Tax return of capital
Class A (1,057,774) (1,891,214)
Class B (1,495,283) (2,852,244)
Class C (91,791) (202,186)
CAPITAL STOCK TRANSACTIONS
Net decrease (354,006,980) (578,709,664)
Total decrease (248,104,681) (860,450,009)
NET ASSETS
Beginning of year 1,533,645,494 2,394,095,503
End of year $1,285,540,813 $1,533,645,494
See notes to financial statements.
9
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Mortgage Securities Income Fund, Inc. (the 'Fund') is registered under
the Investment Company Act of 1940 as a diversified open-end investment
company. The Fund 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%. Class B shares are sold
with a contingent deferred sales charge which declines from 3.00% 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 sold without an initial or contingent
deferred sales charge. 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 following is a summary of significant accounting
policies followed by the Fund.
1. SECURITY VALUATION
Fixed-income securities are valued on the basis of prices provided by a pricing
service and brokers. However, securities which are traded over-the-counter and
on a national securities exchange may be valued according to the broadest and
most representative market. It is expected that, for the fixed-income
securities and options in which the Fund invests, this ordinarily will be the
over-the-counter market. Securities not priced in this manner are valued at the
latest quoted bid price, or when exchange valuations are used, at the latest
quoted sale price on the day of valuation.
If there is no such reported sale, the latest quoted bid price will be used.
Other securities for which quotations are not readily available or illiquid
securities will be valued in good faith at fair value using methods determined
by the Board of Directors. In determining fair value, consideration is given to
cost, operations and other financial data. Securities which mature in 60 days
or less are valued at amortized cost, which approximates market value.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Security transactions are accounted for on the date the securities are
purchased or sold. The Fund accretes discounts and premiums as adjustments to
interest income. Security gains and losses are determined on the identified
cost basis.
4. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date and are determined in accordance with income tax regulations.
5. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
During the year, the Fund reclassified certain components of net assets. The
reclassification was the result of a tax return of capital. The
reclassification resulted in a net decrease to distributions in excess of net
investment income and a corresponding decrease to additional paid-in capital of
$2,644,848. Net assets were not affected by the reclassification.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the 'Adviser'), an advisory fee at a quarterly rate
equal to .1375 of 1% (approximately .55 of 1% on an annual basis) of the first
$500 million of the Fund'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. The Adviser has agreed, under the terms
of the investment advisory agreement, to reimburse the Fund to the extent that
its aggregate expenses (exclusive of interest, taxes, brokerage, distribution
fees, and extraordinary expenses) in any year exceed 1% of its average daily
net assets for such year. No such reimbursement was required for the year ended
December 31, 1995. Pursuant to the advisory agreement, the Fund paid $290,012
to the Adviser representing the cost of certain legal and accounting services
provided to the Fund by the Adviser for the year ended December 31, 1995.
10
ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $1,210,760 for the year ended December 31, 1995.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's capital stock. The Distributor received
front-end sales charges of $15,075 from the sales of Class A shares and
$1,596,882 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B shares for the year ended December 31, 1995.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the 'Agreement')
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the Fund's average daily net assets attributable to
Class A shares and 1% of the average daily net assets attributable to Class B
and Class C shares. Such fee is accrued daily and paid monthly. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $15,837,781 and $2,076,306 for Class B and C shares,
respectively. Such costs may be recovered from the Fund in future periods so
long as the Agreement is in effect. In accordance with the Agreement, there is
no provision for recovery of unreimbursed distribution costs incurred by the
Distributor beyond the current fiscal year for Class A shares. The Agreement
also provides that the Adviser may use its own resources to finance the
distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $4,361,691,189 and $4,798,480,399, respectively, for the year ended
December 31, 1995.
At December 31, 1995 the cost of securities for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, gross unrealized appreciation of investments was $27,759,927 and
gross unrealized depreciation of investments was $588,973 resulting in net
unrealized appreciation of $27,170,954. For federal income tax purposes, the
Fund had a capital loss carryforward at December 31, 1995 of $198,735,479 which
expires in 2002.
1. FINANCIAL FUTURES CONTRACTS
The Fund may buy or sell interest rate futures contracts for the purpose of
hedging its portfolio against adverse effects of anticipated movements in the
market. Upon entering into a contract, the Fund deposits and maintains as
collateral an initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to receive
from or pay to the broker an amount of cash equal to the daily fluctuation in
the value of the contract. Such receipts or payments are known as variation
margin and are recorded by the Fund as unrealized gains or losses. When the
contract is closed, the Fund records a realized gain or loss equal to the
difference between the value of the contract at the time it was opened and the
time it was closed.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
NOTE E: CAPITAL STOCK
There are 1,800,000,000 shares of $.01 par value capital stock authorized
designated Class A, Class B and Class C shares.
Each class consists of 600,000,000 authorized shares. Transactions in capital
stock were as follows:
SHARES AMOUNT
-------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1995 1994
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,304,239 4,590,689 $ 19,703,528 $ 40,889,085
Shares issued in
reinvestment of
dividends 2,406,345 3,056,141 20,433,219 26,209,764
Shares redeemed (15,434,077) (30,797,504) (131,032,865) (261,551,480)
Net decrease (10,723,493) (23,150,674) $ (90,896,118) $(194,452,631)
CLASS B
Shares sold 2,932,891 10,395,450 $ 24,859,068 $ 93,124,118
Shares issued in
reinvestment of
dividends 2,762,632 4,486,737 23,430,516 38,565,381
Shares redeemed (34,701,182) (58,134,672) (294,722,980) (495,029,365)
Net decrease (29,005,659) (43,252,485) $(246,433,396) $(363,339,866)
CLASS C
Shares sold 946,878 6,008,369 $ 8,056,839 $ 53,836,318
Shares issued in
reinvestment of
dividends 195,729 433,318 1,654,570 3,731,183
Shares redeemed (3,110,655) (9,142,915) (26,388,875) (78,484,668)
Net decrease (1,968,048) (2,701,228) $(16,677,466) $(20,917,167)
NOTE F: SECURITY LENDING
The Fund may make secured loans of portfolio securities to brokers, dealers and
financial institutions, provided that cash, liquid high-grade debt securities
or bank letters of credit equal to at least 100% of the market value of the
securities loaned is deposited and maintained by the borrower with the Fund. As
of December 31, 1995 the Fund had entered into security lending agreements in
the amounts of $135,990,770 with J.P. Morgan, with an interest rate of 5.3%
maturing on January 2, 1996 and $21,338,887 with Bear Sterns & Co., with an
interest rate of 5.2% maturing on January 3, 1996. For the year ended December
31, 1995, the maximum amount of security lending agreements outstanding was
$405,958,875, the average amount outstanding was $172,756,497, and the daily
weighted average interest rate was 5.14%. The risks in lending portfolio
securities, as with other extensions of credit, consist of possible loss of
rights in the collateral should the borrower fail financially. In determining
whether to lend securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness of the
borrower. While securities are on loan, the borrower will pay the Fund any
income earned thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon amount
of income from a borrower who has delivered equivalent collateral. When such
securities are borrowed against cash the Fund agrees to pay the borrower of
such securities a 'rebate rate' for the use of the cash the borrower has
pledged as collateral. The rebate rate is the spread between the interest rate
received and interest rate paid in the repurchase agreement market by the
securities borrower.
12
FINANCIAL HIGHLIGHTS ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
CLASS A
--------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1995 1994 1993 1992 1991
----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net asset value beginning of year $8.13 $9.29 $9.08 $9.21 $8.79
INCOME FROM INVESTMENT OPERATIONS
Net investment income .57(a) .57 .67 .77 .88
Net realized and unrealized gain (loss)
on investments .64 (1.13) .23 (.09) .41
Net increase (decrease) in net asset
value from operations 1.21 (.56) .90 .68 1.29
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.57) (.58) (.67) (.81) (.87)
Dividends in excess of net investment
income -0- -0- (.02) -0- -0-
Tax return of capital (.02) (.02) -0- -0- -0-
Total dividends and distributions (.59) (.60) (.69) (.81) (.87)
Net asset value, end of year $8.75 $8.13 $9.29 $9.08 $9.21
TOTAL RETURN
Total investment return based on net
asset value (b) 15.34% (6.14)% 10.14% 7.73% 15.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year(000's omitted) $502,390 $553,889 $848,069 $789,898 $544,171
Ratio of expenses to average net assets 1.66% 1.29% 1.00% 1.18% 1.16%
Ratio of expenses to average net assets
excluding interest expense 1.03% .97% 1.00% 1.18% 1.16%
Ratio of net investment income to
average net assets 6.77% 6.77% 7.20% 8.56% 9.92%
Portfolio turnover rate 285% 438% 622% 555% 439%
</TABLE>
See footnotes page 15.
13
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
----------------------------------------------------
JANUARY 30,
1992 (C)
YEAR ENDED DECEMBER 31, TO
------------------------------------ DECEMBER 31,
1995 1994 1993 1992
----------- ---------- ----------- --------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $8.13 $9.29 $ 9.08 $ 9.16
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51(a) .51 .61 .68
Net realized and unrealized gain (loss)
on investments .64 (1.14) .22 (.08)
Net increase (decrease) in net asset
value from operations 1.15 (.63) .83 .60
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.60) (.68)
Dividends in excess of net investment
income -0- -0- (.02) -0-
Tax return of capital (.02) (.02) -0- -0-
Total dividends and distributions (.53) (.53) (.62) (.68)
Net asset value, end of period $8.75 $8.13 $ 9.29 $ 9.08
TOTAL RETURN
Total investment return based on net
asset value (b) 14.48% (6.84)% 9.38% 7.81%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $737,593 $921,418 $1,454,303 $1,153,957
Ratio of expenses to average net assets 2.37% 2.00% 1.70% 1.67%(d)
Ratio expenses to average net assets
excluding interest expense 1.74% 1.68% 1.70% 1.67%(d)
Ratio of net investment income to
average net assets 6.06% 6.05% 6.47% 5.92%(d)
Portfolio turnover rate 285% 438% 622% 555%
</TABLE>
See footnotes page 15.
14
ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
------------------------------------
MAY 3,1993(C)
YEAR ENDED DECEMBER 31, TO
---------------------- DECEMBER 31,
1995 1994 1993
----------- --------- ------------
Net asset value, beginning of period $8.13 $ 9.29 $ 9.30
INCOME FROM INVESTMENT OPERATIONS
Net investment income .51(a) .51 .40
Net realized and unrealized gain(loss)
on investments .64 (1.14) -0-
Net increase (decrease) in net asset
value from operations 1.15 (.63) .40
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.51) (.51) (.40)
Dividends in excess of net investment
income -0- -0- (.01)
Tax return of capital (.02) (.02) -0-
Total dividends and distributions (.53) (.53) (.41)
Net asset value, end of period $8.75 $ 8.13 $ 9.29
TOTAL RETURN
Total investment return based on net
asset value (b) 14.46% (6.84)% 4.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $45,558 $58,338 $91,724
Ratio of expenses to average net assets 2.35% 1.97% 1.67%(d)
Ratio expense to average net assets
excluding interest expense 1.73% 1.69% 1.67%(d)
Ratio of net investment income to
average net assets 6.07% 6.06% 5.92%(d)
Portfolio turnover rate 285% 438% 622%
(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 charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Commencement of distribution.
(d) Annualized.
15
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE MORTGAGE SECURITIES INCOME FUND
_______________________________________________________________________________
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance Mortgage Securities Income Fund, Inc. (the 'Fund'), including the
portfolio of investments, as of December 31, 1995, 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
December 31, 1995, 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 Mortgage Securities Income Fund, Inc. at December 31, 1995, 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.
Ernst & Young LLP
New York, New York
January 31, 1996
16
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APPENDIX A
MORTGAGE-RELATED SECURITIES
Mortgage-related securities represent an ownership
interest in a pool of residential mortgage loans. These
securities are designed to provide monthly payments of interest
and principal to the investor. The mortgagor's monthly payments
to his lending institution are "passed-through" to investors such
as the Fund. Most issuers or servicers provide guarantees of
payments, regardless of whether or not the mortgagor actually
makes the payment. The guarantees made by issuers or servicers
are backed by various forms of credit, insurance and collateral.
UNDERLYING MORTGAGES
Pools consist of whole mortgage loans or participations
in loans. The majority of these loans are made to purchasers of
1-4 family homes. The terms and characteristics of the mortgage
instruments are generally uniform within a pool but may vary
among pools. For example, in addition to fixed-rate fixed-term
mortgages, the Fund may purchase pools of variable rate
mortgages, growing equity mortgages, graduated payment mortgages
and other types.
All servicers apply standards for qualification to local
lending institutions which originate mortgages for the pools.
Servicers also establish credit standards and underwriting
criteria for individual mortgages included in the pools. In
addition, many mortgages included in pools are insured through
private mortgage insurance companies.
LIQUIDITY AND MARKETABILITY
Since the inception of the mortgage-related pass-through
security in 1970, the market for these securities has expanded
considerably. The size of the primary issuance market and active
participation in the secondary market by securities dealers and
many types of investors makes government and government-related
pass-through pools highly liquid. Private conventional pools of
mortgages (pooled by commercial banks, savings and loans
institutions and others, with no relationship with government and
government-related entities) have also achieved broad market
acceptance and consequently an active secondary market has
emerged. However, the market for conventional pools is smaller
and less liquid than the market for the government and
government-related mortgage pools. The Fund may purchase some
mortgage-related securities through private placement, in which
case only a limited secondary market exists, and the security is
considered liquid and therefore subject to investment restriction
in the Prospectus.
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APPENDIX B
FUTURES CONTRACTS
USE OF FUTURES CONTRACTS
Prices of debt securities may be established in both the
cash market and the futures market. In the cash market, debt
securities are purchased and sold with payment for the full
purchase price being made in cash, generally within five business
days after the trade. In the futures market, a contract is made
to purchase or sell a debt security in the future for a set price
on a certain date. Historically, prices established in the future
markets have tended to move generally and in the aggregate in
concert with cash market prices and have maintained fairly
predictable relationships. The Fund may use interest rate
futures solely as a defense, or hedge, against anticipated
interest rate changes and not for speculation. As described
below, this would include the use of future contract sales to
protect against expected increases in interest rates and futures
contract purchases to offset the impact of interest rate
declines.
The Fund presently could accomplish a similar result to
that which it hopes to achieve through the use of futures
contracts by selling debt securities with long maturities and
investing in debt securities with short maturities when interest
rates are expected to increase, or conversely, selling short-term
debt securities and investing in long-term debt securities when
interest rates are expected to decline. However, because of the
liquidity that is often available in the futures market, such
protection is more likely to be achieved, perhaps at a lower cost
and without changing the rate of interest being earned by the
Fund, through using futures contracts.
DESCRIPTION OF FUTURES CONTRACTS
A futures contract sale would create an obligation by
the Fund, as seller, to deliver the specific type of financial
instrument called for in the contract at a specified future time
for a specified price. A futures contract purchase would create
an obligation by the Fund, as purchaser, to take delivery of the
specific type of financial instrument at a specified future time
at a specified price. The specific securities delivered or
taken, respectively, at settlement date, would not be determined
until at or near that date. The determination would be in
accordance with the rules of the exchange on which the futures
contract sale or purchase was made.
Although futures contracts by their terms call for
actual delivery or acceptance of securities, in most cases the
contracts are closed out before the settlement date without the
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making ortaking of delivery of securities. Closing out a futures
contract sale is effected by the Fund entering into a futures
contract purchase of the same aggregate amount of the specific
type of financial instrument and the same delivery date. If the
price in the sale exceeds the price in the offsetting purchase,
the Fund immediately is paid the difference and thus realizes a
gain. If the offsetting purchase price exceeds the sale price,
the Fund pays the difference and realizes a loss. Similarly, the
closing out of a futures contract purchase is effected by the
Fund's entering into a futures contract sale. If the offsetting
sale price exceeds the purchase price, the Fund realizes a gain,
and if the purchase price exceeds the offsetting sale price, the
Fund realizes a loss.
A public market now exists in futures contracts covering
primarily the following financial instruments: long-term United
States Treasury Bonds; GNMA modified pass-through mortgage-backed
securities; three-month United States Treasury Bills and ninety-
day commercial paper. It is expected that other financial
instruments will be subject to futures contracts. There is a
$100,000 minimum for futures contracts in long-term United States
Treasury Bonds and GNMA pass-through securities, and a $1,000,000
minimum for contracts in other kinds of financial instruments.
The Fund may invest in interest rate futures contracts covering
the financial instruments referred to above as well as in new
types of such contracts that become available in the future. As
discussed in more detail below, the Fund will invest in interest
rate futures contracts covering non-mortgage-related securities
in situations where the Adviser believes that the prices of the
futures contracts tend to move in concert with prices of
mortgage-related securities in the Fund's portfolio.
The Fund is required to maintain margin deposits with
brokerage firms through which it enters into futures contracts.
Currently, the initial margin deposit per contract is $1,500 for
Treasury Bills and commercial paper and $2,000 for Treasury Bonds
and GNMA's. Margin balances will be adjusted at least weekly to
reflect unrealized gains and losses on open contracts. In
addition, the Fund will pay a commission on each contract,
including offsetting transactions. Financial futures contracts
are traded in an auction environment on the floors of several
exchanges -- principally, the Chicago Board of Trade, the Chicago
Mercantile Exchange and the New York Futures Exchange. Each
exchange guarantees performance under contract provisions through
a clearing corporation, a nonprofit organization managed by the
exchange membership.
The Commodity Futures Trading Commission (the "CFTC"), a
Federal agency, regulates trading activity on the exchanges
pursuant to the Commodity Exchange Act, as amended. The rules of
the CFTC have provided that an entity such as the Fund would not
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be a "pool" if it traded commodity futures contracts solely for
hedging purposes and pursuant to certain specified restrictions.
The Fund intends to meet these restrictions, which are set forth
in the Prospectus, and therefore the Fund will not operate as a
"pool" as that term is defined by the CFTC.
RISKS IN FUTURES CONTRACTS
One risk in employing futures contracts to protect
against cash market price volatility is the prospect that futures
prices will correlate imperfectly with the behavior of cash
prices. The ordinary spreads between prices in the cash and
futures markets, due to differences in the natures of those
markets, are subject to distortions. First, all participants in
the futures market are subject to margin deposit and maintenance
requirements. Rather than meeting additional margin deposit
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators the deposit requirements in the futures market are
less onerous than margin requirements in the securities market.
Therefore increased participation by speculators in the futures
market may cause temporary price distortions. Due to the
possibility of distortion, a correct forecast of general interest
trends by the Adviser may still not result in a successful
transaction.
Another risk is that the Adviser would be incorrect in
its expectation as to the extent of various interest rate
movements or the time span within which the movements take place.
Closing out a futures contract purchase at a loss because of
higher interest rates will generally have one of two consequences
depending on whether, at the time of closing out, the "yield
curve" is normal (long-term rates exceeding short-term). If the
yield curve is normal, it is possible that the Fund will still be
engaged in a program of buying long-term securities. Thus
closing out the futures contract purchase at a loss will reduce
the benefit of the reduced price of the securities purchased. If
the yield curve is inverted, it is possible that the Fund will
retain its investments in short-term securities earmarked for
purchase of longer term securities. Thus, closing out of a loss
will reduce the benefit of the incremental income that the Fund
will experience by virtue of the high short-term rates.
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EXAMPLE OF FUTURES CONTRACT SALE
The Fund would engage in a futures contract sale to
maintain the income advantage from continued holding of a long-
term security while endeavoring to avoid part or all of the loss
in market value that would otherwise accompany a decline in long-
term securities prices. Assume that the market value of a certain
security in the Fund's portfolio tends to move in concert with
the futures market prices of long-term United States Treasury
bonds ("Treasury bonds"). The Fund wishes to fix the current
market value of this portfolio security until some point in the
future. Assume the portfolio security has a market value of
$100, and the Fund believes that, because of an anticipated rise
in interest rates, the value will decline to $95. The Fund might
enter into futures contract sales of Treasury bonds for a price
of $98. If the market value of the portfolio security does
indeed decline from $100 to $95, the futures market price for the
Treasury bonds might also decline from $98 to $93.
In that case, the $5 loss in the market value of the
portfolio security would be offset by the $5 gain realized by
closing out the futures contract sale. Of course, the futures
market price of Treasury bonds might well decline to more than
$93 or to less than $93 because of the imperfect correlation
between cash and futures prices mentioned above.
The Fund could be wrong in its forecast of interest
rates and the futures market price could rise above $98. In this
case, the market value of the portfolio securities, including the
portfolio security being protected, would increase. The benefit
of this increase would be reduced by the loss realized on closing
out the futures contract sale.
If interest rate levels did not change, the Fund, in the
above example, could incur a loss of as much as $2 as the time
until expiration of the futures contract elapses (which loss
might be reduced by an offsetting transaction prior to the
settlement date). In each transaction, nominal transaction
expenses would also be incurred.
EXAMPLE OF FUTURES CONTRACT PURCHASE
The Fund would engage in a futures contract purchase
when it is not fully invested in long-term securities but wishes
to defer for a time the purchase of long-term securities in light
of the availability of advantageous interim investments, e.g.,
short- term securities whose yields are greater than those
available on long-term securities. The Fund's basic motivation
would be to maintain for a time the income advantage from
investing in theshort-term securities; the Fund would be
endeavoring at the same time to eliminate the effect of all or
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part of the increases in market price of the long-term securities
that the Fund may purchase.
For example, assume that the market price of a long-term
security that the Fund may purchase, currently yielding 10%,
tends to move in concert with futures market prices of Treasury
bonds. The Fund wishes to fix the current market price (and thus
10% yield) of the long-term security until the time (four months
away in this example) when it may purchase the security.
Assuming the long-term security has a market price of
$100, and the Fund believes that, because of an anticipated fall
in interest rates, the price will have risen to $105 (and the
yield will have dropped to about 9 1/2%) in four months, the Fund
might enter into futures contracts purchases of Treasury bonds
for a price of $98. At the same time, the Fund would assign a
pool of investments in short-term securities that are either
maturing in four months or earmarked for sale in four months, for
purchases of the long-term security at an assumed market price of
$100. Assume these short-term securities are yielding 15%. If
the market price of the long-term bond does indeed rise from $100
to $105, the futures market price for Treasury bonds might also
rise from $98 to $103. In that case, the $5 increase in the
price that the Fund pays for the long-term security would be
offset by the $5 gain realized by closing out the futures
contract purchase.
The Fund could be wrong in its forecast of interest
rates; long-term interest rates might rise to above 10%, and the
futures market price could fall below $98. If short-term rates
at the same time fall to 10% or below, it is possible that the
Fund would continue with its purchase program for long-term
securities. The market prices of available long-term securities
would have decreased. The benefit of this price decrease, and
thus yield increase, will be reduced by the loss realized on
closing out the futures contract purchase.
If, however, short-term rates remained above available
long- term rates, it is possible that the Fund would discontinue
its purchase program for long-term securities. The yields on
short- term securities in the portfolio, including those
originally in the pool assigned to the particular long-term
security, would remain higher than yields on long-term bonds.
The benefit of this continued incremental income will be reduced
by the loss realized on closing out the futures contract
purchase.
In each transaction, nominal transaction expenses would
also be incurred.
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TAX TREATMENT
Regulated futures contracts are considered "section 1256
contracts" for U.S. Federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market", that is, treated for federal income tax
purposes as though sold for fair market value on the last
business day of such taxable year. Gain or loss realized by the
Fund on section 1256 contracts generally will be considered 60%
long-term and 40% short-term capital gain or loss. The Fund can
elect to exempt its section 1256 contracts which are part of a
"mixed straddle" (as described below) from the application of
section 1256.
Any futures contract or other position entered into or
held by the Fund in conjunction with any other position held by
the Fund may constitute a "straddle" for Federal income tax
purposes. A straddle of which at least one, but not all, the
positions are section 1256 contracts will constitute a "mixed
straddle." In general, straddles are subject to certain rules
that may affect the character and timing of the Fund's gains and
losses with respect to straddle positions by requiring, among
other things, that loss realized on disposition of one position
of a straddle not be recognized to the extent that the Fund has
unrecognized gains with respect to the other position in such
straddle; that the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain
being treated as short-term capital gain rather than long-term
capital gain); that losses recognized with respect to certain
straddle positions which are part of a mixed straddle and which
are non- section 1256 positions shall be treated as 60 percent
long-term capital loss and 40 percent short-term capital loss;
and that losses recognized with respect to certain straddle
positions which would otherwise constitute short-term capital
losses be treated as long-term capital losses. Various elections
are available to the Fund which may mitigate the effects of the
straddle rules, particularly with respect to mixed straddles. In
general, the straddle rules described above do not apply to any
straddles held by the Fund all of the offsetting positions of
which consist of section 1256 contracts.
Under the Federal income tax provisions applicable to
regulated investment companies, at least 90% of the Fund's annual
gross income must be derived from dividends, interest, payments
with respect to loans of securities, and gains from the sale or
other disposition of securities ("qualifying income"). In order
to ensure that the Fund continues to qualify as a regulated
investment company for Federal income tax purposes, less than 30%
of its gross income for any year must be derived from
gainsrealized on the sale or other disposition of securities held
by the Fund for less than three months. For this purpose, the
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Fund will treat gains realized on the closing out of its futures
contracts as gains derived from the sale of securities. This
treatment could, under certain circumstances, require the Fund to
defer the closing out of futures contracts until after three
months from the date the Fund acquired the contracts, even if it
would be more advantageous to close out the contracts prior to
that time. Any gains realized by the Fund as a result of the
marked-to-market futures contracts held by the Fund at the end of
its taxable year, as described in the preceding paragraph, will
in all instances be treated as derived from the sale of
securities held for the three months or more, regardless of the
actual period for which the Fund has held the futures contracts
at the end of the year.
B-7
00250125.AH2
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits
(a) FINANCIAL STATEMENTS
Included in the Prospectus:
Financial Highlights
Included in the Statement of Additional
Information:
Portfolios of Investments - December 31,
1995.
Statement of Assets and Liabilities -
December 31, 1995.
Statement of Operations - year ended
December 31, 1995.
Statements of Changes in Net Assets - years
ended December 31, 1994 and December 31,
1995.
Notes to Financial Statements - December 31,
1995.
Financial Highlights
Report of Independent Auditors
Included in Part C of the Registration Statement:
All other schedules are either inapplicable
or the required information is contained in
the financial statements.
(b) EXHIBITS:
(1)(a) Articles of Incorporation of the
Registrant -Incorporated herein by
reference as Exhibit 1 to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on
Form N-1A, filed on April 29, 1988
(File Nos. 2-85921 and 811-3829).
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(b) Articles of Amendment of Articles of
Incorporation of the Registrant -
Incorporated herein by reference as
Exhibit 1(b) to Post- Effective
Amendment No. 15 to Registrant's
Registration Statement on Form N-1A,
filed on February 21, 1992 (File
Nos. 2-85921 and 811-3829).
(c) Articles of Restatement to Articles of
Incorporation - Incorporated herein by
reference as Exhibit 1(c) to Post-
Effective Amendment No. 17 to
Registrant's Registration Statement on
Form N-1A, filed on March 2, 1993 (File
Nos. 2-85921 and 811-3829).
(2) By-Laws of the Registrant -
Incorporated herein by reference as
Exhibit 2 to Pre-Effective Amendment
No. 1 to Registrant's Registration
Statement on Form N-1A, filed on
December 23, 1983 (File Nos. 2-85921
and 811-3829).
(3) Not applicable.
(4)(a) Shares certificate for Common Stock of
Registrant - Incorporated herein by
reference as Exhibit 4 to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on
Form N-1A, filed on April 29, 1988
(File Nos. 2-85921 and 811-3829).
(b) Shares certificate for Class B Shares
of Registrant - Incorporated herein by
reference as Exhibit 4(b) to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on
Form N-1A, filed on April 29, 1994
(File Nos. 2-85921 and 811-3829).
(c) Shares certificate for Class C Shares
of Registrant - Incorporated herein by
reference as Exhibit 4(c) to
Post-Effective Amendment No. 18 to
Registrant's Registration Statement on
Form N-1A, filed on April 29, 1994
(File Nos. 2-85921 and 811-3829).
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(5) Advisory Agreement between the
Registrant and Alliance Capital
Management L.P. -Incorporated herein by
reference as Exhibit 5 to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on
Form N-1A, filed on April 29, 1988
(File Nos. 2-85921 and 811-3829).
(5)(a) Advisory Agreement between Registrant
and Alliance Capital Management L.P. -
Incorporated herein by reference as
Exhibit 5(a) to Post-Effective
Amendment No. 17 to Registrant's
Registration Statement on Form N-1A,
filed on March 2, 1993 (File Nos.
2-85921 and 811-3829).
(6)(a) Amended Distribution Services Agreement
and (15) between the Registrant and Alliance
Fund Distributors, Inc. - Incorporated
herein by reference as Exhibit 6(a) to
Post-Effective Amendment No. 15 to
Registrant's Registration Statement on
Form N-1A, filed on February 21, 1992
(File Nos. 2-85921 and 811-3829).
(6)(b) Amended Distribution Services Agreement
between the Registrant and Alliance
Fund Distributors, Inc. - Incorporated
herein by reference as Exhibit 6(b) to
Post-Effective Amendment No. 15 to
Registrant's Registration Statement on
Form N-1A, filed on February 21, 1992
(File Nos. 2-85921 and 811-3829).
(c) Distribution Services Agreement between
the Registrant and Alliance Fund
Distributors, Inc. - Incorporated
herein by reference as Exhibit 6(c) to
Post-Effective Amendment No. 17 to
Registrant's Registration Statement on
Form N-1A, filed on March 2, 1993 (File
Nos. 28921 and 811-3829).
(d) Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and
selected dealers offering shares of
Registrant - Incorporated herein by
reference as Exhibit 6(b) to
Post-Effective Amendment No. 10 to
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Registrant's Registration Statement on
Form N-1A, filed on April 30, 1990
(File Nos. 2-85921 and 811-3829).
(e) Selected Agent Agreement between
Alliance Fund Distributors, Inc. and
selected agents making available shares
of Registrant - Incorporated herein by
reference as Exhibit 6(c) to
Post-Effective Amendment No. 10 to
Registrant's Registration Statement on
Form N-1A, filed on April 30, 1990
(File Nos. 2-85921 and 811-3829).
(f) Amended Selected Dealer Agreement
between Alliance Fund Distributors,
Inc. and selected dealers offering
shares to Registrant - Incorporated
herein by reference as Exhibit 6(f) to
Post Effective Amendment No. 17 to
Registrant's Registration Statement on
Form N-1A, filed on March 2, 1993 (File
Nos. 2-85921 and 811-3829).
(g) Amended Selected Agent Agreement
between Alliance Fund Distributors,
Inc. and selected agents making
available shares to Registrant -
Incorporated herein by reference as
Exhibit 6(g) to Post-Effective
Amendment No. 17 to Registrant's
Registration Statement on Form N-1A,
filed on March 2, 1993, (File
Nos. 2-85921 and 811-3829).
(7) Not applicable.
(8) Custodian Contract between the Registrant
and State Street Bank and Trust Company
-Incorporated herein by reference as
Exhibit 8 to Post-Effective Amendment No. 5
to Registrant's Registration Statement on
Form N-1A, filed on April 29, 1988 (File
Nos. 2-85921 and 811-3829).
(9) Transfer Agency Agreement between Registrant
and Alliance Fund Services, Inc.
-Incorporated herein by reference as
Exhibit 9 to Post-Effective Amendment No. 7
to Registrant's Registration Statement on
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Form N-1A, filed on May 1, 1989 (File
Nos. 2-85921 and 811-3829).
(10) Not applicable.
(11) Consent of Independent Auditors - Filed
herewith.
(12) Not applicable.
(13) Not applicable.
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) above.
(16) Schedule for computation of Yield and Total
Return Performance quotation - Incorporated
herein by reference as Exhibit 16 to
Post-Effective Amendment No. 5 to
Registrant's Registration Statement on Form
N-1A, filed on April 29, 1988 (File Nos.
2-85921 and 811-3829).
(18) Rule 18f-3 Plan - Filed herewith.
(27) Financial Data Schedule
Other Exhibits:
Powers of Attorney of Ruth S. Block, John D.
Carifa, David H. Dievler, James M. Hester,
Clifford L. Michel, Eugene F. O'Neil and
Robert C. White - Incorporated by reference
as Other Exhibits to Post-Effective
Amendment No. 5 to Registrant's Registration
Statement on Form N-1A, filed on April 29,
1988 (File Nos. 2-85921 and 811-3829).
Power of Attorney of James R. Greene
-Incorporated by reference as Other Exhibits
to Post-Effective Amendment No. 10 to
Registrant's Registration Statement on Form
N-1A, filed on April 30, 1990 (File
Nos. 2-85921 and 811-3829).
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None.
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ITEM 26. Number of Holders of Securities
As of February 15, 1996, Registrant had 54,139
record holders of shares of Common Stock comprised
23,190 Class A Shares, 29,377 Class B Shares and
1,572 Class C Shares.
ITEM 27. Indemnification
It is the Registrant's policy to indemnify its
directors and officers, employees and other agents
to the maximum extent permitted by Section 2-418
of the General Corporation Law of the State of
Maryland and as set forth in Article EIGHTH of
Registrant's Articles of Incorporation, filed as
Exhibit 1(a) and Section 10 of the Distribution
Services Agreement filed as Exhibit 6(a), all as
set forth below. The Adviser's liability for any
loss suffered by the Registrant or its
shareholders is set forth in Section 4 of the
Advisory Agreement filed, as set forth below.
SECTION 2-418 OF THE MARYLAND GENERAL CORPORATION
LAW READS AS FOLLOWS:
"2-418 INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS.--(a) In
this section the following words have the
meaning indicated.
(1) "Directors" means any person who is or
was a director of a corporation and any
person who, while a director of a
corporation, is or was serving at the
request of the corporation as a director,
officer, partner, trustee, employee, or
agent of another foreign or domestic
corporation, partnership, joint venture,
trust, other enterprise, or employee benefit
plan.
(2) "Corporation" includes any domestic or
foreign predecessor entity of a corporation
in a merger, consolidation, or other
transaction in which the predecessor's
existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
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(i) When used with respect to a
director, the office of director in the
corporation; and
(ii) When used with respect to a
person other than a director as
contemplated in subsection (j), the
elective or appointive office in the
corporation held by the officer, or the
employment or agency relationship
undertaken by the employee or agent in
behalf of the corporation.
(iii) "Official capacity" does not
include service for any other foreign
or domestic corporation or any
partnership, joint venture, trust,
other enterprise, or employee benefit
plan.
(5) "Party" includes a person who was, is,
or is threatened to be made a named
defendant or respondent in a
proceeding.
(6) "Proceeding" means any threatened,
pending or completed action, suit or
proceeding, whether civil, criminal,
administrative, or investigative.
(b)(1) A corporation may indemnify any
director made a party to any proceeding by
reason of service in that capacity unless it
is established that:
(i) The act or omission of the director was
material to the matter giving rise to the
proceeding; and
1. Was committed in bad faith;
or
2. Was the result of active and
deliberate dishonesty; or
(ii) The director actually received an
improper personal benefit in money,
property, or services; or
(iii) In the case of any criminal
proceeding, the director had reasonable
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cause to believe that the act or omission
was unlawful.
(2) (i) Indemnification may be against
judgments, penalties, fines, settlements,
and reasonable expenses actually incurred by
the director in connection with the
proceeding.
(ii) However, if the proceeding was
one by or in the right of the
corporation, indemnification may not be
made in respect of any proceeding in
which the director shall have been
adjudged to be liable to the
corporation.
(3) (i) The termination of any proceeding
by judgment, order or settlement does not
create a presumption that the director did
not meet the requisite standard of conduct
set forth in this subsection.
(ii) The termination of any proceeding
by conviction, or a plea of nolo
contendere or its equivalent, or an
entry of an order of probation prior to
judgment, creates a rebuttable
presumption that the director did not
meet that standard of conduct.
(c) A director may not be indemnified
under subsection (b) of this
section in respect of any
proceeding charging improper
personal benefit to the director,
whether or not involving action
in the director's official
capacity, in which the director
was adjudged to be liable on the
basis that personal benefit was
improperly received.
(d) Unless limited by the charter:
(1) A director who has been
successful, on the merits or
otherwise, in the defense of any
proceeding referred to in
subsection (b) of this section
shall be indemnified against
C-8
<PAGE>
reasonable expenses incurred by
the director in connection with
the proceeding.
(2) A court of appropriate jurisdiction
upon application of a director and such
notice as the court shall require, may order
indemnification in the following
circumstances:
(i) If it determines a director is
entitled to reimbursement under paragraph
(1) of this subsection, the court shall
order indemnification, in which case the
director shall be entitled to recover the
expenses of securing such reimbursement; or
(ii) If it determines that the director
is fairly and reasonably entitled to
indemnification in view of all the relevant
circumstances, whether or not the director
has met the standards of conduct set forth
in subsection (b) of this section or has
been adjudged liable under the circumstances
described in subsection (c) of this section,
the court may order such indemnification as
the court shall deem proper. However,
indemnification with respect to any
proceeding by or in the right of the
corporation or in which liability shall have
been adjudged in the circumstances described
in subsection (c) shall be limited to
expenses.
(3) A court of appropriate jurisdiction
may be the same court in which the
proceeding involving the director's
liability took place.
(e)(1) Indemnification under subsection (b)
of this section may not be made by the
corporation unless authorized for a specific
proceeding after a determination has been
made that indemnification of the director is
permissible in the circumstances because the
director has met the standard of conduct set
forth in subsection (b) of this section.
(2) Such determination shall be made:
C-9
<PAGE>
(i) By the board of directors by a
majority vote of a quorum consisting of
directors not, at the time, parties to the
proceeding, or, if such a quorum cannot be
obtained, then by a majority vote of a
committee of the board consisting solely of
two or more directors not, at the time,
parties to such proceeding and who were duly
designated to act in the matter by a
majority vote of the full board in which the
designated directors who are parties may
participate;
(ii) By special legal counsel selected
by the board or a committee of
the board by vote as set forth in
subparagraph (i) of this
paragraph, or, if the requisite
quorum of the full board cannot
be obtained therefor and the
committee cannot be established,
by a majority vote of the full
board in which directors who are
parties may participate; or
(iii) By the stockholders.
(3) Authorization of indemnification
and determination as to
reasonableness of expenses shall
be made in the same manner as the
determination that
indemnification is permissible.
However, if the determination
that indemnification is
permissible is made by special
legal counsel, authorization of
indemnification and determination
as to reasonableness of expenses
shall be made in the manner
specified in subparagraph (ii) of
paragraph (2) of this subsection
for selection of such counsel.
(4) Shares held by directors who are
parties to the proceeding may not
be voted on the subject matter
under this subsection.
(f)(1) Reasonable expenses incurred by a
director who is a party to a proceeding may
C-10
<PAGE>
be paid or reimbursed by the corporation in
advance of the final disposition of the
proceeding, upon receipt by the corporation
of:
(i) A written affirmation by the
director of the director's good faith belief
that the standard of conduct necessary for
indemnification by the corporation as
authorized in this section has been met; and
(ii) A written undertaking by or on
behalf of the director to repay the amount
if it shall ultimately be determined that
the standard of conduct has not been met.
(2) The undertaking required by
subparagraph (ii) of paragraph (1) of
this subsection shall be an unlimited
general obligation of the director but
need not be secured and may be accepted
without reference to financial ability
to make the repayment.
(3) Payments under this subsection shall be
made as provided by the charter,
bylaws, or contract or as specified in
subsection (e) of this section.
(g) The indemnification and advancement of
expenses provided or authorized by this
section may not be deemed exclusive of
any other rights, by indemnification or
otherwise, to which a director may be
entitled under the charter, the bylaws,
a resolution of stockholders or
directors, an agreement or otherwise,
both as to action in an official
capacity and as to action in another
capacity while holding such office.
(h) This section does not limit the
corporation's power to pay or reimburse
expenses incurred by a director in
connection with an appearance as a
witness in a proceeding at a time when
the director has not been made a named
defendant or respondent in the
proceeding.
(i) For purposes of this section:
C-11
<PAGE>
(1) The corporation shall be deemed to have
requested a director to serve an
employee benefit plan where the
performance of the director's duties to
the corporation also imposes duties on,
or otherwise involves services by, the
director to the plan or participants or
beneficiaries of the plan:
(2) Excise taxes assessed on a director
with respect to an employee benefit
plan pursuant to applicable law shall
be deemed fines; and
(3) Action taken or omitted by the director
with respect to an employee benefit
plan in the performance of the
director's duties for a purpose
reasonably believed by the director to
be in the interest of the participants
and beneficiaries of the plan shall be
deemed to be for a purpose which is not
opposed to the best interests of the
corporation.
(j) Unless limited by the charter:
(1) An officer of the corporation shall be
indemnified as and to the extent
provided in subsection (d) of this
section for a director and shall be
entitled, to the same extent as a
director, to seek indemnification
pursuant to the provisions of
subsection (d);
(2) A corporation may indemnify and advance
expenses to an officer, employee, or
agent of the corporation to the same
extent that it may indemnify directors
under this section; and
(3) A corporation, in addition, may
indemnify and advance expenses to an
officer, employee, or agent who is not
a director to such further extent,
consistent with law, as may be provided
by its charter, bylaws, general or
specific action of its board of
directors or contract.
C-12
<PAGE>
(k)(1) A corporation may purchase and
maintain insurance on behalf of any person
who is or was a director, officer, employee,
or agent of the corporation, or who, while a
director, officer, employee, or agent of the
corporation, is or was serving at the
request, of the corporation as a director,
officer, partner, trustee, employee, or
agent of another foreign or domestic
corporation, partnership, joint venture,
trust, other enterprise, or employee benefit
plan against any liability asserted against
and incurred by such person in any such
capacity or arising out of such person's
position, whether or not the corporation
would have the power to indemnify against
liability under the provisions of this
section.
(2) A corporation may provide similar
protection, including a trust fund, letter
of credit, or surety bond, not inconsistent
with this section.
(3) The insurance or similar protection
may be provided by a subsidiary or an
affiliate of the corporation.
(l) Any indemnification of, or advance of
expenses to, a director in accordance with
this section, if arising out of a proceeding
by or in the right of the corporation, shall
be reported in writing to the stockholders
with the notice of the next stockholders'
meeting or prior to the meeting."
ARTICLE EIGHTH OF THE REGISTRANT'S ARTICLES OF
INCORPORATION READS AS FOLLOWS:
EIGHTH: To the maximum extent permitted by
the General Corporation Law of the State of
Maryland as from time to time amended, the
Corporation shall indemnify its currently
acting and its former directors and officers
and those persons who, at the request of the
Corporation, serve or have served another
corporation, partnership, joint venture,
trust or other enterprise in one or more of
such capacities.
C-13
<PAGE>
The Advisory Agreement between the
Registrant and Alliance Capital Management
L.P. provides that Alliance Capital
Management L.P. will not be liable under
such agreements for any mistake of judgment
or in any event whatsoever except for lack
of good faith and that nothing therein shall
be deemed to protect, or purport to protect,
or purport to protect, Alliance Capital
Management L.P. against any liability to
Registrant or its security holders to which
it would otherwise be subject by reason of
willful misfeasance, bad faith or gross
negligence in the performance of its duties
thereunder, or by reason of reckless
disregard of its obligations or duties
thereunder.
The Distribution Services Agreement between
the Registrant and Alliance Fund
Distributors, Inc. provides that the
Registrant will indemnify, defend and hold
Alliance Fund Distributors, Inc., and any
person who controls it within the meaning of
Section 15 of the Securities Act, free and
harmless from and against any and all
claims, demands, liabilities and expenses
which Alliance Fund Distributors, Inc. or
any controlling person may incur arising out
of or based upon any alleged untrue
statement of a material fact contained in
Registrant's Registration Statement or
Prospectus or arising out of or based upon
any alleged omission to state a material
fact required to be stated in either thereof
or necessary to make the statements in
either thereof not misleading, provided that
nothing therein shall be so construed as to
protect Alliance Fund Distributors against
any liability to Registrant or its security
holders to which it would otherwise be
subject by reason of willful misfeasance,
bad faith or gross negligence in the
performance of its duties, or by reason of
reckless disregard of its obligations or
duties thereunder.
The foregoing summaries are qualified by the
entire text of Registrant's Articles of
Incorporation, Registrant's By-laws, the
Advisory Agreement between the Registrant
C-14
<PAGE>
and Alliance Capital Management L.P. and the
Distribution Services Agreement between
Registrant and Alliance Fund Distributors,
Inc. which are filed as Exhibits 1(a), 5 and
6(a), respectively in response to Item 24
and each of which are incorporated by
reference herein.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933
(the "Securities Act") may be permitted to
directors, officers and controlling persons
of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has
been advised that, in the opinion of the
Securities and Exchange Commission, such
indemnification is against public policy as
expressed in the Securities Act and is,
therefore, unenforceable. In the event that
a claim for indemnification against such
liabilities (other than the payment by the
Registrant of expenses incurred or paid by a
director, officer or controlling person of
the Registrant in the successful defense of
any action, suit or proceeding) is asserted
by such director, officer or controlling
person in connection with the securities
being registered, the Registrant will,
unless in the opinion of its counsel the
matter has been settled by controlling
precedent, submit to a court of appropriate
jurisdiction the question of whether such
indemnification by it is against public
policy as expressed in the Securities Act
and will be governed by the final
adjudication of such issue.
In accordance with Release No. IC-11330
(September 2, 1980), the Registrant will
indemnify its directors, officers,
investment manager and principal
underwriters only if (1) a final decision on
the merits was issued by the court or other
body before whom the proceeding was brought
that the person to be indemnified (the
"indemnitee") was not liable by reason or
willful misfeasance, bad faith, gross
negligence or reckless disregard of the
duties involved in the conduct of his office
("disabling conduct") or (2) a reasonable
determination is made, based upon a review
C-15
<PAGE>
of the facts, that the indemnitee was not
liable by reason of disabling conduct, by
(a) the vote of a majority of a quorum of
the directors who are neither "interested
persons" of the Registrant as defined in
section 2(a)(19) of the Investment Company
Act of 1940 nor parties to the proceeding
("disinterested, non-party directors"), or
(b) an independent legal counsel in a
written opinion. The Registrant will
advance attorneys fees or other expenses
incurred by its directors, officers,
investment adviser or principal underwriters
in defending a proceeding, upon the
undertaking by or on behalf of the
indemnitee to repay the advance unless it is
ultimately determined that he is entitled to
indemnification and, as a condition to the
advance, (1) the indemnitee shall provide a
security for his undertaking, (2) the
Registrant shall be insured against losses
arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested,
non-party directors of the Registrant, or an
independent legal counsel in a written
opinion, shall determine, based on a review
of readily available facts (as opposed to a
full trial-type inquiry), that there is
reason to believe that the indemnitee
ultimately will be found entitled to
indemnification.
ITEM 28. Business and Other Connections of Adviser
The descriptions of Alliance Capital Management
L.P. under the captions "Management of the Fund"
in the Prospectus and in the Statement of
Additional Information constituting Parts A and B,
respectively,of this Registration Statement are
incorporated by reference herein.
The information as to the directors and executive
officers of Alliance Capital Management
Corporation, the general partner of Alliance
Capital Management L.P., set forth in Alliance
Capital Management L.P.'s Form ADV filed with the
Securities and Exchange Commission on April 21,
1988 (File No. 801-32361) and amended through the
date hereof, is incorporated by reference.
C-16
<PAGE>
ITEM 29. Principal Underwriters
(a) Alliance Fund Distributors, Inc., the
Registrant's Principal Underwriter in
connection with the sale of shares of the
Registrant. Alliance Fund Distributors, Inc.
also acts as Principal Underwriter or
Distributor for the following investment
companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund,
Inc.
Alliance Money Market Fund
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income
Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and Officers
of Alliance Fund Distributors, Inc., the
principal place of business of which is 1345
C-17
<PAGE>
Avenue of the Americas, New York, New York,
10105.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME UNDERWRITER WITH REGISTRANT
Michael J. Laughlin Chairman
Robert L. Errico President
Kimberly A. Baumgardner Senior Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel
and Secretary
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President,
Managing Director
Byron M. Davis Senior Vice President
Geoffrey L. Hyde Senior Vice President
Barbara J. Krumsiek Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleondakis Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
C-18
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME UNDERWRITER WITH REGISTRANT
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Benji A. Baer Vice President
Warren W. Babcock III Vice President
Kenneth F. Barkoff Vice President
William P. Beanblossom Vice President
Jack C. Bixler Vice President
Casimir F. Bolanowski Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Mark J. Dunbar Vice President
Sohaila S. Farsheed Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
C-19
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME UNDERWRITER WITH REGISTRANT
Mark D. Gersten Vice President Treasurer and
Chief Financial
Officer
Joseph W. Gibson Vice President
Troy L. Glawe Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
Daniel M. Hazard Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Robert H. Joseph, Jr. Vice President
and Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Donna M. Lamback Vice President
Thomas Leavitt, III Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
C-20
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME UNDERWRITER WITH REGISTRANT
Daniel J. Phillips Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
Robert E. Powers Vice President
Domenick Pugliese Vice President and Assistant
Associate General Secretary
Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
J. William Strott, Jr. Vice President
Richard E. Tambourine Vice President
Joseph T. Tocyloski Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President and Assistant
Special Counsel Secretary
Maria L. Carreras Assistant Vice President
Sarah A. Chodera Assistant Vice President
John W. Cronin Assistant Vice President
Leon M. Fern Assistant Vice President
William B. Hanigan Assistant Vice President
Vicky M. Hayes Assistant Vice President
John C. Hershock Assistant Vice President
James J. Hill Assistant Vice President
C-21
<PAGE>
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES
NAME UNDERWRITER WITH REGISTRANT
Kalen H. Holliday Assistant Vice President
Thomas K. Intoccia Assistant Vice President
Edward W. Kelly Assistant Vice President
Patrick Look Assistant Vice President &
Assistant Treasurer
Shawn P. McClain Assistant Vice President
Thomas F. Monnerat Assistant Vice President
Jeanette M. Nardella Assistant Vice President
Carol H. Rappa Assistant Vice President
Lisa Robinson-Cronin Assistant Vice President
Karen C. Satterberg Assistant Vice President
Robert M. Smith Assistant Vice President
Wesley S. Williams Assistant Vice President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 30. Location of Accounts and Records
The majority of the accounts, books and other
documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the Rules
thereunder are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey
07094, and at the offices of State Street Bank and Trust
Company, the Registrant's Custodian, 225 Franklin
Street, Boston, Massachusetts 02110. All other records
so required to be maintained are maintained at the
offices of Alliance Capital Management L.P., 1345 Avenue
of the Americas, New York, New York 10105.
C-22
<PAGE>
ITEM 31. Management Services
Not applicable.
ITEM 32. Undertakings
The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest report to shareholders, upon request
and without charge.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of
any Director of the Fund in accordance with Section 16
of the Investment Company Act of 1940.
C-23
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all requirements
for effectiveness of this Amendment to its Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City and State of New York, on the 29th day of
February, 1996.
ALLIANCE MORTGAGE SECURITIES INCOME
FUND, INC.
by /s/John D. Carifa
________________________
John D. Carifa
Chairman
Pursuant to the requirements of the Securities Act of
1933 this Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
1) Principal
Executive Officer
/s/John D. Carifa
__________________ Chairman and February 29, 1996
John D. Carifa President
2) Principal Financial
and Accounting Officer
/s/Mark D. Gersten
__________________ Treasurer and Chief February 29, 1996
Mark D. Gersten Financial Officer
C-24
<PAGE>
3) ALL OF THE DIRECTORS
John D. Carifa
Ruth Block
David H. Dievler
James R. Greene
James M. Hester
Clifford L. Michel
Eugene F. O'Neil
Robert C. White
by /s/Edmund P. Bergan, Jr.
----------------------- February 29, 1996
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-25
<PAGE>
INDEX TO EXHIBITS
PAGE
(11) Consent of Independent Auditors
(18) Rule 18f-3 Plan
(27) Financial Data Schedule
C-26
00250125.AH2
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions
"Financial Highlights", "Shareholder Services - Statements
and Reports" and "General Information - Independent
Auditors" and to the use of our report dated January 31,
1996, in this Registration Statement (Form N-1A 2-85921) of
Alliance Mortgage Securities Income Fund, Inc.
ERNST & YOUNG LLP
New York, New York
February 26, 1996
00250125/AG8
<PAGE>
ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC.
Plan pursuant to Rule 18f-3 under the
Investment Company Act of 1940
______________________________________
Effective November 28, 1995
This Plan (the "Plan") is adopted by Alliance Mortgage
Securities Income Fund, Inc. (the "Fund") pursuant to Rule 18f-3
under the Investment Company Act of 1940 (the "Act") and sets
forth the general characteristics of, and the general conditions
under which the Fund may offer, multiple classes of shares of its
now existing and hereafter created portfolios1 . This Plan may be
revised or amended from time to time as provided below.
Class Designations
The Fund2 may from time to time issue one or more of
the following classes of shares: Class A shares, Class B shares,
Class C shares and Class Y shares. Each of the four classes of
shares will represent interests in the same portfolio of
investments of the Fund and, except as described herein, shall
have the same rights and obligations as each other class. Each
class shall be subject to such investment minimums and other
conditions of eligibility as are set forth in the Fund's
prospectus or statement of additional information as from time to
time in effect (the "Prospectus").
Class Characteristics
Class A shares are offered at a public offering price
that is equal to their net asset value ("NAV") plus an initial
sales charge, as set forth in the Prospectus. Class A shares may
also be subject to a Rule 12b-1 fee, which may include a service
_____________________
1. Prior to the effectiveness of this Plan, the Fund has been
offering multiple classes of shares pursuant to an exemptive
order of the Securities and Exchange Commission. This Plan
is intended to allow the Fund to offer multiple classes of
shares to the full extent and in the manner permitted by Rule
18f-3 under the Act (the "Rule"), subject to the requirements
and conditions imposed by the Rule.
2. For purposes of this Plan, if the Fund has existing more than
one portfolio pursuant to which multiple classes of shares
are issued, then references in this Plan to the "Fund" shall
be deemed to refer instead to each portfolio.
<PAGE>
fee and, under certain circumstances, a contingent deferred sales
charge ("CDSC"), as described in the Prospectus.
Class B shares are offered at their NAV, without an
initial sales charge, but may be subject to a CDSC and a Rule
12b-1 fee, which may include a service fee, as described in the
Prospectus.
Class C shares are offered at their NAV, without an
initial sales charge, and may be subject to a Rule 12b-1 fee,
which may include a service fee, and a CDSC, as described in the
Prospectus.
Class Y Shares are offered at their NAV, without any
initial sales charge, CDSC or Rule 12b-1 fee.
The initial sales charge on Class A shares and CDSC on
Class A, B and C shares are each subject to reduction or waiver
as permitted by the Act, and as described in the Prospectus.
Allocations to Each Class
Expense Allocations
The following expenses shall be allocated, to the extent
practicable, on a class-by-class basis: (i) Rule 12b-1 fees
payable by the Fund to the distributor or principal underwriter
of the Fund's shares (the "Distributor"), and (ii) transfer
agency costs attributable to each class. Subject to the approval
of the Fund's Board of Directors, including a majority of the
independent Directors, the following "Class Expenses" may be
allocated on a class-by-class basis: (a) printing and postage
expenses related to preparing and distributing materials such as
shareholder reports, prospectuses and proxy statements to current
shareholders of a specific class3 , (b) SEC registration fees
incurred with respect to a specific class, (c) blue sky and
foreign registration fees and expenses incurred with respect to a
specific class, (d) the expenses of administrative personnel and
services required to support shareholders of a specific class
(including, but not limited to, maintaining telephone lines and
personnel to answer shareholder inquiries about their accounts or
about the Fund), (e) litigation and other legal expenses relating
to a specific class of shares, (f) Directors' fees or expenses
incurred as a result of issues relating to a specific class of
_____________________
3. For Class Y shares, the expenses of preparation, printing and
distribution of prospectuses and shareholder reports, as well
as other distribution-related expenses, will be borne by the
investment adviser of the Fund (the "Adviser") or the
Distributor from their own resources.
2
<PAGE>
shares, (g) accounting and consulting expenses relating to a
specific class of shares, (h) any fees imposed pursuant to a non-
Rule 12b-1 shareholder services plan that relate to a specific
class of shares, and (i) any additional expenses, not including
advisory or custodial fees or other expenses related to the
management of the Fund's assets, if these expenses are actually
incurred in a different amount with respect to a class, or if
services are provided with respect to a class that are of a
different kind or to a different degree than with respect to one
or more other classes.
All expenses not now or hereafter designated as Class
Expenses ("Fund Expenses") will be allocated to each class on the
basis of the net asset value of that class in relation to the net
asset value of the Fund.
However, notwithstanding the above, the Fund may
allocate all expenses other than Class Expenses on the basis of
relative net assets (settled shares), as permitted by Rule 18f-
3(c)(2) under the Act.
Waivers and Reimbursements
The Adviser or Distributor may choose to waive or
reimburse Rule 12b-1 fees, transfer agency fees or any Class
Expenses on a voluntary, temporary basis. Such waiver or
reimbursement may be applicable to some or all of the classes and
may be in different amounts for one or more classes.
Income, Gains and Losses
Income, and realized and unrealized capital gains and
losses shall be allocated to each class on the basis of the net
asset value of that class in relation to the net asset value of
the Fund.
The Fund may allocate income, and realized and
unrealized capital gains and losses to each share based on
relative net assets (i.e. settled shares), as permitted by Rule
18f-3(c)(2) under the Act.
Conversion and Exchange Features
Conversion Features
Class B shares of the Fund automatically convert to
Class A shares of the Fund after a certain number of months or
years after the end of the calendar month in which the
shareholder's purchase order was accepted as described in the
Prospectus. Class B shares purchased through reinvestment of
dividends and distributions will be treated as Class B shares for
3
<PAGE>
all purposes except that such Class B shares will be considered
held in a separate sub-account. Each time any Class B shares in
the shareholder's account convert to Class A shares, an equal
pro- rata portion of the Class B shares in the sub-account will
also convert to Class A shares. The conversion of Class B shares
to Class A shares may be suspended if the opinion of counsel
obtained by the Fund that the conversion does not constitute a
taxable event under current federal income tax law is no longer
available. Class B shares will convert into Class A shares on
the basis of the relative net asset value of the two classes,
without the imposition of any sales load, fee or other charge.
In the event of any material increase in payments
authorized under the Rule 12b-1 Plan (or, if presented to
shareholders, any material increase in payments authorized by a
non-Rule 12b-1 shareholder services plan) applicable to Class A
shares, existing Class B shares will stop converting into Class A
shares unless the Class B shareholders, voting separately as a
class, approve the increase in such payments. Pending approval
of such increase, or if such increase is not approved, the
Directors shall take such action as is necessary to ensure that
existing Class B shares are exchanged or converted into a new
class of shares ("New Class A") identical in all material
respects to Class A shares as existed prior to the implementation
of the increase in payments, no later than such shares were
previously scheduled to convert to Class A shares. If deemed
advisable by the Directors to implement the foregoing, such
action may include the exchange of all existing Class B shares
for a new class of shares ("New Class B"), identical to existing
Class B shares, except that New Class B shares shall convert to
New Class A shares. Exchanges or conversions described in this
paragraph shall be effected in a manner that the Directors
reasonably believe will not be subject to federal taxation. Any
additional cost associated with the creation, exchange or
conversion of New Class A or New Class B shares shall be borne by
the Adviser and the Distributor. Class B shares sold after the
implementation of the fee increase may convert into Class A
shares subject to the higher maximum payment, provided that the
material features of the Class A plan and the relationship of
such plan to the Class B shares are disclosed in an effective
registration statement.
Exchange Features
Shares of each class generally will be permitted to be
exchanged only for shares of a class with similar characteristics
in another Alliance Mutual Fund and shares of certain Alliance
money market funds. Class Y shares may be exchanged for Class Y
shares of another Alliance Mutual Fund and shares of certain
Alliance money market funds. If the aggregate net asset value of
shares of all Alliance Mutual Funds held by an investor in the
4
<PAGE>
Fund reaches the minimum amount at which an investor may purchase
Class A shares at net asset value without a front-end sales load
on or before December 15 in any year, then all Class B and Class
C shares of the Fund held by that investor may thereafter be
exchanged, at the investor's request, at net asset value and
without any front-end sales load or CDSC for Class A shares of
the Fund. All exchange features applicable to each class will be
described in the Prospectus.
Dividends
Dividends paid by the Fund with respect to its Class A,
Class B, Class C and Class Y shares, to the extent any dividends
are paid, will be calculated in the same manner, at the same time
and will be in the same amount, except that any Rule 12b-1 fee
payments relating to a class of shares will be borne exclusively
by that class and any incremental transfer agency costs or, if
applicable, Class Expenses relating to a class shall be borne
exclusively by that class.
Voting Rights
Each share of a Fund entitles the shareholder of record
to one vote. Each class of shares of the Fund will vote
separately as a class with respect to the Rule 12b-1 plan
applicable to that class and on other matters for which class
voting is required under applicable law. Both Class A and Class
B shareholders will vote separately as a class to approve any
material increase in payments authorized under the Rule 12b-1
plan applicable to Class A shares.
Responsibilities of the Directors
On an ongoing basis, the Directors will monitor the Fund
for the existence of any material conflicts among the interests
of the four classes of shares. The Directors shall further
monitor on an ongoing basis the use of waivers or reimbursement
by the Adviser and the Distributor of expenses to guard against
cross- subsidization between classes. The Directors, including a
majority of the independent Directors, shall take such action as
is reasonably necessary to eliminate any such conflict that may
develop. If a conflict arises, the Adviser and Distributor, at
their own cost, will remedy such conflict up to and including
establishing one or more new registered management investment
companies.
Reports to the Directors
The Adviser and Distributor will be responsible for
reporting any potential or existing conflicts among the four
classes of shares to the Directors. In addition, the Directors
5
<PAGE>
will receive quarterly and annual statements concerning
distributions and shareholder servicing expenditures complying
with paragraph (b)(3)(ii) of Rule 12b-1. In the statements, only
expenditures properly attributable to the sale or servicing of a
particular class of shares shall be used to justify any
distribution or service fee charged to that class. The
statements, including the allocations upon which they are based,
will be subject to the review of the independent Directors in the
exercise of their fiduciary duties. At least annually, the
Directors shall receive a report from an expert, acceptable to
the Directors, (the "Expert") with respect to the methodology and
procedures for calculating the net asset value, dividends and
distributions for the classes, and the proper allocation of
income and expenses among the classes. The report of the Expert
shall also address whether the Fund has adequate facilities in
place to ensure the implementation of the methodology and
procedures for calculating the net asset value, dividends and
distributions for the classes, and the proper allocation of
income and expenses among the classes. The Fund and the Adviser
will take immediate corrective measures in the event of any
irregularities reported by the Expert.
Amendments
The Plan may be amended from time to time in accordance
with the provisions and requirements of Rule 18f-3 under the Act.
Adopted this 28th day of November, 1995
By:/s/Edmund P. Bergan, Jr.
Edmund P. Bergan, Jr.
Secretary
6
00250125.AH1
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00250125.AH4
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00250125.AH5
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