<PAGE>
As filed with the Securities and Exchange
Commission on December 28, 1998
File No. 2-85921
811-03829
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. _____
Post-Effective Amendment No. 33 X
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 31 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
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
<PAGE>
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
X on March 1, 1999 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.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectuses
(Caption)
PART A
Item 1. Front and Back Cover Pages..........Cover Pages
Item 2. Risk/Return Summary:
Investments, Risks, and
Performance.........................Risk/Return
Summary
Item 3. Risk/Return Summary:
Fee Table...........................Risk/Return
Summary
Item 4. Investment Objectives,
Principal Investment Strategies,
And Related Risks...................Other
Information
About the
Fund's
Objectives,
Strategies, and
Risks
Item 5. Management's Discussion of
Fund Performance....................Not Applicable
Item 6. Management, Organization,
And Capital Structure...............Management of
the Fund
Item 7. Shareholder Information.............Purchase and
Sale of Shares
Item 8. Distribution Arrangements...........Distribution
Arrangements
Item 9. Financial Highlights
Information.........................Financial
Highlights
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PART B Location in Statements
Of Additional Information
(Caption)
Item 10. Cover Page and
Table of Contents...................Cover Page
Item 11. Fund History........................Description of
the Fund;
General
Information
Item 12. Description of the Fund And
Its Investments and Risks...........Description of
the Fund
ITEM 13. Management of the Fund..............Management of
the Fund
ITEM 14. Control Persons and Principal
Holders of Securities...............Management of
the Fund;
General
Information
ITEM 15. Investment Advisory and
Other Services......................Management of
the Fund
ITEM 16. Brokerage Allocation and
Other Practices.....................Portfolio
Transactions
ITEM 17. Capital Stock and Other
Securities..........................General
Information
ITEM 18. Purchase, Redemption and Pricing
of Shares...........................Purchase,
Redemption and
Repurchase of
Shares
ITEM 19. Taxation............................Dividends,
Distributions
and Taxes
ITEM 20. Underwriters........................General
Information
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ITEM 21. Calculation of Performance
Data................................General
Information
ITEM 22. Financial Statements................Financial
Statements;
Report of
Independent
Auditors
<PAGE>
THE ALLIANCE
BOND FUNDS
PROSPECTUS
March 1, 1999
U.S. GOVERNMENT FUNDS
--Alliance Short-Term U.S. Government Fund
--U.S. Government Portfolio
--Alliance Limited Maturity Government Fund
MORTGAGE FUND
--Alliance Mortgage Securities Income Fund
MULTI-MARKET FUND
--Multi-Market Strategy Trust
GLOBAL BOND FUNDS
--Alliance North American Government Income Trust
--Alliance Global Dollar Government Fund
--Alliance Global Strategic Income Trust
CORPORATE BOND FUNDS
--Corporate Bond Portfolio
--Alliance High Yield Fund
The Alliance Bond Funds provide a broad selection of investment
alternatives to investors seeking high current income.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
<PAGE>
TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY
GLOSSARY
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies
Description of Investment Practices
Additional Risk Considerations
MANAGEMENT OF THE FUNDS
PURCHASE AND SALE OF SHARES
How The Funds Value Their Shares
How To Buy Shares
How to Exchange Shares
How To Sell Shares
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTION ARRANGEMENTS
GENERAL INFORMATION
FINANCIAL HIGHLIGHTS
2
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The Funds' investment adviser is Alliance Capital Management
L.P., a global investment manager providing diversified services
to institutions and individuals through a broad line of
investments including more than 100 mutual funds. Since 1971,
Alliance has earned a reputation as a leader in the investment
world with over $___ billion in assets under management as of
December 31, 1998. Alliance provides investment management
services to employee benefit plans for ___ of the FORTUNE 100
companies.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the
Alliance Bond Funds. You will find additional information about
each Fund, including a detailed description of the risks of an
investment in each Fund, after this summary.
The Risk/Return Summary describes the Funds' objectives,
principal investment strategies, risks, and fees. More detailed
descriptions of the Funds can be found further back in the
Prospectus. Please be sure to read the more complete
descriptions of the Funds following this summary, including the
risks associated with investing in the Funds, BEFORE you invest.
Each of the Funds also may at times use certain types of
investment derivatives such as options, futures, forwards, and
swaps. The use of these techniques involves special risks that
are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing
its average annual returns and a bar chart showing its annual
returns. The table and the bar chart provide an indication of
the historical risk of an investment in each Fund by showing:
-- how the Fund's average annual returns for one, five, and
10 years (or, if less, the life of the Fund) compare to
those of a broad based securities market index; and
-- changes in the Fund's performance from year to year over
10 years or, if less, the life of the Fund.
A Fund's past performance, of course, does not necessarily
indicate how it will perform in the future.
Other important things for you to note:
-- You may gain or lose money by investing in a Fund.
-- An investment in a Fund is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
3
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U.S. GOVERNMENT FUNDS
The U.S. Government Funds offer investors high current income
consistent with the preservation of capital by investing
primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
-- OBJECTIVE: The Fund's investment objective is high
current income consistent with the preservation of
capital by investing primarily in a portfolio of U.S.
Government securities.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at
least 65% of its total assets in U.S. Government
securities, including repurchase agreements and forward
commitments relating to U.S. Government securities. The
Fund also may invest a portion of its assets in
securities of non-governmental issuers. The Fund
normally maintains an average dollar-weighted maturity
of not more than three years
PERFORMANCE INFORMATION AND BAR CHART
PERFORMANCE TABLE
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
4
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U.S. GOVERNMENT PORTFOLIO
-- OBJECTIVE: The Fund's investment objective is a high
level of current income that is consistent with prudent
investment risk.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests
primarily in U.S. Government securities, including
repurchase agreements and forward contracts relating to
U.S. Government securities. The Fund also may invest in
non-U.S. Government mortgage-related and asset-backed
securities. The average weighted maturity of the Fund's
investments varies between one year or less and 30
years.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
5
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ALLIANCE LIMITED MATURITY GOVERNMENT FUND
-- OBJECTIVE: The Fund's investment objective is the
highest level of current income consistent with low
volatility of net asset value.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests
primarily in U.S. Government securities, including
mortgage-related securities and repurchase agreements
relating to U.S. Government securities. 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 Alliance's assessment of relative yields on
securities of different maturities and the expected
effect of changes in interest rates on the market value
of the Fund's portfolio. At all times, however, each of
the Fund's securities has either a remaining maturity of
not more than 10 years or a duration not exceeding that
of a ten-year Treasury note.
The Fund also may invest up to 35% of its total assets
in:
- high-quality asset-backed securities, including
mortgage-related securities that are not U.S.
Government securities;
- treasury securities issued by private issuers;
- certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks with
assets of more than $1 billion;
- higher quality commercial paper or, if unrated,
commercial paper issued by companies that have high
quality debt issues outstanding; and
- high-quality debt securities of corporate issuers.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
6
<PAGE>
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
7
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MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
-- OBJECTIVE: The Fund's investment objective is a high
level of current income to the extent consistent with
prudent investment risk.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests
primarily in a diversified portfolio of mortgage-related
securities, including collateralized mortgage
obligations or CMO's. The Fund may invest up to 20% of
its total assets in lower-rated mortgage-related
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 also may invest up to 35% of its total assets
in:
- U.S. Government securities;
- qualifying bank deposits;
- prime commercial paper or, if unrated, commercial
paper issued by companies that have high-quality
debt issues outstanding;
- high-grade debt securities secured by mortgages on
commercial real estate or residential rental
properties; and
- high-grade asset-backed securities.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
8
<PAGE>
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
9
<PAGE>
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
-- OBJECTIVE: The Fund's investment objective is the
highest level of current income that is available
consistent with what Alliance considers to be prudent
investment risk, from a portfolio of high-quality debt
securities.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in
high-quality debt securities having remaining maturities
of not more than five years, with a high proportion of
investments in money market instruments. The Fund seeks
investment opportunities in foreign, as well as
domestic, securities markets. Normally, at least 70% of
the Fund's debt securities will be denominated in
foreign currencies.
The Fund concentrates at least 25% of its total assets
in debt instruments issued by domestic and foreign
banking companies. The Fund may use significant
borrowings for leverage. The Fund also may:
- use derivatives strategies;
- invest in prime commercial paper or unrated paper
of equivalent quality;
- enter into repurchase agreements; and
- invest in variable, floating, and inverse floating
rate securities.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
10
<PAGE>
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
11
<PAGE>
GLOBAL BOND FUNDS
The Global Bond Funds offer investors a high level of current
income through investments primarily in foreign government
securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
-- OBJECTIVE: The Fund's investment objective is 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, or Mexico.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in debt securities issued or guaranteed by;
(i) the federal governments of the United States,
Canada, and Mexico; (ii) government-related entities in
the United States, Canada and Mexico; and (iii) the
provincial governments of Canada and Mexico. The Fund
also invests significantly in comparable Argentine debt
securities. The Fund also may invest in debt securities
of other Central and South American countries. These
investments are investment grade securities generally
denominated in each countries' currency, but at least
25% of the Fund's investments are in U.S.
Dollar-denominated securities. The average weighted
maturity of the Fund's portfolio is expected to vary
between one year or less and 30 years.
The Fund may use significant borrowings for leverage.
The Fund also may:
- use derivative strategies; and
- invest in variable, floating, and inverse floating
rate instruments.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
12
<PAGE>
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
13
<PAGE>
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
-- OBJECTIVE: The Fund's investment objective is a high
level of current income and, secondarily, capital
appreciation.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in sovereign debt obligations. The Fund invests
substantially all of its assets in lower-rated
securities or unrated securities of equivalent quality.
The Fund limits its investments in sovereign debt
obligations of any one country to no more than 25% of
its total assets.
The Fund may invest up to 35% of its total assets in
U.S. and non-U.S. corporate fixed income securities.
All of the Fund's investments will be in U.S.
Dollar-denominated sovereign debt obligations and fixed
income securities. The Fund also may invest up to 30%
of its assets in emerging markets or developing
countries, including Argentina, Brazil, Mexico, Morocco,
the Philippines, Russia, and Venezuela.
The average weighted maturity of the Fund's investments
is:
- for U.S. fixed-income securities, nine to 15 years;
- for non-U.S. fixed-income securities, 15 to 25
years; and
- for sovereign debt obligations, longer than 25
years.
The Fund may use significant borrowings and reverse
repurchase agreements and dollar rolls for leverage.
The Fund also may:
- use derivatives strategies;
- invest in structured securities;
- invest in fixed and floating rate loans to
sovereign debt issuers;
- enter into repurchase agreements; and
- invest in variable, floating, and inverse floating
rate securities.
14
<PAGE>
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
15
<PAGE>
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
-- OBJECTIVE: The Fund's investment objective is primarily
a high level of current income and, secondarily, capital
appreciation.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in fixed-income securities of U.S. and non-U.S.
companies, U.S. Government and foreign government
securities, and supranational entities. The Fund's
foreign investments are generally denominated in foreign
currencies. The Fund, however, generally seeks to hedge
currency risk. The Fund normally invests at least 65%
of its total assets in fixed-income securities of
companies located in at least three countries, one of
which may be the United States. The Fund limits its
investments in any one foreign country to 25% of its
total assets.
The Fund invests at least 65% of its total assets in
investment grade securities, but also may invest up to
35% of its assets in lower-rated securities. The
average weighted maturity of the Fund's investments
varies between five and 30 years.
The Fund may use significant borrowings and reverse
repurchase agreements and dollar rolls for leverage.
The Fund also may:
- use derivatives strategies;
- invest in structured securities;
- invest in Eurodollar instruments and foreign
currencies;
- invest in asset-backed and mortgage-related
securities;
- enter into repurchase agreements; and
- invest in floating, variable, and inverse floating
rate securities.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
16
<PAGE>
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
17
<PAGE>
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
-- OBJECTIVE: The Fund's investment objective is 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.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in investment grade corporate bonds. The Fund
may invest up to 50% of its total assets in U.S. Dollar-
denominated foreign debt securities, primarily corporate
fixed-income securities and sovereign debt obligations.
The Fund also may invest in income-producing equity
securities. The average weighted maturity of the Fund's
investments varies between one year or less and 30
years.
The Fund pursues a more aggressive investment strategy
than other corporate bond funds. The Fund's investments
tend to have a relatively long average weighted maturity
and duration. The Fund emphasizes both foreign
corporate and sovereign debt obligations, as well as
corporate bonds that are expected to benefit from
improvements in their issuers' credit fundamentals.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
18
<PAGE>
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
19
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
-- OBJECTIVE: The Fund's investment objective is to
achieve a high total return by maximizing current income
and, to the extent consistent with that objective,
capital appreciation.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in high yield, below investment grade fixed-
income securities, commonly known as "junk bonds." The
Fund seeks to maximize current income by taking
advantage of market developments, yield disparities, and
variations in the creditworthiness of issuers.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
20
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of an investment in a Fund changes with the values of
that Fund's investments. Many factors can affect those values.
In this summary, we describe the principal risks that may affect
a particular Fund's investments as a whole. These risks and the
Funds subject to the risks appear in a chart at the end of this
section. All of the Funds could be subject to additional
principal risks because the types of investments made by each
Fund can change over time. This prospectus has additional
descriptions of investments that appear in bold type in the
discussions under "Description of Investment Practices" or
"Additional Risk Considerations." Those sections also include
more information about the Funds, their investments, and related
risks.
-- INTEREST RATE RISK This is the risk that changes in
interest rates will affect the value of a Fund's
investments in fixed-income debt securities, such as
bonds, notes, and asset-backed securities, or other
income-producing securities. All of the Funds have
interest rate risk. Increases in interest rates may
cause the value of a Fund's investments to decline.
Even Funds, such as the SHORT-TERM U.S. GOVERNMENT, U.S.
GOVERNMENT, and LIMITED MATURITY GOVERNMENT, that invest
a substantial portion of their assets in the highest
quality debt securities, including U.S. GOVERNMENT
SECURITIES, are subject to interest rate risk. Interest
rate risk generally is greater for those Funds that
invest a significant portion of their assets in LOWER-
RATED SECURITIES or comparable UNRATED SECURITIES such
as GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME,
CORPORATE BOND, and HIGH YIELD.
Interest rate risk is generally greater for Funds that
invest in debt securities with longer maturities, such
as NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, and CORPORATE BOND.
This risk is compounded for the Funds that invest a
substantial portion of their assets in MORTGAGE-RELATED
or OTHER ASSET-BACKED SECURITIES, such as SHORT-TERM
U.S. GOVERNMENT and MORTGAGE SECURITIES INCOME. The
value of these securities is affected more by changes in
interest rates because when interest rates rise, the
maturities of these type of securities tend to lengthen
and the value of the securities decreases more
significantly. In addition, these types of securities
are subject to prepayment when interest rates fall,
which generally results in lower returns because the
21
<PAGE>
Funds must reinvest their assets in debt securities with
lower interest rates. Increased interest rate risk also
is likely for GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC
INCOME, and CORPORATE BOND, which invest in debt
securities paying no current interest, such as ZERO
COUPON, PRINCIPAL-ONLY, and INTEREST-ONLY SECURITIES, or
paying non-cash interest in the form of other debt
securities (PAYMENT-IN-KIND SECURITIES).
-- CREDIT RISK This is the risk that the issuer or the
guarantor of a debt security, or the counterparty to a
DERIVATIVES contract, will be unable or unwilling to
make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for
a particular security may be reflected in its credit
rating. Credit risk is greater for the Funds such as
MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND, and HIGH YIELD
that invest in LOWER-RATED SECURITIES. These debt
securities and similar UNRATED SECURITIES (commonly
known as "junk bonds") have speculative elements or are
predominantly speculative credit risks.
Funds such as GLOBAL DOLLAR GOVERNMENT and HIGH YIELD
may be subject to greater credit risk because they
invest in debt securities issued in connection with
corporate restructurings by highly leveraged issuers and
in debt securities not current in the payment of
interest or principal or are in default. Funds such as
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
and GLOBAL DOLLAR GOVERNMENT that invest in FOREIGN
SECURITIES also are subject to increased credit risk
because of the difficulties of requiring foreign
entities, including issuers of SOVEREIGN DEBT, to honor
their contractual commitments, and because a number of
foreign governments and other issuers are already in
default.
-- MARKET RISK This is the risk that the value of a Fund's
investments will fluctuate as the bond markets fluctuate
and that prices overall will decline over shorter or
longer-term periods. All of the Funds are subject to
this risk.
-- FOREIGN RISK This is the risk of investments in issuers
located in foreign countries. All Alliance Funds that
invest in FOREIGN SECURITIES are subject to this risk,
including LIMITED MATURITY GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND, and HIGH YIELD. These Funds' investments in
22
<PAGE>
FOREIGN SECURITIES may experience more rapid and extreme
changes in value than if they invested solely in
securities of U.S. companies. The securities markets of
many foreign countries are relatively small, with a
limited number of companies representing a small number
of securities. In addition, foreign companies usually
are not subject to the same degree of regulation as U.S.
companies. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases
significantly, from U.S. standards. Nationalization,
expropriation or confiscatory taxation, currency
blockage, political changes, or diplomatic developments
could adversely affect a Fund's investments in a foreign
country. In the event of nationalization,
expropriation, or other confiscation, a Fund could lose
its entire investment.
Political, social, and economic changes in a particular
country could result in increased risks for GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, which
invest a substantial portion of their assets in
SOVEREIGN DEBT OBLIGATIONS, including BRADY BONDS. The
investments in emerging market countries of NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT
are likely to involve significant risks. These
countries, such as Mexico, Argentina, Brazil, Morocco,
the Philippines, Russia, and Venezuela, have a history
of political and economic instability. Funds such as
MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT
INCOME that invest a significant portion of their assets
in a specific geographic area like Europe or the
Americas generally have more exposure to regional
economic risks than Funds making foreign investments
throughout the world's economies.
-- CURRENCY RISK This is the risk that fluctuations in the
exchange rates between the U.S. Dollar and foreign
currencies may negatively affect the value of a Fund's
investments. Funds such as LIMITED MATURITY GOVERNMENT,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
GLOBAL STRATEGIC INCOME and HIGH YIELD that invest in
securities denominated in, and receiving revenues in,
FOREIGN SECURITIES, are subject to currency risk.
-- DIVERSIFICATION RISK Most analysts believe that overall
risk can be reduced through diversification, while
concentration of investments in a small number of
securities increases risks. MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, and GLOBAL STRATEGIC INCOME are not
"diversified." This means they can invest more of their
23
<PAGE>
assets in a relatively small number of issuers with
greater concentration of risk. Factors affecting these
issuers can have a more significant effect on the Fund's
net asset value. Similarly, a Fund that concentrates
its investments in a particular industry, such as MULTI-
MARKET STRATEGY, which invests at least 25% of its
assets in the banking industry, could have increased
risks because factors affecting that industry could have
a more significant effect on the value of the Fund's
investments.
-- LEVERAGING RISK. When a Fund borrows money or otherwise
leverages its Fund, the value of an investment in that
Fund will be more volatile and all other risks will tend
to be compounded. Each Fund may create leverage by
using REVERSE REPURCHASE AGREEMENTS, INVERSE FLOATING
RATE INSTRUMENTS or DERIVATIVES, or by borrowing money.
-- DERIVATIVES RISK. All Funds may use DERIVATIVES, which
are financial contracts whose value depends on, or is
derived from, the value of an underlying asset,
reference rate, or index. Alliance will sometimes use
derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Funds use
derivatives as direct investments to earn income,
enhance yield, and broaden Fund diversification, which
entail greater risk than if used solely for hedging
purposes. In addition to other risks such as the credit
risk of the counterparty, derivatives involve the risk
of difficulties in pricing and valuation and the risk
that changes in the value of the derivative may not
correlate perfectly with relevant assets, rates, or
indices. Funds that invest in STRUCTURED SECURITIES,
such as GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC
INCOME, and CORPORATE BOND, could have increased
derivatives risk.
-- LIQUIDITY RISK. Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly
preventing a Fund from selling out of these ILLIQUID
SECURITIES at an advantageous price. All of the Funds
are subject to liquidity risk because DERIVATIVES and
securities involving substantial interest rate and
credit risk tend to involve greater liquidity risk. In
addition, liquidity risk tends to increase to the extent
a Fund invests in debt securities whose sale may be
restricted by law or by contract.
-- MANAGEMENT RISK. Each Fund is subject to management
risk because it is an actively managed investment Fund.
Alliance will apply its investment techniques and risk
24
<PAGE>
analyses in making investment decisions for the Funds,
but there can be no guarantee that they will produce the
desired results. In some cases, derivative and other
investment techniques may be unavailable or Alliance may
determine not to use them, possibly even under market
conditions where their use could benefit a Fund.
25
<PAGE>
PRINCIPAL RISKS BY FUND
The following chart summarizes the Principal Risks of each Fund.
Risks not marked for a particular Fund may, however, still apply
to some extent to that Fund at various times.
<TABLE>
<CAPTION>
FUND INTEREST CREDIT MARKET FOREIGN CURRENCY DIVERSIFICA- LEVERAGING DERIVATIVES LIQUIDITY MANAGE-
RATE RISK RISK RISK RISK TION RISK RISK RISK RISK MENT RISK
RISK
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term
U.S.
Government X X X X X
U.S.
Government X X X X X
Limited
Maturity
Government X X X X X X X
Mortgage
Securities
Income X X X X X X X
Multi-Market
Strategy X X X X X X X X X
North American
Government
Income X X X X X X X X X X
Global Dollar
Government X X X X X X X X X X
Global
Strategic
Income X X X X X X X X X X
Corporate
Bond X X X X X X X X X X
High Yield X X X X X X X X X X
</TABLE>
26
<PAGE>
EXPENSE INFORMATION
This table describes the fees and expenses that you may pay
if you buy and hold shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
CLASS A CLASS B CLASS B CLASS C
SHARES SHARES(a) SHARES(b) SHARES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.25% None None None
Maximum Deferred Sales Charge None 3.0% 4.0% 1.0%
(Load) (as a percentage of during the during the during
original purchase price or 1st year, 1st year, the
redemption proceeds, whichever decreasing decreasing 1st
is lower) 1.0% 1.0% year,
annually annually 0%
to 0% to 0% there-
after the after the after
3rd year* 4th year**
Exchange Fee None None None None
(a) For all Funds except Global Strategic Income and High Yield.
(b) For Global Strategic Income and High Yield.
* Class B Shares automatically convert to Class A Shares after 6
years.
** Class B Shares automatically convert to Class A Shares after 8
years.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS) AND EXAMPLE
The examples are to help you compare the cost of investing in a
Fund with the cost of investing in other funds. It assumes that
you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. It
also assumes that your investment has a 5% return each year and
that the Fund's operating expenses stay the same. Your actual
costs may be higher or lower.
<TABLE>
OPERATING EXPENSES EXAMPLES
SHORT-TERM U.S. CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT A B+ B++ C+ C++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
27
<PAGE>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
Waiver and/or Expense
Reimbursement +++
Net Expenses
</TABLE>
28
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
A B+ B++ C+ C++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
LIMITED MATURITY CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
MORTGAGE SECURITIES CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
INCOME A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
MULTI-MARKET CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
STRATEGY A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
NORTH AMERICAN CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT INCOME A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
GLOBAL DOLLAR CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
29
<PAGE>
GOVERNMENT A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
GLOBAL STRATEGIC CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
INCOME A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
Waiver and/or Expense
Reimbursement +++
Net Expenses
CORPORATE BOND CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
</TABLE>
30
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
SHORT-TERM U.S. CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT A B+ B++ C+ C++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
Waiver and/or Expense
Reimbursement +++
Net Expenses
<FN>
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
+++ Reflects Alliance's waiver of a portion of its advisory fee and/or reimbursement of a portion of the Fund's
operating expenses. The level of waiver or reimbursement may be changed upon 60 days' notice to the Fund.
(a) Assumes Class B shares convert to Class A shares after 6 years, or, for Global Strategic Income and High
Yield, 8 years.
</TABLE>
31
<PAGE>
GLOSSARY
This Prospectus uses the following terms.
TYPES OF SECURITIES
BONDS are fixed, floating, and variable rate debt obligations.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes,
and preferred stocks that are convertible into common and
preferred stock.
DEBT SECURITIES are bonds, debentures, notes, and bills.
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.
FIXED-INCOME SECURITIES are debt securities, convertible
securities, and preferred stocks, including 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 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.
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.
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.
INTEREST-ONLY OR IO SECURITIES are debt securities that receive
only the interest payments on an underlying debt that has been
structured to have two classes, one of which is the IO class and
the other of which is the PRINCIPAL-ONLY OR PO CLASS, that
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.
32
<PAGE>
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB
or below, or determined by Alliance to be of equivalent quality,
and are commonly referred to as "junk bonds."
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 or GNMA;
- FNMA CERTIFICATES, which are securities issued by the
Federal National Mortgage Association or FNMA; and
- FHLMC certificates, which are securities issued by the
Federal Home Loan Mortgage Corporation or FHLMC.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers'
acceptances, and interest-bearing savings deposits of banks that
have total assets of more than $1 billion and are members of the
Federal Deposit Insurance Corporation.
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.
RULE 144A SECURITIES are securities that may be resold under Rule
144A under the Securities Act.
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.
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. U.S. Government
33
<PAGE>
securities not backed by the full faith and credit of the United
States include certificates issued by FNMA and FHLMC.
RATING AGENCIES
DUFF & PHELPS is Duff & Phelps Credit Rating Company.
FITCH is Fitch IBCA, Inc.
MOODY'S is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
S&P is Standard & Poor's Ratings Services.
OTHER
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
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.
EXCHANGE is the New York Stock Exchange.
LIBOR is the London Interbank Offered Rate.
SECURITIES ACT is the Securities Act of 1933, as amended.
WORLD BANK is the commonly used name for the International Bank
for Reconstruction and Development.
34
<PAGE>
DESCRIPTION OF THE FUNDS
This section of the Prospectus provides a more complete
description of the principal investment objectives, strategies,
and risks of the Alliance Bond Funds. Of course, there can be no
assurance that any Fund will achieve its investment objective.
Please note:
- Additional discussion of the Funds' investments,
including the risks of the investments that appear in
bold type can be found in the discussion under
DESCRIPTION OF INVESTMENT PRACTICES following this
section.
- The description of a Fund's risks may include risks
defined in the SUMMARY OF PRINCIPAL RISKS above.
Additional information about risks of investing in a
Fund can be found in the discussions under ADDITIONAL
RISK CONSIDERATIONS.
- Additional descriptions of each Fund's strategies and
investments, as well as other strategies and investments
not described below, may be found in a Fund's Statement
of Additional Information or SAI.
- Except as noted, (i) the Fund's investment objectives
are fundamental and cannot be changed without a
shareholder vote and (ii) the Fund's investment policies
are not fundamental and thus can be changed without a
shareholder vote.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds 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 seeks high current
income consistent with the preservation of capital by investing
primarily in a portfolio of U.S. Government securities. The
Fund's investment objective is not fundamental. The Fund
normally 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, including repurchase
agreements and forward commitments relating to U.S. Government
securities.
35
<PAGE>
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 may have higher levels of
credit risk than do U.S. Government securities. Under its
policies, the Fund is not obligated to dispose of any security
whose credit quality falls below high quality.
The Fund also may:
- invest in certain SMRS;
- invest in VARIABLE, FLOATING, and INVERSE FLOATING RATE
INSTRUMENTS;
- make SHORT SALES AGAINST THE BOX;
- enter into various hedging transactions, such as
INTEREST RATE SWAPS, CAPS, AND FLOORS;
- purchase and sell FUTURES CONTRACTS for hedging
purposes;
- purchase and sell call and put OPTIONS ON FUTURES
CONTRACTS or on SECURITIES, for hedging purposes or to
earn additional income;
- enter into REPURCHASE AGREEMENTS OR REVERSE REPURCHASE
AGREEMENTS; and
- purchase securities for future delivery; and
- make SECURED LOANS OF PORTFOLIO SECURITIES.
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio seeks a high level of current income
that is consistent with prudent investment risk. As a matter of
fundamental policy, the Fund pursues its objective by investing
at least 65% of the value of its total assets in U.S. Government
securities and repurchase agreements and forward contracts
relating to U.S. Government securities. The Fund may invest the
remaining 35% of its total assets in non-U.S. Government
mortgage-related and asset-backed securities.
The Fund will not invest in any security rated below BBB or Baa.
The Fund may invest in unrated securities of equivalent quality
to the rated securities in which it may invest, as determined by
Alliance. The Fund expects, but is not required, to dispose of
securities that are downgraded below BBB and Baa or, if unrated,
are determined by Alliance to have undergone similar credit
quality deterioration.
The Fund also may:
- enter into REPURCHASE AGREEMENTS and REVERSE REPURCHASE
AGREEMENTS, FORWARD CONTRACTS, and DOLLAR ROLLS;
- enter into various hedging transactions, such as
INTEREST RATE SWAPS, CAPS, AND FLOORS;
- purchase and sell FUTURES CONTRACTS for hedging
purposes; and
36
<PAGE>
- purchase call and put OPTIONS on FUTURES CONTRACTS or on
SECURITIES for hedging purposes.
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund 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 its total assets invested in U.S. Government
securities, including mortgage-related securities and repurchase
agreements relating to U.S. Government securities.
In pursuing its investment objective and policies, the Fund takes
advantage of a wide range of maturities of debt securities and
adjusts the dollar-weighted average maturity of its portfolio
from time to time, depending on its assessment of relative yields
on securities of different maturities and the expected effect of
future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by
the Fund has either a remaining maturity of not more than ten
years or a duration not exceeding that of a ten-year Treasury
note.
The Fund may invest up to 35% of its total assets in:
- high quality asset-backed securities, including
mortgage-related securities that are not U.S. Government
securities;
- treasury securities issued by private corporate issuers;
- qualifying bank deposits;
- higher quality commercial paper or, if unrated, issued
by companies that have high quality debt issues
outstanding; and
- high quality debt securities of corporate issuers.
The Fund may invest up to 15% of its total assets in high-quality
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. The amount of Fund
investments in foreign debt securities will vary and may include
those of a number of foreign countries or, depending upon market
conditions, those of a single country.
The Fund also may:
- enter into FUTURES CONTRACTS and purchase and write
OPTIONS ON FUTURES CONTRACTS;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- invest in EURODOLLAR INSTRUMENTS;
37
<PAGE>
- purchase and write put and call OPTIONS on FOREIGN
CURRENCIES;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS;
- use REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund seeks a high level of
current income to the extent consistent with prudent investment
risk. The Fund invests at least 65% of its assets in mortgage-
related securities, including CMOs. The average weighted
maturity of the Fund's portfolio of fixed-income securities is
expected to vary between two and ten years.
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 these new types of securities.
The Fund may invest up to 20% of its total assets in lower-rated
mortgage-related securities.
The Fund may invest up to 35% of the value of its total assets
in:
- U.S. Government securities;
- qualifying bank deposits;
- prime commercial paper or, if unrated, issued by
companies which have an outstanding high quality debt
issue;
- high grade debt securities secured by mortgages on
commercial real estate or residential rental properties;
and
- high grade asset-backed securities.
The Fund also may:
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- purchase put and call OPTIONS written by others and
write covered put and call OPTIONS for hedging purposes;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- enter into INTEREST RATE FUTURES CONTRACTS;
38
<PAGE>
- invest in VARIABLE FLOATING AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS;
- make LOANS OF PORTFOLIO SECURITIES.
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance Multi-Market Strategy Trust is a non-diversified
investment company that offers investors a higher yield than a
money market fund and less fluctuation in net asset value than a
longer-term bond fund. The Fund seeks the highest level of
current income, consistent with what Alliance considers to be
prudent investment risk, that is available from a portfolio of
high quality debt securities having remaining maturities of not
more than five years. The Fund invests in a portfolio of debt
securities denominated in the U.S. Dollar and selected foreign
currencies. The Fund seeks investment opportunities in foreign,
as well as domestic, securities markets. The Fund normally
expects to maintain at least 70% of its assets in debt securities
denominated in foreign currencies, but limits its investments in
a single currency other than the U.S. Dollar to 25% of its net
assets.
In pursuing its investment objective, the Fund seeks to minimize
credit risk and fluctuations in net asset value by investing only
in short-term debt securities. Normally, a high proportion of
the Fund's portfolio consists of money market instruments.
Alliance actively manages the Fund's portfolio in accordance with
a multi-market investment strategy, allocating the Fund's
investments among securities denominated in the U.S. Dollar and
the currencies of a number of foreign countries and, within each
such country, among different types of debt securities. Alliance
adjusts the Fund's exposure to each currency so that the
percentage of assets invested in securities of a particular
country or denominated in a particular currency varies in
accordance with Alliance's assessment of the relative yield and
appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength,
credit quality, and interest rate trends are the principal
factors considered by Alliance in determining whether to increase
or decrease the emphasis placed upon a particular type of
security or industry sector within a Fund's investment portfolio.
The 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", can help
protect against declines in the U.S. Dollar value of income
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available for distribution to shareholders and declines in the
net asset value of the Fund's shares resulting from adverse
changes in currency exchange rates. The Fund invests in debt
securities denominated in the currencies of countries whose
governments are considered stable by Alliance.
The Fund expects to invest in debt securities denominated in the
Euro and the ECU, which is a "basket" consisting of specified
amounts of currencies of certain of the member states of the
European Union. An issuer of debt securities purchased by the
Fund may be domiciled in a country other than the country in
whose currency the instrument is denominated. In addition, the
Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency while
the principal amounts of, and value of interest payments on, such
securities are determined with reference to another currency.
The Fund maintains borrowings of approximately 25% of its net
assets.
The Fund seeks to minimize investment risk by limiting its
investments to debt securities of high quality and invests in:
- U.S. Government securities;
- high quality foreign government securities;
- obligations issued by supranational entities and
corporate debt securities having a high-quality rating;
- certificates of deposit and bankers' acceptances issued
or guaranteed by, or time deposits maintained at, banks
(including foreign branches of foreign banks) having
total assets of more than $500 million, and determined
by Alliance to be of high quality; and
- prime commercial paper or unrated commercial paper of
equivalent quality and issued by U.S. or foreign
companies having outstanding high quality debt
securities.
As a matter of fundamental policy, the Fund concentrates at least
25% of its total assets in debt instruments issued by domestic
and foreign companies engaged in the banking industry, including
bank holding companies. These 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.
The Fund also may:
- invest in INDEXED COMMERCIAL PAPER;
- enter into FUTURES CONTRACTS and purchase and write
OPTIONS on FUTURES CONTRACTS;
- purchase and write put and call OPTIONS on FOREIGN
CURRENCIES;
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- purchase or sell FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies
that 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 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 invests at least 65%, and normally substantially more,
of its assets in Government securities and income-producing
securities. 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 maintains borrowings of
approximately one-third of its net assets.
The Fund expects that it will not retain a debt security which is
downgraded below BBB or Baa, or, if unrated, determined by
Alliance to have undergone similar credit quality deterioration.
The Fund may conclude, under certain circumstances, 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, that it is in the best interests of
the shareholders to retain its holdings in securities of that
issuer.
Alliance believes that the increasingly integrated economic
relationship among the United States, Canada and Mexico,
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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.
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. 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, and denominated in the local currencies of,
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 limits its investments in debt
securities issued by the governmental entities of any one
country, except for Argentine Government securities, to 10% of
its total assets.
The Fund also may:
- enter into FUTURES CONTRACTS and purchase and write
OPTIONS on FUTURES CONTRACTS for hedging purposes;
- purchase and write put and call OPTIONS on FOREIGN
CURRENCIES;
- purchase or sell FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS;
- 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;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
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ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund 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 referred to as "Brady Bonds," which are issued as
part of debt restructurings and collateralized in full as to
principal due at maturity by zero coupon U.S. Government
securities.
The Fund also may invest up to 35% of its total assets in U.S.
and non-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 equivalent investment quality. These
securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable
vulnerability to default, be unlikely to have the capacity to pay
interest and repay principal when due in the event of adverse
business, financial or economic conditions, and be in default or
not current in the payment of interest or principal.
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 December 31, 1998, securities ratings (or equivalent
quality) of the Fund's securities were:
- A and above %
- Baa or BBB %
- Ba or BB %
- B %
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- CC %
- C %
- Non-rated %
The Fund's investments in sovereign debt obligations and non-U.S.
corporate fixed income securities emphasize countries that are
considered at the time of purchase to be emerging markets or
developing countries by the World Bank. The Fund may invest up
to 30% of its total assets in securities or obligations of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia and
Venezuela. Alliance expects that these countries are now, or are
expected 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. The Fund will limit investments in the sovereign debt
obligations of each country (or of any other single foreign
country) to less than 25% of its total assets.
Alliance anticipates that other countries that will provide
investment opportunities for the Fund include, among others,
Bolivia, Costa Rica, the Dominican Republic, Ecuador, Jordan,
Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. The
Fund will limit its investments in the sovereign debt obligations
and corporate fixed-income securities of issuers in any other
single foreign country to not more than 10% of its total assets.
The Fund also may:
- invest in STRUCTURED SECURITIES;
- 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;
- invest in OTHER INVESTMENT COMPANIES;
- invest in WARRANTS;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- enter into STANDBY COMMITMENT AGREEMENTS;
- make SHORT SALES OF SECURITIES or maintain a short
position;
- 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;
- purchase and sell exchange-traded OPTIONS on any
securities index of the types of securities in which it
may invest;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
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- enter into REVERSE REPURCHASE AGREEMENTS and DOLLAR
ROLLS;
- enter into REPURCHASE AGREEMENTS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
While it does not currently intend to do so, the Fund reserves
the right to borrow an amount not to exceed one-third of the
Fund's net assets.
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust seeks primarily a high
level of current income and secondarily capital appreciation.
The Fund invests primarily in a portfolio of fixed-income
securities of U.S. and non-U.S. companies and U.S. Government and
foreign government securities and supranational entities,
including lower-rated securities. The Fund also may use
derivative instruments to attempt to enhance income. The average
weighted maturity of the Fund's portfolio of fixed-income
securities is expected to vary between five years and 30 years in
accordance with Alliance's changing perceptions of the relative
attractiveness of various maturity ranges.
The Fund normally invests at least 65% of its total assets in the
fixed-income securities of issuers located in at least three
countries, one of which may be the United States. The Fund
limits its investments in the securities of any one foreign
government to 25% of its total assets. The Fund's investments in
U.S. Government securities may include mortgage-related
securities and zero coupon securities. The Fund's investments in
fixed-income securities may include preferred stock, mortgage-
related and other asset-backed securities, and zero coupon
securities.
The Fund invests at least 65% of its total assets in investment
grade securities and may invest up to 35% of its total assets in
lower-rated 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 limit the
risk to the Fund to a degree comparable to that of rated
securities that are consistent with the Fund's investment
objectives and policies. Lower-rated securities in which the
Fund may invest include Brady Bonds and fixed-income securities
of issuers located in emerging markets.
The Fund also may:
- invest in RIGHTS AND WARRANTS;
- invest in LOAN PARTICIPATIONS and ASSIGNMENTS;
- invest in FOREIGN CURRENCIES;
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- purchase and write put and call OPTIONS on securities
and foreign currencies;
- purchase or sell FORWARD FOREIGN EXCHANGE CONTRACTS;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- invest in INDEXED COMMERCIAL PAPER;
- invest in STRUCTURED SECURITIES;
- purchase and sell securities on a FORWARD COMMITMENT
basis;
- enter into STANDBY COMMITMENTS;
- enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices,
including any index of U.S. Government securities,
foreign government securities or common stock, and
purchase and write options on futures contracts;
- invest in EURODOLLAR INSTRUMENTS;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS; and
- make SHORT SALES of securities or maintain a short
position;
- enter into REVERSE REPURCHASE AGREEMENTS and DOLLAR
ROLLS;
- enter into REPURCHASE AGREEMENTS;
- make loans of PORTFOLIO SECURITIES.
The Fund may borrow in order to purchase securities or make other
investments, although it currently limits its borrowings to 25%
of its total assets.
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
The 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 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
that give promise of relatively attractive yields but do not
involve substantial risk of loss of capital. The Fund invests at
least 65% of its net assets in debt securities. Although the
Fund invests at least 65% of its total assets in corporate bonds,
it also may invest in securities of non-corporate issuers. 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 follows an investment strategy that in certain respects
can be regarded as more aggressive than the strategies of many
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other funds investing primarily in corporate bonds. The Fund's
investments normally tend to have a relatively long average
maturity and duration. The Fund places significant emphasis on
both foreign corporate and sovereign debt obligations and
corporate bonds that are expected to benefit from improvement in
their issuers' credit fundamentals. In recent years the Fund
frequently has experienced greater net asset value volatility
than most other corporate bond funds. Prospective investors in
the Fund should therefore be prepared to accept the degree of
volatility associated with its investment strategy.
The Fund's investments in fixed-income securities have no minimum
rating requirement, except the Fund expects that it will not
retain a security that is downgraded below B, or if unrated,
determined to have undergone similar credit quality deterioration
after purchase. Currently, the Fund believes its objectives and
policies may best be implemented by investing at least 65% of its
total assets in fixed-income securities considered investment
grade or higher. The Fund may invest the remainder of its assets
in lower-rated fixed-income securities. As of December 31, 1998,
the Fund's investments were rated (or equivalent quality):
- A or above %
- Baa or BBB %
- Ba or BB %
- B %
- CC %
- CCC %
- Unrated %
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.
The Fund invests no more than 15% of the its total assets in
sovereign debt obligations in the form of foreign government loan
participations and assignments, which may be lower rated and
considered to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. All of
the Fund's investments, whether foreign or domestic, are U.S.
Dollar-denominated.
Within these limitations, the Fund has complete flexibility as to
the types and relative proportions of securities in which it will
invest. 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. Substantially all of the Fund's investments, however,
will be income producing.
The Fund also may:
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- invest in STRUCTURED SECURITIES;
- 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;
- for hedging purposes, purchase put and call OPTIONS
written by others and write covered put and call
OPTIONS;
- for hedging purposes, enter into various hedging
transactions, such as INTEREST RATE SWAPS, CAPS, AND
FLOORS;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- invest in ZERO COUPON and PAY-IN-KIND SECURITIES; and
- invest in CMOS and MULTI-CLASS PASS-THROUGH MORTGAGE-
RELATED SECURITIES.
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund seeks primarily to achieve high total
return by maximizing current income and, to the extent consistent
with that objective, capital appreciation. The Fund pursues this
objective by investing primarily in a diversified mix of high
yield, below investment grade fixed-income securities, known as
"junk bonds." These securities involve greater volatility of
price and risk of principal and income than higher quality fixed-
income securities. The Fund is managed to maximize current
income by taking advantage of market developments, yield
disparities, and variations in the creditworthiness of issuers.
The Fund uses various strategies in attempting to achieve its
objective.
The Fund normally invests at least 65% of its total assets in
high yield fixed-income securities rated below investment grade
by two or more NRSROs (i.e., rated lower than Baa by Moody's or
lower than BBB by S&P) or, if unrated, of equivalent quality.
The Fund may invest not more than 10% of its total assets in (i)
fixed-income securities which are rated lower than B3 or B- or
their equivalents by two or more NRSROs or, if unrated, of
equivalent quality, and (ii) money market instruments of any
entity which has an outstanding issue of unsecured debt that is
rated lower than B3 or B- or their equivalents by two or more
NRSROs or, if unrated, of equivalent quality.
As of December 31, 1998, the Fund's investments were rated (or
equivalent quality):
- A and above %
- Ba or BB %
- B %
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- CCC %
- Unrated %
The Fund may invest a portion of its assets in foreign
securities. The Fund may buy and sell foreign currencies
principally for the purpose of preserving the value of
foreign securities or in anticipation of purchasing foreign
securities.
The Fund also may invest in:
- U.S. Government securities;
- certificates of deposit, bankers' acceptances, bank
notes, time deposits and interest bearing savings
deposits issued or guaranteed by certain domestic and
foreign banks;
- commercial paper (rated at least A-1 by S&P or Prime-1
by Moody's or, if unrated, issued by domestic or foreign
companies having high quality outstanding debt
securities) and participation interests in loans
extended by banks to these companies;
- corporate debt obligations with remaining maturities of
less than one year rated at least high quality as well
as corporate debt obligations rated at least high grade
provided the corporation also has outstanding an issue
of commercial paper rated at least A-1 by S&P or Prime-1
Moody's; and
- floating rate or master demand notes.
The Fund also may:
- invest in MORTGAGE-BACKED and ASSET-BACKED securities;
- invest in loan participations and assignments of loans
to corporate, governmental, or other borrowers
originally made by institutional lenders or lending
syndicates;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities and purchase and sell securities on a
WHEN-ISSUED or DELAYED DELIVERY basis;
- write covered put and call OPTIONS on fixed-income
securities, securities indices and foreign currencies
and purchase put or call options on fixed-income
securities, securities indices and foreign currencies;
- purchase and sell FUTURES CONTRACTS and related OPTIONS
on debt securities and on indices of debt securities;
- enter into contracts for the purchase or sale of a
specific currency for hedging purposes only;
- enter into REPURCHASE AGREEMENTS; and
- make LOANS OF PORTFOLIO SECURITIES.
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DESCRIPTION OF INVESTMENT PRACTICES
This section describes the investment practices of the Funds and
risks associated with these practices. Unless otherwise noted, a
Fund's use of any of these practices was specified the previous
section.
DERIVATIVES. The Funds may use derivatives to achieve their
investment objectives. Derivatives are financial contracts whose
value depends on, or is derived from, the value of an underlying
asset, reference rate or index. These assets, rates, and indices
may include bonds, stocks, mortgages, commodities, interest
rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk,
or both. For example, one party with unwanted risk may agree to
pass that risk to another party who is willing to accept the
risk, the second party being motivated, for example, by the
desire either to earn income in the form of a fee or premium from
the first party, or to reduce its own unwanted risk by attempting
to pass all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn
income and enhance returns, to hedge or adjust the risk profile
of a portfolio, and either to replace more traditional direct
investments or to obtain exposure to otherwise inaccessible
markets. Each of the Funds is permitted to use derivatives for
one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in
order to enhance yields and broaden portfolio diversification.
Each of these uses entails greater risk than if derivatives were
used solely for hedging purposes. Derivatives are a valuable tool
which, when used properly, can provide significant benefit to
Fund shareholders. A Fund may take a significant position in
those derivatives that are within its investment policies if, in
Alliance's judgment, this represents the most effective response
to current or anticipated market conditions. MULTI-MARKET
STRATEGY, HIGH YIELD, and GLOBAL STRATEGIC INCOME, in particular,
generally make extensive use of carefully selected forwards and
other derivatives to achieve the currency hedging 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.
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There are four principal types of derivative instruments-
- -options, futures, forwards, and swaps--from which virtually any
type of derivative transaction can be created.
- Options--An option, which may be standardized and
exchange-traded, or customized and privately negotiated,
is an agreement that, for a premium payment or fee,
gives the option holder (the buyer) the right but not
the obligation to buy or sell the underlying asset (or
settle for cash an amount based on an underlying asset,
rate or index) at a specified price (the exercise price)
during a period of time or on a specified date. A call
option entitles the holder to purchase, and a put option
entitles the holder to sell, the underlying asset (or
settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised
the writer of the option is obligated to sell (in the
case of a call option) or to purchase (in the case of a
put option) the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index).
- Futures--A futures contract is an agreement that
obligates the buyer to buy and the seller to sell a
specified quantity of an underlying asset (or settle for
cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the
contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are
fungible (i.e., considered to be perfect substitutes for
each other). This fungibility allows futures contracts
to be readily offset or cancelled through the
acquisition of equal but opposite positions, which is
the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not
require physical delivery of the underlying asset but
instead is settled for cash equal to the difference
between the values of the contract on the date it is
entered into and its maturity date.
- Forwards--A forward contract is an obligation by one
party to buy, and the other party to sell, a specific
quantity of an underlying commodity or other tangible
asset for an agreed upon price at a future date. Forward
contracts are customized, privately negotiated
agreements designed to satisfy the objectives of each
party. A forward contract usually results in the
delivery of the underlying asset upon maturity of the
contract in return for the agreed upon payment.
- Swaps--A swap is a customized, privately negotiated
agreement that obligates two parties to exchange a
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series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case
of interest rate swaps, currency exchange rates in the
case of currency swaps) for a specified amount of an
underlying asset (the "notional" principal amount). The
payment flows are netted against each other, with the
difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is
used solely to calculate the payment streams but is not
exchanged. With respect to currency swaps, actual
principal amounts of currencies may be exchanged by the
counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building
blocks for the purpose of determining the principal amount of
and/or rate of interest payable on the debt instruments are often
referred to as "structured securities." An example of this type
of structured security is indexed commercial paper. The term is
also used to describe certain securities issued in connection
with the restructuring of certain foreign obligations. The term
"derivative" also is sometimes used to describe securities
involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the
securities. These securities are described below under MORTGAGE-
RELATED SECURITIES and OTHER ASSET-BACKED SECURITIES.
While the judicious use of derivatives by highly-experienced
investment managers such as Alliance can be quite beneficial,
derivatives involve risks different from, and, in certain cases,
greater than, the risks presented by more traditional
investments. The following is a general discussion of important
risk factors and issues relating to the use of derivatives that
investors should understand before investing in a Fund.
- Market Risk--This is the general risk of all investments
that the value of a particular investment will change in
a way detrimental to the Fund's interest based on
changes in the bond market generally.
- Management Risk--Derivative products are highly
specialized instruments that require investment
techniques and risk analyses different from those
associated with stocks and bonds. The use of a
derivative requires an understanding not only of the
underlying instrument but also of the derivative itself,
without the benefit of observing the performance of the
derivative under all possible market conditions. In
particular, the use and complexity of derivatives
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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 a
derivative counterparty to comply with the terms of the
derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which
is the issuer or counterparty to each exchange-traded
derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in
order to reduce overall credit risk. For privately
negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately
negotiated derivative in evaluating potential credit
risk.
- Liquidity Risk--Liquidity risk exists when a particular
instrument is difficult to purchase or sell. If a
derivative transaction is particularly large or if the
relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a
position at an advantageous price.
- Leverage Risk--Since many derivatives have a leverage
component, adverse changes in the value or level of the
underlying asset, rate or index can result in a loss
substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal
amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial
investment.
- Other Risks--Other risks in using derivatives include
the risk of mispricing or improper valuation of
derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately
negotiated derivatives, are complex and often valued
subjectively. Improper valuations can result in
increased cash payment requirements to counterparties or
a loss of value to a Fund. Derivatives do not always
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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. The following describes specific
derivatives that one or more of the Funds may use.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially
U.S. Dollar-denominated futures contracts or options that are
linked to LIBOR. Eurodollar futures contracts enable purchasers
to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings. LIMITED MATURITY GOVERNMENT
and GLOBAL STRATEGIC INCOME intend to use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR
(to which many short-term borrowings and floating rate securities
in which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A Fund purchases or
sells forward foreign currency exchange contracts ("forward
contracts") to minimize the risk from adverse changes in the
relationship between the U.S. Dollar and other currencies. A Fund
may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S.
Dollar price of the security (a "transaction hedge"). When a
Fund believes that a foreign currency may suffer a substantial
decline against the U.S. Dollar, it may enter into a forward sale
contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes
that the U.S. Dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract
to buy that foreign currency for a fixed dollar amount (a
"position hedge"). Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed U.S. Dollar amount
where the Fund believes that the U.S. Dollar value of the
currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. Dollar value of the
currency in which portfolio securities of the Fund are
denominated (a "cross-hedge").
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may
buy and sell futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest
rates or financial indices, including any index of U.S.
Government securities, foreign government securities or corporate
debt securities.
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Options on futures contracts are options that call for the
delivery of futures contracts upon exercise. Options on futures
contracts written or purchased by a Fund will be traded on U.S.
or foreign exchanges and, except for SHORT-TERM U.S. GOVERNMENT
and GLOBAL STRATEGIC INCOME, will be used only for hedging
purposes.
LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will not
enter into a futures contract or write or purchase an option on a
futures contract if immediately thereafter the market values of
the outstanding futures contracts of the Fund and the currencies
and futures contracts subject to outstanding options written by
the Fund would exceed 50% of its total assets. MORTGAGE
SECURITIES INCOME will not write or purchase options on futures
contracts. Nor will LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter into a futures
contract or, if otherwise permitted, write or purchase an option
on a futures contract, if immediately thereafter the aggregate of
initial margin deposits on all the outstanding futures contracts
of the Fund and premiums paid on outstanding options on futures
contracts would exceed 5% of the market value of the total assets
of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i)
other than one on fixed-income securities or based on interest
rates, or (ii) if immediately thereafter the sum of the then
aggregate futures market prices of financial instruments required
to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be
delivered under open futures contract purchases would exceed 30%
of the value of the Fund's total assets.
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 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.
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There is no limit on the amount of interest rate transactions
that may be entered into by a Fund that is permitted to enter
into such transactions. MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME may enter into
interest rate swaps involving payments in the same currency or in
different currencies. SHORT-TERM U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME and CORPORATE BOND will not
enter into an interest rate swap, cap, or floor transaction
unless the unsecured senior debt or the claims-paying ability of
the other party is then rated in the highest rating category of
at least one NRSRO. Each of MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME, and GLOBAL STRATEGIC INCOME will enter into
interest rate swap, cap or floor transactions with its respective
custodian, and with other counterparties, but only if: (i) for
transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for
transactions with maturities greater than one year, the
counterparty has high quality debt securities outstanding.
The swap market has grown substantially in recent years, with a
large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become well
established and relatively liquid. Caps and floors are less
liquid than swaps. These transactions do not involve the delivery
of securities or other underlying assets or principal.
Accordingly, unless there is a counterparty default, the risk of
loss to a Fund from interest rate transactions is limited to the
net amount of interest payments that the Fund is contractually
obligated to make.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on
foreign currencies that are privately negotiated or traded on
U.S. or foreign exchanges for the purpose of protecting against
declines in the U.S. Dollar value of foreign currency denominated
securities held by a Fund and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an
option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although if rates move
adversely, a Fund may forfeit the entire amount of the premium
plus related transaction costs.
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
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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 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.
A Fund may write a call option on a security that it does not own
in order to hedge against a decline in the value of a security
that it owns or has the right to acquire, a technique referred to
as "cross-hedging." A Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when
the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option,
while at the same time achieving the desired hedge. The
correlation risk involved in cross-hedging may be greater than
the correlation risk involved with other hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH
AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL
STRATEGIC INCOME, CORPORATE BOND, and HIGH YIELD generally
purchase or write privately negotiated options on securities. A
Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as
commercial banks or savings and loan institutions) deemed
creditworthy by Alliance. 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. 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 the Fund
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would exceed 2% of the Fund's total assets. Nor will either 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.
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
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equal the principal payments that would have then been due on the
Brady Bonds in the normal course. 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. Prior to conversion, convertible
securities have the same general characteristics as non-
convertible debt securities, which provide a stable stream of
income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a
convertible security will normally vary with changes in the price
of the underlying equity security, although the higher yield
tends to make the convertible security less volatile than the
underlying equity security. As with debt securities, the market
value of convertible securities tends to decrease as interest
rates rise and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality,
they enable investors to benefit from increases in the market
price of the underlying common stock. 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.
FORWARD COMMITMENTS. Forward commitments for the purchase or
sale of securities may include purchases on a WHEN-ISSUED basis
or purchases or sales on a DELAYED DELIVERY basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring or approval of a
proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).
When forward commitments with respect to fixed-income securities
are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but payment
for and delivery of the securities take place at a later date.
Normally, the settlement date occurs within 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.
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
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periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a
similar security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields. No
forward commitments will be made by LIMITED MATURITY GOVERNMENT,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT or
GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than
25% of the total assets of GLOBAL STRATEGIC INCOME and 30% of the
total assets of each of the other Funds.
A Fund's right to receive or deliver a security under a forward
commitment may be sold prior to the settlement date. The Funds
enter into forward commitments, however, only with the intention
of actually receiving securities or delivering them, as the case
may be. If a Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or
dispose of its right to deliver or receive against a forward
commitment, it may realize a gain or incur a loss.
ILLIQUID SECURITIES. The Funds will limit their investments in
illiquid securities to 15% of their net assets, except that the
limit is 10% for MORTGAGE SECURITIES INCOME, MULTI-MARKET
STRATEGY, AND NORTH AMERICAN GOVERNMENT INCOME, and 5% for SHORT-
TERM U.S. GOVERNMENT. As a matter of fundamental policy,
CORPORATE BOND cannot purchase 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.
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. Alliance will monitor each Fund's investments
in illiquid securities. Rule 144A securities will not be treated
as "illiquid" for the purposes of the limit on investments so
long as the securities meet liquidity guidelines established by
the Board of Directors.
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 indexed
commercial paper may do so without limitation. A Fund will
receive interest and principal payments on such commercial paper
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in the currency in which such commercial paper is denominated,
but the amount of principal payable by the issuer at maturity
will change in proportion to the change (if any) in the exchange
rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While
such commercial paper entails the risk of loss of principal, the
potential for realizing gains as a result of changes in foreign
currency exchange rates enables a Fund to hedge (or cross-hedge)
against a decline in the U.S. Dollar value of investments
denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such
commercial paper for hedging purposes only, not for speculation.
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. If the Fund acquires 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).
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of
portfolio securities to brokers, dealers and financial
institutions, provided that cash, liquid high grade debt
securities or bank letters of credit equal to at least 100% of
the market value of the securities loaned is deposited and
maintained by the borrower with the Fund. The risks in lending
portfolio securities, as with other secured extensions of credit,
consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness
of the borrower. While securities are on loan, the borrower will
pay the Fund any income earned from the securities. The Fund may
invest any cash collateral in portfolio securities and earn
additional income or receive an agreed-upon amount of income from
a borrower who has delivered equivalent collateral. Lending of
portfolio securities is limited to 50% of net assets for HIGH
YIELD, 25% for SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC
INCOME, and 20% for LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT.
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
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interpositioned between the Fund and the borrower is a lender
having total assets of more than $25 billion and whose senior
unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct
rights against the borrower on the loan. Because loan assignments
are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and
obligations acquired by a Fund as the purchaser of an assignment
may differ from, and be more limited than, those held by the
assigning lender.
The assignability of certain sovereign debt obligations, with
respect to GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME,
or foreign government securities, with respect to CORPORATE BOND
and HIGH YIELD, is restricted by the governing documentation as
to the nature of the assignee such that the only way in which the
Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of
assignments and participations because to do so it will have to
assign such securities to a third party. Because there may not be
a liquid market for such investments, they can probably be sold
only to a limited number of institutional investors. The lack of
a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its
liquidity needs in response to a specific economic event such as
a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for participations and assignments
also may make it more difficult for the Fund to assign a value to
these investments for purposes of valuing the Fund's portfolio
and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest
up to 25%, and CORPORATE BOND may invest up to 15%, of their
total assets, in loan participations and assignments.
MORTGAGE-RELATED SECURITIES. The Funds' investments in mortgage-
related securities typically are securities representing
interests in pools of mortgage loans made to home owners. The
mortgage loan pools may be assembled for sale to investors (such
as a Fund) by governmental or private organizations. 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
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because there are no direct or indirect governmental guarantees
of the underlying mortgage payments. Private issuers sometimes
obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit
enhancement to support the timely payment of interest and
principal with respect to their securities if the borrowers on
the underlying mortgages fail to make their mortgage payments.
The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of
such an enhancer were downgraded. A Fund may buy mortgage-related
securities without credit enhancement if the securities meet the
Fund's investment standards.
One type of mortgage-related security is of the "pass-through"
variety. The holder of a pass-through security is considered to
own an undivided beneficial interest in the underlying pool of
mortgage loans and receives a pro rata share of the monthly
payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities.
Prepayments of mortgages resulting from the sale, refinancing, or
foreclosure of the underlying properties are also paid to the
holders of these securities, which, as discussed below,
frequently causes these securities to experience significantly
greater price and yield volatility than experienced by
traditional fixed-income securities. Some mortgage-related
securities, such as securities issued by GNMA, are referred to as
"modified pass-through" securities. The holders of these
securities are entitled to the full and timely payment of
principal and interest, net of certain fees, regardless of
whether payments are actually made on the underlying mortgages.
Another form of mortgage-related security is a "pay-through"
security, which is a debt obligation of the issuer secured by a
pool of mortgage loans pledged as collateral that is legally
required to be paid by the issuer, regardless of whether payments
are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a
CMO, a series of bonds or certificates is issued in multiple
classes. Each class of a CMO, often referred to as a "tranche,"
is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be
retired substantially earlier than the stated maturities or final
distribution dates of the collateral. The principal and interest
on the underlying mortgages may be allocated among several
classes of a series of a CMO in many ways. 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
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obligations solely of the private issuer and are not insured or
guaranteed by GNMA, FNMA, FHLMC, any other governmental agency or
any other person or entity.
Another type of mortgage-related security, known as ARMS, bears
interest at a rate determined by reference to a predetermined
interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities
and (ii) indices derived from a calculated measure such as a cost
of funds index or a moving average of mortgage rates. Some rates
and indices closely mirror changes in market interest rate
levels, while others tend to lag changes in market rate levels
and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate
mortgages. ARMS secured by fixed-rate mortgages generally have
lifetime caps on the coupon rates of the securities. To the
extent that general interest rates increase faster than the
interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have
caps that limit the maximum amount by which the interest rate or
the monthly principal and interest payments on the mortgages may
increase. These payment caps can result in negative amortization
(i.e., an increase in the balance of the mortgage loan). Since
many adjustable-rate mortgages only reset on an annual basis, the
values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate
mortgages.
SMRS are mortgage-related securities that are usually structured
with two classes of securities collateralized by a pool of
mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of
the principal and interest payments from the underlying assets. A
common type of SMRS has one class of interest-only securities or
IOs receiving all of the interest payments from the underlying
assets; while the other class of securities, principal-only
securities or POs, receives all of the principal payments from
the underlying assets. IOs and POs are extremely sensitive to
interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value
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
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reason, none of the Funds relies on IOs and POs as the principal
means of furthering its investment objective.
The value of mortgage-related securities is affected by a number
of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier
than expected as a result of prepayments of underlying mortgages.
Such prepayments generally occur during periods of falling
mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will
result in the early payment of the applicable mortgage-related
securities. In that event, a Fund may be unable to invest the
proceeds from the early payment of the mortgage-related
securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with
mortgage-related securities cause these securities to experience
significantly greater price and yield volatility than is
experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions, and other
social and demographic factors. During periods of falling
interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. Conversely, during periods of rising
interest rates, a reduction in prepayments may increase the
effective life of mortgage-related securities, subjecting them to
greater risk of decline in market value in response to rising
interest rates. If the life of a mortgage-related security is
inaccurately predicted, a Fund may not be able to realize the
rate of return it expected.
Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private
organizations may not be readily marketable. In particular, the
secondary markets for CMOs, IOs, and POs may be more volatile and
less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell
those securities at any particular time.
As with fixed-income securities generally, the value of mortgage-
related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such
securities. Such an adverse effect is especially possible with
fixed-rate mortgage securities. If the yield available on other
investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate
levels, the value of the mortgage-related securities will
decline. Although the negative effect could be lessened if the
mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in
investments yielding the higher current interest rate), as
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described above the rates of mortgage prepayments and early
payments of mortgage-related securities generally tend to decline
during a period of rising interest rates. Although the values of
ARMS may not be affected as much as the values of fixed-rate
mortgage securities by rising interest rates, ARMS may still
decline in value as a result of rising interest rates. Although,
as described above, the yields on ARMS vary with changes in the
applicable interest rate or index, there is often a lag between
increases in general interest rates and increases in the yield on
ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often
have interest rate or payment caps that limit the ability of the
adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques
used to develop mortgage-related securities are being applied to
a broad range of financial assets. Through the use of trusts and
special purpose corporations, various types of assets, including
automobile loans and leases, credit card receivables, home equity
loans, equipment leases and trade receivables, are being
securitized in structures similar to the structures used in
mortgage securitizations. These asset-backed securities are
subject to risks associated with changes in interest rates and
prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks
depending on the type of assets involved and the legal structure
used. For example, credit card receivables are generally
unsecured obligations of the credit card holder and the debtors
are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right
to set off certain amounts owed on the credit cards, thereby
reducing the balance due. In some transactions, the value of the
asset-backed security is dependent on the performance of a third
party acting as credit enhancer or servicer. In some
transactions (such as those involving the securitization of
vehicle loans or leases) it may be administratively burdensome to
perfect the interest of the security issuer in the underlying
collateral and the underlying collateral may become damaged or
stolen.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a
buyer purchases a security and simultaneously agrees to resell it
to the vendor at an agreed-upon future date, normally a day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate for the period the
buyer's money is invested in the security. Such agreements permit
a Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-
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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.
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
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borrowings by GLOBAL DOLLAR GOVERNMENT will not exceed 33% of its
total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase
agreements with commercial banks and registered broker-dealers in
order to increase income, in an amount up to 25% of its total
assets. Reverse repurchase agreements and dollar rolls together
with any borrowings by GLOBAL STRATEGIC INCOME will not exceed
25% of its total assets.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in
warrants, and GLOBAL STRATEGIC INCOME may invest in rights and
warrants, which are option securities permitting their holders to
subscribe for other securities. GLOBAL DOLLAR GOVERNMENT may
invest in warrants, and Global Strategic Income may invest in
rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights
are similar to warrants except that they have a substantially
shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying
securities, or any rights in the assets of the issuer. As a
result, an investment in rights and warrants may be considered
more speculative than certain other types of investments. In
addition, the value of a right or a warrant does not necessarily
change with the value of the underlying securities, and a right
or a warrant ceases to have value if it is not exercised prior to
its expiration date. GLOBAL STRATEGIC INCOME may invest up to 20%
of its total assets in rights and warrants.
SHORT SALES. A short sale is effected by selling a security that
a Fund does not own, or if the Fund owns the security, is not to
be delivered upon consummation of the sale. A short sale is
"against the box" if a Fund owns or has the right to obtain
without payment securities identical to those sold short. SHORT-
TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of
deferring realization of gain or loss for U.S. federal income tax
purposes. In addition, each of these Funds may not make a short
sale if, as a result, more than 10% of net assets (taken at
market value), with respect to GLOBAL DOLLAR GOVERNMENT, and 10%
of total assets, with respect to SHORT-TERM U.S. GOVERNMENT,
would be held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation
that the market price of that security will decline. When the
Fund makes a short sale of a security that it does not own, it
must borrow from a broker-dealer the security sold short and
deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow
particular securities and is often obligated to pay over any
payments received on such borrowed securities. The Fund's
obligation to replace the borrowed security will be secured by
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collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the
broker-dealer from which it borrowed the security regarding
remittance of any payments received by the Fund on such security,
the Fund may or may not receive any payments (e.g., dividends or
interest) on its collateral deposited with the broker-dealer.
In order to defer realization of gain or loss for U.S. federal
income tax purposes, GLOBAL STRATEGIC INCOME may also make short
sales "against the box" of securities which are eligible for such
deferral. The Fund may not make a short sale, if as a result,
more than 25% of its total assets would be held as collateral for
short sales.
If the price of the security sold short increases between the
time of the short sale and the time a Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a short-term capital gain. Any
gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is
limited to the price at which it sold the security short, its
potential loss is theoretically unlimited.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are
similar to put options that commit a Fund, for a stated period of
time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The
price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund
is paid a commitment fee regardless of whether the security
ultimately is issued. The Funds will enter into such agreements
only for the purpose of investing in the security underlying the
commitment at a yield and price considered advantageous and
unavailable on a firm commitment basis. No Fund will enter into
a standby commitment with a remaining term in excess of 45 days.
The Funds will limit their investments in standby commitments so
that the aggregate purchase price of the securities subject to
the commitments does not exceed 20%, or 25% with respect to
GLOBAL STRATEGIC INCOME, of their 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.
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STRUCTURED SECURITIES. Structured securities in which GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME and CORPORATE BOND may
invest represent interests in entities organized and operated
solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign
government securities, with respect to CORPORATE BOND. This type
of restructuring involves the deposit with or purchase by an
entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance
by that entity of one or more classes of structured securities
backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to
create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow
on the underlying instruments. Because structured securities
typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying
instruments. Structured securities of a given class may be
either subordinated or unsubordinated to the right of payment of
another class. Subordinated structured securities typically have
higher yields and present greater risks than unsubordinated
structured securities. GLOBAL DOLLAR GOVERNMENT may invest up to
25% of its total assets, and GLOBAL STRATEGIC INCOME and
CORPORATE BOND may invest without limit, in these types of
structured securities.
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
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floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of
the change in the index rate of interest. The higher degree of
leverage inherent in inverse floaters is associated with greater
volatility in market value, such that, during periods of rising
interest rates, the market values of inverse floaters will tend
to decrease more rapidly than those of fixed rate securities.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon
securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of
their unmatured interest coupons, and include receipts or
certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its
holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the
price for which it was acquired, which is generally an amount
significantly less than its face value. Such securities usually
trade at a deep discount from their face or par value and are
subject to greater fluctuations in market value in response to
changing interest rates than debt obligations of comparable
maturities and credit quality that make current distributions of
interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, these
securities eliminate reinvestment risk and "lock in" a rate of
return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued
without interest coupons. Principal-only Treasury securities are
U.S. Treasury notes and bonds that have been stripped of their
unmatured interest coupons, and receipts or certificates
representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons
is the Treasury bill. Although the U.S. Treasury does not itself
issue Treasury notes and bonds without coupons, under the U.S.
Treasury STRIPS program interest and principal payments on
certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years
a number of banks and brokerage firms have separated ("stripped")
the principal portions from the coupon portions of U.S. Treasury
bonds and notes and sold them separately in the form of receipts
or certificates representing undivided interests in these
instruments (which are generally held by a bank in a custodial or
trust account).
GLOBAL STRATEGIC INCOME and CORPORATE BOND also may invest in
"pay-in-kind" debentures (i.e., debt obligations the interest on
which may be paid in the form of obligations of the same type
rather than cash), which have characteristics similar to zero
coupon securities.
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FUTURE DEVELOPMENTS. A Fund may, following written notice to its
shareholders, take advantage of other investment practices that
are not currently contemplated for use by the Fund, or are not
available but may yet be developed, to the extent such investment
practices are consistent with the Fund's investment objective and
legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed
those involved in the practices described above.
PORTFOLIO TURNOVER. The portfolio turnover rate for each Fund is
included in the FINANCIAL HIGHLIGHTS section. The Funds are
actively managed and, in some cases in response to market
conditions, a Fund's portfolio turnover may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other
expenses, which must be borne by the Fund and its shareholders.
High portfolio turnover also may result in the realization of
substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
TEMPORARY 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.
ADDITIONAL RISK CONSIDERATIONS
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
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light of these risks, a Fund may engage in certain currency
hedging transactions, as described above, which involve certain
special risks.
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.
Utilization of leverage, which is usually considered speculative,
involves certain risks to a Fund's shareholders. These include a
higher volatility of the net asset value of a Fund's shares and
the relatively greater effect on the net asset value of the
shares. So long as a Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense
paid on borrowings, the effect of leverage will be to cause the
Fund's shareholders to realize a higher current net investment
income than if the Fund were not leveraged. On the other
hand, interest rates on U.S. Dollar-denominated and foreign
currency-denominated obligations change from time to time as does
their relationship to each other, depending upon such factors as
supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could
cause the relationship between such rates to change so that rates
on U.S. Dollar-denominated obligations may substantially increase
relative to the foreign currency-denominated obligations of a
Fund's investments. If 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.
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. Similarly, the effect of leverage in a
declining market could be a greater decrease in net asset
value per share. In an extreme case, if 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 and reduce the net asset
value of a Fund's shares.
In the event of an increase in rates on U.S. Government
securities or other changed market conditions, to the point where
leverage by MULTI-MARKET STRATEGY, GLOBAL STRATEGIC INCOME or
NORTH AMERICAN GOVERNMENT INCOME could adversely affect the
Funds' shareholders, as noted above, or in anticipation of such
changes, each Fund may increase the percentage of its investment
portfolio invested in U.S. Government securities, which would
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tend to offset the negative impact of leverage on Fund
shareholders. Each Fund may also reduce the degree to which it
is leveraged by repaying amounts borrowed.
FIXED-INCOME SECURITIES. The value of each Fund's shares will
fluctuate with the value of its investments. The value of each
Fund's investments will change as the general level of interest
rates fluctuates. During periods of falling interest rates, the
values of a Fund's securities will generally rise, although if
falling interest rates are viewed as a precursor to a recession,
the values of a Fund's securities may fall along with interest
rates. Conversely, during periods of rising interest rates, the
values of a Fund's securities will generally decline. Changes in
interest rates have a greater effect on fixed-income securities
with longer maturities and durations than those with shorter
maturities and durations.
In seeking to achieve a Fund's investment objective, there will
be times, such as during periods of rising interest rates, when
depreciation and realization of capital losses on securities in a
Fund's portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but will
be reflected in the net asset value of a Fund.
FOREIGN SECURITIES. The securities markets of many foreign
countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited
number of companies representing a small number of industries.
Consequently, a Fund whose investment portfolio includes foreign
securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in
securities of U.S. companies. These markets may be subject to
greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of
securities, than is usual in the United States.
Securities registration, custody and settlements may in some
instances be subject to delays and legal and administrative
uncertainties. Furthermore, foreign investment in the securities
markets of certain foreign countries is restricted or controlled
to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of
sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain
advance government notification or authority, and if a
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deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances.
A Fund also could also be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve
additional costs to a Fund. These factors may affect the
liquidity of a Fund's investments in any country and Alliance
will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, restrictions on
market manipulation, shareholder proxy requirements, and timely
disclosure of information. The reporting, accounting, and
auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and
less information may be available to investors in foreign
securities than to investors in U.S. securities. Substantially
less information is publicly available about certain non-U.S.
issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ
favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product or gross national product,
rate of inflation, capital reinvestment, resource self-
sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social
instability, or diplomatic developments could affect adversely
the economy of a foreign country. In the event of
nationalization, expropriation or other confiscation, a Fund
could lose its entire investment in securities in the country
involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide
less protection to security holders such as the Fund than that
provided by U.S. laws.
Alliance believes that, except for currency fluctuations between
the U.S. Dollar and the Canadian Dollar, the matters described
above are not likely to have a material adverse effect on NORTH
AMERICAN GOVERNMENT INCOME'S investments in the securities of
Canadian issuers or investments denominated in Canadian Dollars.
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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.
INVESTMENT IN THE BANKING INDUSTRY. Due to its investment
policies with respect to investments in the banking industry,
MULTI-MARKET STRATEGY will have greater exposure to the risk
factors which are characteristic of such investments. In
particular, the value of and investment return on the Fund's
shares will be affected by economic or regulatory developments in
or related to the banking industry. Sustained increases in
interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in
general economic conditions could increase the exposure to credit
losses. The banking industry is also subject to the effects of
the concentration of loan portfolios in particular businesses
such as real estate, energy, agriculture or high technology-
related companies; competition within those industries as well as
with other types of financial institutions; and national and
local governmental regulation. In addition, the Fund's
investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination
in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Fund will seek to
minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB.
Securities rated Baa or BBB are considered to have speculative
characteristics and share some of the same characteristics as
lower-rated securities, as described below. Sustained periods of
deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated
securities are subject to greater risk of loss of principal and
interest than higher-rated securities. They are also generally
considered to be subject to greater market risk than higher-rated
securities, and the capacity of issuers of lower-rated securities
to pay interest and repay principal is more likely to weaken than
is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic conditions than investment grade
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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. There can be no
assurance, however, 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.
UNRATED SECURITIES. Unrated securities will also be considered
for investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH
YIELD when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the
terms of the securities themselves, 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.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may
exist for many of the sovereign debt obligations in which GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME will invest.
Reduced secondary market liquidity may have an adverse effect on
the market price and a Fund's ability to dispose of particular
instruments when necessary to meet its liquidity requirements or
in response to specific economic events such as a deterioration
in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain sovereign debt obligations may also make it
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more difficult for a Fund to obtain accurate market quotations
for the purpose of valuing its portfolio. Market quotations are
generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent
firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be
exposed to the direct or indirect consequences of political,
social, and economic changes in various countries. Political
changes in a country may affect the willingness of a foreign
government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among
other things, in its inflation rate, the amount of its external
debt and its gross domestic product, will also affect the
government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in
many cases pertain to countries that are among the world's
largest debtors to commercial banks, foreign governments,
international financial organizations, and other financial
institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their
external debt obligations, which led to defaults on certain
obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and
obtaining new credit to finance interest payments. Certain
governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have
come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and
social stability of those issuers.
The Funds are permitted to invest in sovereign debt obligations
that are not current in the payment of interest or principal or
are in default so long as Alliance believes it to be consistent
with the Funds' investment objectives. The Funds may have limited
legal recourse in the event of a default with respect to certain
sovereign debt obligations it holds. For example, remedies from
defaults on certain sovereign debt obligations, unlike those on
private debt, must, in some cases, be pursued in the courts of
the defaulting party itself. Legal recourse therefore may be
significantly diminished. Bankruptcy, moratorium and other
similar laws applicable to issuers of sovereign debt obligations
may be substantially different from those applicable to issuers
of private debt obligations. The political context, expressed as
the willingness of an issuer of sovereign debt obligations to
meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given
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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.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate
fixed-income securities in which GLOBAL DOLLAR GOVERNMENT and
HIGH YIELD invest may include securities issued in connection
with corporate restructurings such as takeovers or leveraged
buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks
due to the highly leveraged conditions of the issuer. In
addition, such issuers may lose experienced management as a
result of the restructuring. Furthermore, the market price of
such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Funds may
also invest in U.S. corporate fixed-income securities that are
not current in the payment of interest or principal or are in
default, so long as Alliance believes such investment is
consistent with the Fund's investment objectives. The Funds'
rights with respect to defaults on such securities will be
subject to applicable U.S. bankruptcy, moratorium and other
similar laws.
YEAR 2000 AND EURO. Many computer systems and applications in
use today process transactions using two-digit date fields for
the year of the transaction, rather than the full four digits.
If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900", which
could result in processing inaccuracies and computer system
failures. This is commonly known as the Year 2000 problem. In
addition to the Year 2000 problem, the European Economic and
Monetary Union has established a single currency, the Euro
Currency ("Euro") that will replace the national currency of
certain European countries effective January 1, 1999. Computer
systems and applications must be adapted in order to be able to
process Euro sensitive information accurately beginning in 1999.
Should any of the computer systems employed by the Funds' major
service providers fail to process Year 2000 or Euro related
information properly, that could have a significant negative
impact on the Funds' operations and the services that are
provided to the Funds' shareholders. In addition, to the extent
that the operations of issuers of securities held by the Funds
are impaired by the Year 2000 problem or the Euro, or prices of
securities held by the Funds decline as a result of real or
perceived problems relating to the Year 2000 or the Euro, the
value of the Funds' shares may be materially affected.
With respect to the Year 2000, the Funds have been advised that
Alliance, each Fund's investment adviser, Alliance Fund
Distributors, Inc. ("AFD"), each Fund's principal underwriter,
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and Alliance Fund Services, Inc. ("AFS"), each Fund's registrar,
transfer agent and dividend disbursing agent, (collectively,
"Alliance"), began to address the Year 2000 issue several years
ago in connection with the replacement or upgrading of certain
computer systems and applications. During 1997, Alliance began a
formal Year 2000 initiative, which established a structured and
coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and
applications. Currently, management of Alliance expects that the
required modifications for the majority of its significant
systems and applications that will be in use on January 1, 2000,
will be completed and tested by the end of 1998. Full
integration testing of these systems and testing of interfaces
with third-party suppliers will continue through 1999. At this
time, management of Alliance believes that the costs associated
with resolving this issue will not have a material adverse effect
on its operations or on its ability to provide the level of
services it currently provides to the Funds.
With respect to the Euro, the Funds have been advised that
Alliance has established a project team to assess changes that
will be required in connection with the introduction of the Euro.
Alliance reports that its project team has assessed all systems,
including those developed or managed internally, as well as those
provided by vendors, in order to determine the modifications that
will be required to process accurately transactions denominated
in Euro after 1998. At this time, management of Alliance expects
that the required modifications for the introduction of the Euro
will be completed and tested before the end of 1998. Management
of Alliance believes that the costs associated with resolving
this issue will not have a material adverse effect on its
operations or on its ability to provide the level of services it
currently provides to the Funds.
The Funds and Alliance have been advised by the Funds' Custodians
that they are also in the process of reviewing their systems with
the same goals. As of the date of this prospectus, the Funds and
Alliance have no reason to believe that the Custodians will be
unable to achieve these goals.
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MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Each Fund's Adviser is Alliance Capital Management, L.P., 1345
Avenue of the Americas, New York, New York 10105. Alliance is a
leading international investment manager supervising client
accounts with assets as of December 31, 1998, totaling more than
$___ billion (of which approximately $___ 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 __ registered investment companies, with
more than ___ separate portfolios, managed by Alliance currently
have over three million shareholder accounts. As of December 31,
1998, Alliance was retained as an investment manager for employee
benefit plan assets of __ of the FORTUNE 100 companies.
Alliance provides investment advisory services and order
placement facilities for the Funds. For these advisory services,
the Funds paid Alliance as a percentage of net assets:
<BB=>
FEE AS A PERCENTAGE FISCAL YEAR
FUND OF NET ASSETS * ENDING
Short-Term U.S. Governments
U.S. Government Portfolio
Limited Maturity Government
Mortgage Securities Income
Multi-Market Strategy
North American Government Income
Global Dollar Government
Global Strategic Income
Corporate Bond Portfolio
High Yield
* Fees are stated net of waivers and/or reimbursements. See the "Fee
Table" at the beginning of the Prospectus for more information about fee
waivers.
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PORTFOLIO MANAGER
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.
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EMPLOYEE; TIME PERIOD; PRINCIPAL
TITLE WITH ACMC OCCUPATION DURING
FUND THE PAST FIVE YEARS
Short-Term U.S. Patricia J. Young; Associated with
Government since inception; Alliance
Senior Vice President
Jeffrey S. Phlegar; since Associated with
1997; Senior Vice President Alliance
U.S. Government Wayne D. Lyski; since 1983; Associated with
Senior Vice President Alliance
Patricia J. Young; since 1997; (see above)
Jeffrey S. Phelgar; since 1997; (see above)
Limited Maturity Patricia J. Young; since 1997; (see above)
Government
Jeffrey S. Phelgar; since 1997; (see above)
Mortgage Securities Patricia J. Young; since 1997; (see above)
Income
Jeffrey S. Phelgar; since 1997; (see above)
Multi-Market Douglas J. Peebles; since Associated with
Strategy inception; Senior Vice President Alliance
North American Wayne D. Lyski; since inception; (see above)
Government Income
Global Dollar Wayne D. Lyski; since inception; (see above)
Government
Global Strategic Wayne D. Lyski; since inception; (see above)
Income
Douglas J. Peebles; since (see above)
inception;
Corporate Bond Wayne D. Lyski; since 1987; (see above)
Paul J. DeNoon; since Associated with
January 1992; Alliance
Vice President
High Yield Wayne C. Tappe; since 1991; Associated with
Senior Vice President Alliance
Nelson Jantzen; since 1991; Associated with
Senior Vice President Alliance
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PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the
"Historical Portfolio") of a registered investment company, sold
only to separate accounts of insurance companies in connection
with variable life insurance contracts and variable annuities
certificates and contracts (the "Contracts"), that has
substantially the same investment objective and policies and has
been managed in accordance with essentially the same investment
strategies and techniques as those of High Yield. Alliance since
July 22, 1993, and prior thereto, Equitable Capital Management
Corporation, whose advisory business Alliance acquired on that
date, have served as investment adviser to the Historical
Portfolio since its inception in 1987. Wayne C. Tappe, who
together with Nelson Jantzen is primarily responsible for the
day-to-day management of High Yield, has been the person
principally responsible for the day-to-day management of the
Historical Portfolio since 1995.
The following tables set forth performance results for the
Historical Portfolio since its inception (January 2, 1987),
together with those of High Yield and the Lipper High Current
Yield Mutual Funds Average as a comparative benchmark. As of
September 30, 1998, the assets in the Historical Portfolio
totalled approximately $571 million.
The performance data do not reflect account charges applicable to
the Contracts or imposed at the insurance company separate
account level, which, if reflected, would lower the performance
of the Historical Portfolio. In addition, the performance data
do not reflect the Fund's higher expenses, which, if reflected,
would lower the performance of the Historical Portfolio. The
performance data have not been adjusted for corporate or
individual taxes, if any, payable with respect to the Historical
Portfolio. The rates of return shown for the Historical
Portfolio are not an estimate or guarantee of future investment
performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of
the performance of a large number of mutual funds the investment
objective of each of which is similar to that of the Fund.
Nonetheless, the investment policies pursued by Funds in the
survey may differ from those of High Yield and the Historical
Portfolio. This survey is published by Lipper Analytical
Services, Inc. ("Lipper"), a firm recognized for its reporting of
performance of actively managed funds. According to Lipper,
performance data are presented net of investment management fees,
operating expenses and, for funds with Rule 12b-1 plans, asset-
based sales charges.
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The performance results presented below are based on percent
changes in net asset values of the Historical Portfolio with
dividends and capital gains reinvested. Cumulative rates of
return reflect performance over a stated period of time.
Annualized rates of return represent the rate of growth that
would have produced the corresponding cumulative return had
performance been constant over the entire period. Rates of
return for High Yield Class A shares assume the imposition of the
maximum 4.25% sales charge. The inception date for the
Historical Portfolio and Lipper data is January 2, 1987 and for
High Yield is April 22, 1997.
ANNUALIZED RATES OF RETURN
PERIODS ENDED DECEMBER 31, 1998
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
Historical Portfolio % % % % %
Lipper High Current
Yield Mutual Funds
Average
High Yield
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1998
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
Historical Portfolio % % % % %
Lipper High Current
Yield Mutual Funds
Average
High Yield
PURCHASE AND SALE OF SHARES
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4 p.m. Eastern
time each day the Exchange is open for business. To calculate
NAV, a Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the
number of shares outstanding. The Funds' value their securities
at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such
other methods as the Fund's Directors or Trustees believe
accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at
the next NAV calculated after your order is accepted by the Fund.
Your purchase of Fund shares may be subject to an initial sales
charge. Sales of Fund shares may be subject to a contingent
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deferred sales charge or CDSC. See the next section of this
Prospectus, DISTRIBUTION ARRANGEMENTS, for details.
HOW TO BUY SHARES
You may purchase a Fund's shares through broker-dealers, banks,
or other financial intermediaries. You also may purchase shares
directly from the Funds' principal underwriter, Alliance Fund
Distributors, Inc., or AFD.
Minimum investment amounts are:
- Initial $250
- Subsequent $ 50
- Automatic Investment Program $ 25
If you are an existing Fund shareholder, you may purchases shares
by electronic funds transfer in amounts not exceeding $500,000 if
you have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from AFS.
Call 800-221-5672 to arrange a transfer from your bank account.
A Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who
have not provided the Fund with their certified taxpayer
identification number. To avoid this, you must provide your
correct Tax Identification Number (Social Security Number for
most investors) on your account application. The Funds may
refuse any order to purchase shares. In this regard, the Funds
reserve the right to restrict purchases of Fund shares (including
through exchanges) when they appear to evidence a pattern of
frequent purchases and sales made in response to short-term
considerations.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of
other Alliance Mutual Funds (including AFD Exchange Reserves, a
money market fund managed by Alliance). Exchanges of shares are
made at next-determined NAV, without sales or service charges.
You may request an exchange by mail or telephone. You must call
by 4:00 p.m. Eastern time to receive that day's NAV. The Funds
may change, suspend, or terminate the exchange service on 60
days' written notice.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to the Fund)
on any day the Exchange is open, either directly or through your
financial intermediary. Your sales price will be the next-
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determined NAV, less any applicable CDSC, after the Fund receives
your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by
check or electronic funds transfer, you cannot redeem your any
portion of it until the Fund 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 by 4:00 p.m., Eastern time,
and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV, less any applicable CDSC. Your broker is
responsible for furnishing all necessary documentation to a Fund
and may charge you for this service.
SELLING SHARES DIRECTLY TO A FUND
BY MAIL
- Send a signed letter of instruction or stock power form
to AFS, along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
- For your protection, a bank, a member firm of a national
stock exchange or other eligible guarantor institution
must guarantee signatures. Stock power forms are
available from your financial intermediary, AFS, and
many commercial banks. Additional documentation is
required for the sale of shares by corporations,
intermediaries, fiduciaries, and surviving joint owners.
BY TELEPHONE
- You may redeem your shares for which no stock
certificates have been issued by telephone request.
Call AFS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
- A telephone redemption request must be made by 4:00 p.m.
Eastern time for you to receive that day's NAV, less any
applicable CDSC and, except for certain omnibus
accounts, may be made only once per day.
- If you have selected electronic funds transfer in your
Subscription Application, the redemption proceeds may be
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sent directly to your bank. Otherwise, the proceeds
will be mailed to you.
- Redemption requests by electronic funds transfer may not
exceed $100,000 per day and redemption requests by check
cannot exceed $50,000 per day.
- Telephone redemption is not available for shares held in
nominees or "street name" accounts or retirement plan
accounts or shares held by a shareholder who has changed
his or her address of record within the previous 30
calendar days.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Funds declare dividends on their shares each Fund business
day. For Saturdays, Sundays, and holidays dividends will be as
of the previous business day. Each Fund pays dividends on its
shares after the close of business on the twentieth day of each
month or on the first day after that day if the day is not a
business day.
Each Fund's income dividend and capital gains distribution, if
any, declared by a Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or in additional
shares of the same class of shares of that Fund. If paid in
additional shares, the shares will have an aggregate NAV as of
the close of business on the day following the declaration date
of the dividend or distribution equal to the cash amount of the
dividend or distribution. You may make an election to receive
dividends and distributions in cash or in shares at the time you
purchase shares. Your election can be changed at any time prior
to a record date for a dividend. There is no sales or other
charge in connection with the reinvestment of dividends or
capital gains distributions. Cash dividends may be paid in
check, or at your election, electronically via the ACH network.
There is no sales or other charge on the reinvestment of Fund
dividends and distributions.
If you receive an income dividend or capital gains distribution
in cash you may, within 120 days following the date of its
payment, reinvest the dividend or distribution in additional
shares of that Fund without charge by returning to Alliance, with
appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends
and distributions in shares of that Fund.
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While it is the intention of each Fund to distribute to its
shareholders substantially all of each fiscal year's net income
and net realized capital gains, if any, the amount and timing of
any such dividend or distribution must necessarily depend upon
the realization by such Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no
assurance that a Fund will pay any dividends or realize any
capital gains.
Investment income received by a Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. To the extent that any Fund is liable for foreign income
taxes withheld at the source, each Fund intends, if possible, to
operate so as to meet the requirements of the Code to "pass
through" to the Fund's shareholders credits or deductions for
foreign income taxes paid, but there can be no assurance that any
Fund will be able to do so. Furthermore, a shareholder's ability
to claim a foreign tax credit or deduction for foreign taxes paid
by a Fund may be subject to certain limitations imposed by the
Code, as a result of which a shareholder may not be permitted to
claim a full credit or deduction for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g.,
from fluctuations in currency exchange rates) after paying a
dividend, all or a portion of the dividend may subsequently be
characterized as a return of capital. Returns of capital are
generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could
happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of
capital will be taxable as capital gain.
U.S. FEDERAL INCOME TAXES
The Funds expect that distributions will consist either of net
income (or short-term capital gains) or long-term capital gains.
For federal income tax purposes, the Fund's dividend
distributions of net income (or short-term taxable gains) will be
taxable to you as ordinary income. Any capital gains
distributions may be taxable to you as capital gains. A Fund's
distributions also may be subject to certain state and local
taxes.
If you buy shares just before a Fund deducts a distribution from
its NAV, you will pay the full price for the shares and then
receive a portion of the price back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for
Federal income tax purposes. Each year shortly after December
31, the Fund will send you tax information stating the amount and
type of all its distributions for the year. Consult your tax
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adviser about the federal, state, and local tax consequences in
your particular circumstances.
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DISTRIBUTION ARRANGEMENT
SHARE CLASSES. The Funds offer three classes of shares.
CLASS A SHARES--INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at NAV plus an initial sales
charge, as follows:
INITIAL SALES CHARGE
COMMISSION
AS % OF NET AS % OF TO DEALER/
AMOUNT OFFERING AGENT AS % OF
AMOUNT PURCHASED INVESTED PRICE OFFERING PRICE
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36% 3.25% 3.00%
$250,000 up to $500,000 2.30% 2.25% 2.00%
$500,000 up to $1,000,000 1.78% 1.75% 1.50%
You pay no initial sales charge on purchases of Class A Shares in
the amount of $1,000,000, but may pay a 1% CDSC if you redeem
your shares within 1 year. Alliance may pay the dealer or agent
a fee of up to 1% of the dollar amount purchased. Certain
purchases of Class A shares may qualify for reduced or eliminated
sales charges under 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 a Fund's SAI for additional information about
these options.
CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at NAV without an initial sales
charge. A Fund will thus receive the full amount of your
purchase. Your investment, however, will be subject to a CDSC if
you redeem shares within three years (four years in the case of
Global Strategic Income and High Yield) after purchase. The CDSC
varies depending on the number of years you hold the shares. The
CDSC amounts are:
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GLOBAL STRATEGIC INCOME and HIGH YIELD:
Year Since Purchase CDSC
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
ALL OTHER FUNDS:
Year Since Purchase CDSC
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
If you exchange your shares for the Class B shares of another
Alliance Mutual Fund, the CDSC also will apply to those Class B
shares. The CDSC period begins with the date of your original
purchase, not the date of exchange for the other Class B shares.
The Fund's Class B shares purchased for cash automatically
convert to Class A shares six years after the end of the month of
your purchase. If you purchase shares by exchange for the Class B
shares of another Alliance Mutual Fund, the conversion period
runs from the date of your original purchase.
CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at NAV without any initial sales
charge. A Fund will thus receive the full amount of your
purchase. Your investment, however, will be subject to a 1% CDSC
if you redeem your shares within 1 year. If you exchange your
shares for the Class C shares of another Alliance Mutual Fund,
the 1% CDSC also will apply to those Class C shares. The 1-year
period for the CDSC begins with the date of your original
purchase, not the date of the exchange for the other Class C
shares.
Class C shares do not convert to any other class of shares of the
Fund.
ASSET-BASED SALES CHARGE OR RULE 12B-1 FEES. Each Fund has
adopted a plan under SEC Rule 12b-1 that allows the Fund to pay
asset-based sales charges or distribution and service fees for
the distribution and sale of its shares. The amount of these
fees for each class of the Fund's shares is:
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Rule 12b-1 Fee
(as a percent of Aggregate average daily net assets)
Class A .30%
Class B 1.00%
Class C 1.00%
Because these fees are paid out of the Fund's assets on an on-
going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
fees. Class B and Class C shares are subject to higher
distribution fees than Class A shares (Class B shares are subject
to these higher fees for a period of six years, after which they
convert to Class A shares). The higher fees mean a higher
expense ratio, so Class B and Class C shares pay correspondingly
lower dividends and may have a lower NAV than Class A shares.
CHOOSING A CLASS OF SHARES. The decision as to which class of
shares is more beneficial to you depends on the amount and
intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might
consider purchasing Class A shares. If you are making a smaller
investment, you might consider purchasing Class B shares because
100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C
shares because there is no initial sales charge and no CDSC as
long as the shares are held for one year or more. Dealers and
agents may receive differing compensation for selling Class A,
Class B, or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C hares is $1,000,000.
You should consult your financial agent to assist in choosing a
class of Fund shares.
APPLICATION OF THE CDSC. The CDSC is applied to the lesser of
the original cost of shares being redeemed or NAV at the time of
redemption (or, as to Fund shares acquired through an exchange,
the cost of the Alliance Fund shares originally purchased for
cash). Shares obtained from dividend or distribution
reinvestment are not subject to the CDSC. The Fund may waive the
CDSC on redemptions of shares following the death or disability
of a shareholder, to meet the requirements of certain qualified
retirement plans, or under a monthly, bimonthly, or quarterly
systematic withdrawal plan. See the Fund's SAI or further
information about CDSC waivers.
OTHER. A transaction, service, administrative, or other similar
fee may be charged by your broker-dealer, agent, financial
intermediary, or other financial representative with respect to
the purchase, sale, or exchange of Class A, Class B or Class C
shares made through your financial representative. The financial
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intermediaries also may impose requirements on the purchase,
sale, or exchange of shares that are different from, or in
addition to, those imposed by a Fund, including requirements as
to the minimum initial and subsequent investment amounts.
In addition to the discount or commission paid to dealers or
agents, AFD from time to time pays additional cash or other
incentives to dealers or agents, including EQ Financial
Consultants Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. These additional amounts may be
utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the
Funds. On some occasions, the 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. The incentives may take the form of
payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. The dealer or agent may elect to receive cash incentives
of equivalent amount in lieu of such payments.
GENERAL INFORMATION
Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by
federal securities law. The Funds reserve the right to close an
account that through redemption has remained below $200 for 90
days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have
difficulty reaching AFS by telephone, in which event you should
issue written instructions to AFS. AFS is not responsible for the
authenticity of telephonic requests to purchase, sell, or
exchange shares. AFS will employ reasonable procedures to verify
that telephone requests are genuine, and could be liable for
losses resulting from unauthorized transactions if it fails to do
so. Dealers and agents may charge a commission for handling
telephonic requests. The telephone service may be suspended or
terminated at any time without notice.
SHAREHOLDER SERVICES. AFS offers a variety of shareholder
services. For more information about these services or your
account, call AFS's toll-free number, 800-221-5672. Some services
are described in the attached Subscription Application. A
shareholder manual explaining all available services will be
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provided upon request. To request a shareholder manual, call 800-
227-4618.
EMPLOYEE BENEFIT PLANS. Certain employee benefit plans,
including employer-sponsored tax-qualified 401(k) plans and other
defined contribution retirement plans ("Employee Benefit Plans"),
may establish requirements as to the purchase, sale or exchange
of shares of the Funds, including maximum and minimum initial
investment requirements, that are different from those described
in this Prospectus. Employee Benefit Plans also may not offer all
classes of shares of the Funds. In order to enable participants
investing through Employee Benefit Plans to purchase shares of
the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans
from those described in this Prospectus. In addition, the Class
A, Class B and Class C CDSC may be waived for investments made
through Employee Benefit Plans.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT
INCOME. On July 25, 1995, a Consolidated and Supplemental Class
Action Complaint ("Complaint") styled In re Alliance North
American Government Income Trust, Inc. Securities Litigation was
filed in the U.S. District Court for the Southern District of New
York ("District Court") against the Fund, Alliance, ACMC, AFD,
The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of
the Fund and ACMC, alleging violations of the federal securities
laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The
Complaint sought certification of a plaintiff class of all
persons who purchased or owned Class A, B or C shares of the Fund
from March 27, 1992 through December 23, 1994. Plaintiffs alleged
that during 1995 the Fund's losses exceeded $750,000,000 and
sought as relief unspecified damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants'
motion to dismiss all counts of the Complaint ("First Decision").
On October 11, 1996, plaintiffs filed a motion for
reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of
the First Decision. On October 29, 1997, the United States Court
of Appeals for the Second Circuit ("Court of Appeals") issued an
order granting defendants' motion to strike and dismissing
plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file
an amended complaint ("Amended Complaint"). In the Amended
Complaint, plaintiffs asserted claims against the Fund, Alliance,
ACMC, AFD, ECI, and certain current and former officers of the
Fund and ACMC alleging violations of the federal securities laws,
fraud and breach of fiduciary duty. The principal allegations of
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the Amended Complaint related to the Fund's hedging practices,
the Fund's investments in certain mortgage-backed securities, and
the risk and objectives of the Fund as described in the Fund's
marketing materials. The Amended Complaint made similar requests
for class certification and damages as made in the Complaint. On
July 15, 1997, the District Court denied plaintiffs' motion for
leave to file the Amended Complaint and dismissed the case
("Second Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the
Second Decision to the Court of Appeals. On October 15, 1998, the
Court of Appeals affirmed in part and reversed in part the Second
Decision. The Court of Appeals affirmed the District Court's
denial of plaintiffs' motion for leave to file the Amended
Complaint insofar as the Amended Complaint alleged that
defendants had made misrepresentations and omissions relating to
the Funds' investments in certain mortgage-backed securities and
in the Fund's marketing materials. The Court of Appeals reversed
the District Court's decision to deny plaintiffs' motions for
leave to file the Amended Complaint insofar as the Amended
Complaint alleged that defendants had made actionable
misrepresentations and omissions relating to the Fund's hedging
practices. The Fund and Alliance believe that the allegations in
the Complaint and the Amended Complaint are without merit and
intend to defend vigorously against those claims.
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you
understand the Fund's financial performance for the period of the
Fund's operations. Certain information reflects financial
information for a single Fund share. The total return in the
table represents the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information has been audited
by ______________, the Fund's independent auditors, whose report,
along with Fund's financial statements, appears in the Statement
of Additional Information, which is available upon request.
[To Follow]
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For more information about the Funds, the following documents are
available upon request:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Fund's annual and semi-annual reports to shareholders contain
additional information on the Funds' investments. In the annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected a Fund's
performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Each Fund has an SAI, which contains more detailed information
about the Fund, including its operations and investment policies.
The Funds' SAIs are incorporated by reference into (and is
legally part of) this prospectus.
You may request a free copy of the current annual/semi-annual
report or the SAI, by contacting your broker or other financial
intermediary, or by contacting Alliance:
BY MAIL: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
IN PERSON: at the Commission's Public Reference Room in
Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
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APPENDIX A
BOND RATINGS
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
A-1
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Caa--Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca--Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Absence of Rating--When no rating has been assigned or where a
rating has been suspended or withdrawn, it may be for reasons
unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are unrated as a matter of policy.
3. There is a lack of essential data pertaining to the
issue or issuer.
4. The issue was privately placed, in which case the rating
is not published in Moody's publications.
Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude satisfactory
analysis; if there is no longer available reasonable up-to-date
data to permit a judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
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-2
<PAGE>
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than
in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as
having significant speculative characteristics. BB indicates the
lowest degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to
adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other
speculative debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to an inadequate capacity to pay interest and
repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated
BB, but there is capacity to pay interest and repay principal.
Adverse business, financial or economic conditions will likely
impair the capacity or willingness to pay principal or repay
interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic
conditions to pay interest and repay principal. In the event of
adverse business, financial or economic conditions, there is not
likely to be capacity to pay interest or repay principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been
taken, but payments are being continued.
D--The D rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually occurred.
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.
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<PAGE>
DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- --Protection factors are average but adequate. However,
risk factors are more variable and greater in periods of economic
stress.
BBB+, BBB, BBB- --Below average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within
this category.
B+, B, B- --Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC--Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA categories are
A-4
<PAGE>
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
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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-6
<PAGE>
APPENDIX B
General Information
About Canada, Mexico
and Argentina
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal
territories (which generally fall under federal authority) with a
constitutional division of powers between the federal and
Provincial governments. The Parliament of Canada has jurisdiction
over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the
federal public debt and property, the regulation of trade and
commerce, currency and coinage, banks and banking, national
defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system, with
business organizations ranging from small owner-operated
businesses to large multinational corporations. Manufacturing and
resource industries are large contributors to the country's
economic output, but as in many other highly developed countries,
there has been a gradual shift from a largely goods-producing
economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the
economy. Canada is also an exporter of energy to the United
States in the form of natural gas (of which Canada has
substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without
foreign exchange controls or other legal restriction. Since the
major developed-country currencies were permitted to float freely
against one another, the range of fluctuation in the U.S.
Dollar/Canadian Dollar exchange rate generally has been narrower
than the range of fluctuation between the U.S. Dollar and most
other major currencies. Since 1991, Canada generally has
experienced a weakening of its currency. The Canadian Dollar
reached an all-time low of 1.5770 Canadian Dollars per U.S.
Dollar on August 27, 1998. On October 13, 1998 the Canadian
Dollar-U.S. Dollar exchange rate was 1.5510:1. The range of
fluctuation that has occurred in the past is not necessarily
indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be accurately predicted.
B-1
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GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31
states and a Federal District (Mexico City). The Political
Constitution of Mexico, which took effect on May 1, 1917,
established Mexico as a Federal Republic and provides for the
separation of executive, legislative and judicial branches. The
President and the members of the General Congress are elected by
popular vote.
Prior to 1994, when Mexico experienced an economic crisis that
led to the devaluation of the Peso in December 1994, the Mexican
economy experienced improvement in a number of areas, including
growth in gross domestic product and a substantial reduction in
the rate of inflation and in the public sector financial deficit.
Much of the past improvement in the Mexican economy was due to a
series of economic policy initiatives intended to modernize and
reform the Mexican economy, control inflation, reduce the
financial deficit, increase public revenues through the reform of
the tax system, establish a competitive and stable currency
exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role
in the economy. In this regard, the Mexican government launched a
program for privatizing certain state owned enterprises,
developing and modernizing the securities markets, increasing
investment in the private sector and permitting increased levels
of foreign investment.
In 1994 Mexico faced internal and external conditions that
resulted in an economic crisis that continues to affect the
Mexican economy adversely. Growing trade and current account
deficits, which could no longer be financed by inflows of foreign
capital, were factors contributing to the crisis. A weakening
economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This
resulted in a large decline in foreign reserves followed by a
sharp and rapid devaluation of the Mexican Peso. The ensuing
economic and financial crisis resulted in higher inflation and
domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at
the end of 1994, the Mexican government instituted a new economic
program; and the government and the business and labor sectors of
the economy entered into a new accord in an effort to stabilize
the economy and the financial markets. To help relieve Mexico's
liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial
assistance from the United States, other countries and certain
international agencies conditioned upon the implementation and
continuation of the economic reform program.
B-2
<PAGE>
In October 1995, and again in October 1996, the Mexican
government announced new accords designed to encourage economic
growth and reduce inflation. While it cannot be accurately
predicted whether these accords will continue to achieve their
objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates
that continued to be a factor after 1994 have subsided as well.
After declining for five consecutive quarters beginning with the
first quarter of 1995, Mexico's gross domestic product began to
grow in the second quarter of 1996. That growth was sustained in
1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for the first half of 1998 was
5.4%. In addition, inflation dropped from a 52% annual rate in
1995 to a 27.7% annual rate in 1996 and a 15.7% annual rate in
1997. For the first eight months of 1998, the inflation rate
fluctuated between 15.0% and 15.5% on an annualized basis.
Mexico's economy is influenced by international economic
conditions, particularly those in the United States, and by world
prices for oil and other commodities. The recovery of the economy
will require continued economic and fiscal discipline as well as
stable political and social conditions. In addition, there is no
assurance that Mexico's economic policy initiatives will be
successful or that succeeding administrations will continue these
initiatives.
Under economic policy initiatives implemented on and after
December 1987, the Mexican government introduced a series of
schedules allowing for the gradual devaluation of the Mexican
Peso against the U.S. Dollar. These gradual devaluations
continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float
freely against other currencies, resulting in a precipitous
decline against the U.S. Dollar. By December 31, 1996, the Peso-
Dollar exchange rate had decreased approximately 40% from that on
December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange
rate decreased approximately 4% from that in 1996. At the end of
the first nine months of 1998, the Peso-Dollar exchange rate
decreased approximately 25% from the end of 1997.
Mexico has in the past imposed strict foreign exchange controls.
There is no assurance that future regulatory actions in Mexico
would not affect the Fund's ability to obtain U.S. Dollars in
exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces
and the federal capital of Buenos Aires. Its federal constitution
provides for an executive branch headed by a President, a
legislative branch and a judicial branch. Each province has its
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own constitution, and elects its own governor, legislators and
judges, without the intervention of the federal government.
The military has intervened in the political process on several
occasions since 1930 and has ruled the country for 22 of the past
68 years. The most recent military government ruled the country
from 1976 to 1983. Four unsuccessful military uprisings have
occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current
President adopted market-oriented and reformist policies,
including an aggressive privatization program, a reduction in the
size of the public sector and an opening of the economy to
international competition.
In the decade prior to the announcement of a new economic plan in
March 1991, the Argentine economy was characterized by low and
erratic growth, declining investment rates and rapidly worsening
inflation. Despite its strengths, which include a well-balanced
natural resource base and a high literacy rate, the Argentine
economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure
from its predecessors in calling for raising revenues, cutting
expenditures and reducing the public deficit. The extensive
privatization program commenced in 1989 was accelerated, the
domestic economy deregulated and opened up to foreign trade and
the frame-work for foreign investment reformed. As a result of
the economic stabilization reforms, gross domestic product has
increased each year since 1991, with the exception of 1995.
During 1997, gross domestic product increased an estimated 8.4%
from 1996. Preliminary data indicate that during the first
quarter of 1998 gross domestic product increased 6.9% from the
first quarter of 1997. The rate of inflation is generally viewed
to be under control. Significant progress was also made between
1991 and 1994 in rescheduling Argentina's debt with both external
and domestic creditors, which improved fiscal cash flows in the
medium term and allowed a return to voluntary credit markets.
There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations
will continue these initiatives.
In 1995 economic policy was directed toward the effects of the
Mexican currency crisis. The Mexican currency crisis led to a run
on Argentine bank deposits, which was brought under control by a
series of measures designed to strengthen the financial system.
The measures included the "dollarization" of banking reserves,
the establishment of two trust funds and strengthening bank
reserve requirements.
In 1991 the Argentine government enacted currency reforms, which
required the domestic currency to be fully backed by
B-4
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international reserves, in an effort to make the Argentine Peso
fully convertible into the U.S. Dollar at a rate of one to one.
The Argentine Peso has been the Argentine currency since
January 1, 1992. Since that date, the rate of exchange from the
Argentine Peso to the U.S. Dollar has remained approximately one
to one. The fixed exchange rate has been instrumental in
stabilizing the economy, but has not reduced pressures from high
rates of unemployment. It is not clear that the government will
be able to resist pressure to devalue the currency. However, the
historic range is not necessarily indicative of fluctuations that
may occur in the exchange rate over time and future rates of
exchange cannot be accurately predicted. The Argentine foreign
exchange market was highly controlled until December 1989, when a
free exchange rate was established for all foreign currency
transactions. Argentina has eliminated restrictions on foreign
direct investment and capital repatriation. In 1993, legislation
was adopted abolishing previous requirements of a three-year
waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.
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<PAGE>
(LOGO)(R) ALLIANCE MORTGAGE SECURITIES
INCOME FUND, INC.
________________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
________________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
________________________________________________________________
This Statement of Additional Information is not a prospectus but
supplements and should be read in conjunction with the current
Prospectus that offers Class A, Class B and Class C shares of
Alliance Mortgage Securities Income Fund, Inc. (the "Fund") and,
if the Fund begins to offer Advisor Class shares, the Prospectus
that offers the Advisor Class shares of the Fund (the "Advisor
Class Prospectus" and, together with any Prospectus that offers
the Class A, Class B and Class C shares, the "Prospectus(es)").
The Fund currently does not offer Advisor Class shares. Copies
of the Prospectus(es) of the Fund may be obtained by contacting
Alliance Fund Services, Inc. at the address or the "For
Literature" telephone number shown above.
TABLE OF CONTENTS
Page
Description of the Fund..................................
Management of the Fund...................................
Expenses of the Fund.....................................
Purchase of Shares.......................................
Redemption and Repurchase of Shares......................
Shareholder Services.....................................
Net Asset Value..........................................
Dividends, Distributions and Taxes.......................
Brokerage and Portfolio Transactions ....................
General Information......................................
Report of Independent Auditors and
Financial Statements...................................
Appendix A (Mortgage-Related Securities)................. A-1
Appendix B (Futures Contracts)........................... B-1
Appendix C (Certain Employee Benefit Plans).............. C-1
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(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
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DESCRIPTION OF THE FUND
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Alliance Mortgage Security Income Fund, Inc. (the
"Fund") is a diversified, open-end investment company. Except as
otherwise indicated, the investment policies of the Fund are not
designated "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 with 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
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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.
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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
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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.
SECURITIES RATINGS. The ratings of fixed-income
securities by S&P, Moody's, Duff & Phelps Credit Rating Co.
("Duff & Phelps") and Fitch IBCA, Inc. ("Fitch") are a generally
accepted barometer of credit risk. They are, however, subject to
certain limitations from an investor's standpoint. The rating of
an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is
frequently a lag between 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. 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 and Fitch, see
Appendix A to the Prospectus.
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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.
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
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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
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.
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
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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 amount with principal payments at maturity or specified
call dates.
U.S. Government securities also include zero coupon
securities and principal-only securities and certain Stripped
Mortgage Related Securities ("SMRS"). In addition, other U.S.
Government agencies and instrumentalities have issued stripped
securities that are similar to SMRS. Such securities include
those that are issued with an interest only ("IO") class and a
principal only ("PO") class. Although these stripped securities
are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, these
securities were only recently developed. As a result,
established trading markets have not yet developed and,
accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its
agencies or instrumentalities guarantee only the payment of
principal and interest on the securities, and do not guarantee
the securities' yield or value or the yield or value of the
shares of the Fund that holds the securities.
U.S. Government securities are considered among the
safest of fixed-income investments. As a result, however, their
yields are generally lower than the yields available from other
fixed-income securities.
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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
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.
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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
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 and forward commitments transactions 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,
liquid assets 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 thereafter reflects the value of the security purchased or,
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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 cancelled if the required
conditions did not occur and the trade were cancelled. 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
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 liquid assets, in a segregated account with its
custodian. A put option written by the Fund is "covered" if the
Fund maintains liquid assets with a value equal to the exercise
price in a segregated account with its custodian, or else holds a
put on the same security and in the same principal amount as the
put written where the exercise price of the put held is equal to
or greater than the exercise price of the put written. The
premium paid by the purchaser of an option will reflect, among
other things, the relationship of the exercise price to the
market price and volatility of the underlying security, the
remaining term of the option, supply and demand and interest
rates. A call option (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
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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
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 liquid assets 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.
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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
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.
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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 liquid assets 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 would
maintain a segregated account with its custodian 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
then rated in the highest rating category of at least one
nationally recognized rating organization. The Adviser will
monitor the creditworthiness of counterparties on an ongoing
basis. If there were a default by such a 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 standardized documentation has not been developed 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 liquid assets 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
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<PAGE>
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
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. The 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. The
Fund may pay reasonable finders, administrative and custodial
fees in connection with a loan.
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
15
<PAGE>
maintain more than 15% of its net assets in illiquid securities.
For this purpose, illiquid securities include, among others,
(a) except as provided below, direct placements or other
securities which are subject to legal or contractual restrictions
on resale or for which there is no readily available market
(e.g., trading in the security is suspended or, in the case of
unlisted securities, market makers do not exist or will not
entertain bids or offers), (b) options purchased by the Fund
over-the-counter and the cover for options written by the Fund
over-the-counter, and (c) repurchase agreements not terminable
within seven days. See "Additional Investment Policies and
Practices," below. Securities that have legal or contractual
restrictions on resale but have a readily available market are
not deemed illiquid for purposes of this limitation.
Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale
because they have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), securities which are
otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not
been registered under the Securities Act are referred to as
private placements or restricted securities and are purchased
directly from the issuer or in the secondary market. Mutual
funds do not typically hold a significant amount of these
restricted or other illiquid securities because of the potential
for delays on resale and uncertainty in valuation. Limitations
on resale may have an adverse effect on the marketability of
portfolio securities and a mutual fund might be unable to dispose
of restricted or other illiquid securities promptly or at
reasonable prices and might thereby experience difficulty
satisfying redemptions within seven days. A mutual fund might
also have to register such restricted securities in order to
dispose of them resulting in additional expense and delay.
Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market
has developed for certain securities that are not registered
under the Securities Act including repurchase agreements,
commercial paper, foreign securities, municipal securities and
corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security
can be readily resold or on an issuer's ability to honor a demand
for repayment. The fact that there are contractual or legal
restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
Rule 144A under the Securities Act allows a broader
institutional trading market for securities otherwise subject to
16
<PAGE>
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 clearance and settlement of transactions in
unregistered securities of domestic and foreign issuers which is
sponsored by 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. See
"Dividends, Distributions and Taxes" and "General
Information--Portfolio Transactions."
17
<PAGE>
1940 ACT RESTRICTIONS
Under the 1940 Act, the Fund is not permitted to borrow
unless immediately after such borrowing there is "asset
coverage," as that term is defined and used in the 1940 Act, of
at least 300% for all borrowings of the Fund. In addition, under
the 1940 Act, in the event asset coverage falls below 300%, the
Fund must within three days reduce the amount of its borrowing to
such an extent that the asset coverage of its borrowings is at
least 300%. Assuming, for example, outstanding borrowings
representing not more than one-third of the 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 total assets less liabilities
(other than such borrowings), the asset coverage of the Fund's
portfolio would be 400%. The Fund will maintain asset coverage
of outstanding borrowings of at least 300% and if necessary will,
to the extent possible, reduce the amounts borrowed by making
repayments from time to time in order to do so. Such repayments
could require the Fund to sell portfolio securities at times
considered disadvantageous by the Adviser and such sales could
cause the Fund to incur related transaction costs and to realize
taxable gains.
Under the 1940 Act, the Fund may invest not more than
10% of its total assets in securities of other investment
companies. In addition, under the 1940 Act the Fund may not own
more than 3% of the total outstanding voting stock of any
investment company and not more than 5% of the value of the
Fund's total assets may be invested in the securities of any
investment company.
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 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-
finance industry (in which more than 25% of the value of the
18
<PAGE>
Fund's total assets will, except for temporary defensive
positions, be invested) or U.S. Government securities;
(iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which
might require the untimely disposition of securities; borrowing
in the aggregate may not exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5% of the value of
the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the
borrowing is made; outstanding borrowings in excess of 5% of the
value of the Fund's total assets will be repaid before any
subsequent investments are made; (iv) pledge, hypothecate,
mortgage or otherwise encumber its assets, except in an amount of
not more than 15% of the value of its total assets to secure
borrowings for temporary or emergency purposes and except as
provided in (vi) below, provided, however, that this limitation
does not apply to deposits made in connection with the entering
into and holding of interest rate futures contracts; (v) invest
more than 10% of the value of its total assets in the aggregate
in illiquid securities or other illiquid investments and
repurchase agreements maturing in more than seven days; or
(vi) lend its portfolio securities if immediately after such a
loan more than 20% of the value of the Fund's total assets would
be subject to such loans.
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;
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
exercising control; (g) invest more than 10% of its total assets
in securities of other investment companies, except securities
acquired as a result of a merger, consolidation or acquisition of
assets; and (h) own more than 3% of the total outstanding voting
stock of any investment company and not more than 5% of the value
19
<PAGE>
of the Fund's total assets may be invested in the securities of
any investment company; and
3. Borrow for temporary purposes (including the
purposes mentioned in the preceding sentence) in an amount
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 "1940 Act Restrictions."
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 Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision of the Fund's Board of Directors (see "Management of
the Fund" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of __________,
1999 totaling more than $___ billion (of which more than $___
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The __ registered investment
companies managed by the Adviser, comprising ___ separate
investment portfolios, currently have more than ___ million
shareholders. As of ___________, 1999, the Adviser and its
subsidiaries employed approximately _____ employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of _________, 1999, the Adviser
20
<PAGE>
was retained as an investment manager for employee benefit plan
assets of __ 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 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 Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Under the 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 furnishes the Fund, without charge,
management supervision and assistance and office facilities and
provides persons satisfactory to the Fund's Board of Directors to
serve as the Fund's officers. 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%
21
<PAGE>
(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 in
1996, 1997 and 1998, the Adviser received advisory fees of
$5,441,943, $4,155,741 and $_________, respectively.
The Adviser is, under the Advisory Agreement,
responsible for certain expenses incurred by the Fund, including,
for example, office facilities and certain administrative
services, and any expenses incurred in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing Fund
prospectuses and other reports to shareholders and fees related
to registration with the Securities and Exchange Commission (the
"Commission") and with state regulatory authorities.)
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may utilize personnel employed
by the Adviser or by other subsidiaries of Equitable. The Fund
may employ its own personnel or contract for services to be
provided to the Fund at cost and the payments specifically
approved by the Funds Board of Directors. The Fund paid to the
Adviser a total of $__________ in respect of such services during
the fiscal year of the Fund ended in 1998.
The Advisory Agreement became effective on July 22,
1992. 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, 1999 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
persons of any such party, at a meeting called for that purpose
and held on October 15, 1998.
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.
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<PAGE>
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 the following registered
investment companies: Alliance Institutional Reserves, Inc., AFD
Exchange Reserves, The Alliance Fund, Inc., Alliance All-Asia
Investment Fund, Inc., Alliance Balanced Shares, Inc., Alliance
Bond Fund, Inc., Alliance Capital Reserves, Alliance Global
Dollar Government Fund, Inc., Alliance Global Environment Fund,
Inc., Alliance Global Small Cap Fund, Inc., Alliance Global
Strategic Income Trust, Inc., Alliance Government Reserves,
Alliance Greater China '97 Fund, Inc., Alliance Growth and Income
Fund, Inc., Alliance High Yield Fund, Inc., Alliance
Institutional Funds, Inc., Alliance International Fund, Alliance
International Premier Growth Fund, Inc., 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 Real Estate
Investment Fund, Inc., Alliance/Regent Sector Opportunity Fund,
Inc., Alliance Select Investor Series, Inc., Alliance Technology
Fund, Inc., Alliance Utility Income Fund, Inc., Alliance Variable
Products Series Fund, Inc., Alliance Worldwide Privatization
Fund, Inc., The Alliance Portfolios and The Hudson River Trust,
all registered open-end investment companies; and to ACM
Government Income Fund, Inc., ACM Government Securities Fund,
Inc., ACM Government Spectrum Fund, Inc., ACM Government
Opportunity Fund, Inc., ACM Managed Dollar Income Fund, Inc., ACM
23
<PAGE>
Managed Income Fund, Inc., ACM Municipal Securities Income Fund,
Inc., Alliance All-Market Advantage Fund, Inc., Alliance World
Dollar Government Fund, Inc., Alliance World Dollar Government
Fund II, Inc., The Austria Fund, Inc., The Korean Investment
Fund, Inc., The Southern Africa Fund, Inc. and The Spain Fund,
Inc., all registered closed-end investment companies.
DIRECTORS AND OFFICERS
The Directors and principal officers of the Fund, their
ages and their principal occupations during the past five years
are set forth below. Each such Director and officer is also a
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,* 53, Chairman of the Board, is the
President, Chief Operating Officer and a Director of ACMC, with
which he has been associated since prior to 1993.
RUTH BLOCK, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
DAVID H. DIEVLER, 69, is an independent consultant. He
was formerly a Senior Vice President of ACMC until December 1994.
His address is P.O. Box 167, Spring Lake, New Jersey 07762.
JOHN H. DOBKIN, 56, has been the President of Historic
Hudson Valley (historic preservation) since prior to 1993.
Previously, he was Director of the National Academy of Design.
His address is 150 White Plains Road, Tarrytown, New York 10591.
WILLIAM H. FOULK, JR., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
DR. JAMES M. HESTER, 74, is President of the Harry Frank
Guggenheim Foundation, with which he has been associated since
prior to 1993. He was formerly President of New York University,
____________________
* An "interested person" of the Fund as defined in the 1940
Act.
24
<PAGE>
the New York Botanical Garden and Rector of the United Nations
University. His address is 25 Cleveland Lane, Princeton, New
Jersey 08540.
CLIFFORD L. MICHEL, 59, is a member of the law firm of
Cahill Gordon & Reindel, with which he has been associated since
prior to 1993. He is President and Chief Executive Officer of
Wenonah Development Company (investments) and a Director of
Placer Dome, Inc. (mining). His address is St. Bernard's Road,
Gladstone, New Jersey 07934.
DONALD J. ROBINSON, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
OFFICERS
JOHN D. CARIFA, CHAIRMAN AND PRESIDENT, see biography,
under "Directors" section, above.
WAYNE D. LYSKI, SENIOR VICE PRESIDENT, 56, is an
Executive Vice President of ACMC, with which he has been
associated since prior to 1993.
KATHLEEN A. CORBET, SENIOR VICE PRESIDENT, 38, is an
Executive Vice President of ACMC, with which she has been
associated since July 1993. Prior thereto, she headed Equitable
Capital Management Corporation's Fixed Income Management
Department since prior to 1993.
PATRICIA J. YOUNG, SENIOR VICE PRESIDENT, 43, is a
Senior Vice President of ACMC, with which she has been associated
since 1993.
JEFFREY S. PHLEGAR, VICE PRESIDENT, 31, is a Vice
President of ACMC, with which he has been associated since July
1993. Prior thereto, he was employed by Equitable Capital since
prior to 1993.
EDMUND P. BERGAN, JR., SECRETARY, 48, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1993.
DOMENICK PUGLIESE, ASSISTANT SECRETARY, 37, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Previously, he was a Vice
President and Counsel of Concord Financial Holding Corporation
25
<PAGE>
since 1994 and Vice President and Associate General Counsel of
Prudential Securities since prior to 1993.
ANDREW L. GANGOLF, ASSISTANT SECRETARY, 44, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc.
EMILIE D. WRAPP, ASSISTANT SECRETARY, 42, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993.
MARK D. GERSTEN, TREASURER AND CHIEF FINANCIAL OFFICER,
47, is a Senior Vice President of AFS, with which he has been
associated since prior to 1993.
JUAN RODRIGUEZ, CONTROLLER, 40, is an Assistant Vice
President of AFS, with which he has been associated since prior
to 1993.
CARLA LaROSE, ASSISTANT CONTROLLER, 34, is a Manager of
AFS, with which she has been associated since prior to 1993.
JOSEPH J. MANTINEO, ASSISTANT CONTROLLER, 38, is a Vice
President of AFS with which he has been associated since prior to
1993.
VINCENT S. NOTO, CONTROLLER, 33, is a Vice President of
AFS, with which he has been associated since prior to 1993.
The aggregate compensation paid by the Fund to each of
the Directors during its fiscal year ended December 31, 1998, and
the aggregate compensation paid to each of the Directors during
calendar year 1998 by all of the registered investment companies
to which the Adviser provides investment advisory services
(collectively, the "Alliance Fund Complex") and the total number
of registered investment companies (and separate investment
portfolios within those companies), in the Alliance Fund Complex
with respect to which each of the Directors serves as a director
or trustee are set forth below. Neither the Fund nor any other
registered investment company in the Alliance Fund Complex
provides compensation in the form of pension or retirement
benefits to any of its directors or trustees. Each of the
Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
26
<PAGE>
Total Number
Total Number of of Investment
Investment Portfolios
Companies in Within the
the Alliance Alliance
Total Fund Complex, Fund Complex,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is
from Including Director or a Director
Name of Director the Fund the Fund Trustee or Trustee
_________________ ____________ _____________ _____________ _____________
John D. Carifa $ -0- $ -0- -- --
Ruth Block $_____ $_____ -- --
David H. Dievler $_____ $_____ -- --
John H. Dobkin $_____ $_____ -- --
William H. Foulk, Jr.$_____ $_____ -- --
Dr. James M. Hester $_____ $_____ -- --
Clifford L. Michel $_____ $_____ -- --
Donald J. Robinson $_____ $_____ -- --
As of _________, 1999, the Directors and officers of the
Fund as a group owned less than 1% of the shares of the Fund.
________________________________________________________________
EXPENSES OF THE FUND
________________________________________________________________
DISTRIBUTION SERVICES AGREEMENT
The Fund has entered into a Distribution Services
Agreement (the "Agreement") with Alliance Fund Distributors,
Inc., the Fund's principal underwriter (the "Principal
Underwriter"), to permit the Principal Underwriter to distribute
the Fund's shares and to permit the Fund to pay distribution
services fees to defray expenses associated with the distribution
of its Class A, Class B and Class C shares in accordance with a
plan of distribution which is included in the Agreement and has
been duly adopted and approved in accordance with Rule 12b-1
adopted by the Commission under the 1940 Act (the "Rule 12b-1
Plan").
Pursuant to the Rule 12b-1 Plan, the Fund pays to AFD a
Rule 12b-1 distribution services fee, which may not exceed an
annual rate of .30% 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
27
<PAGE>
shares and 1.00% of the Fund's aggregate average daily net assets
attributable to the Class C shares, for distribution expenses.
The Rule 12b-1 Plan provides that a portion of the distribution
services fee in an amount not to exceed .25% of the aggregate
average daily net assets of the Fund attributable to each class
of shares constitutes a service fee used for personal service
and/or the maintenance of shareholder accounts.
During the Fund's fiscal year ended December 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class A shares, in amounts
aggregating $__________, which constituted approximately ___% of
the average daily net assets attributable to Class A shares
during such fiscal year, and the Adviser made payments from its
own resources as described above aggregating $__________. Of the
$_____________ paid by the Fund and the Adviser with respect to
Class A shares under the Agreement, $__________ was spent on
advertising, $___________ on the printing and mailing of
prospectuses for persons other than current shareholders,
$_____________ for compensation to broker-dealers and other
financial intermediaries (including $___________ to the Fund's
Principal Underwriter), $_____________ for compensation to sales
personnel, and $__________ 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, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class B shares, in amounts
aggregating $____________, which constituted approximately __% 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 as described above aggregating $______.
Of the $_____________ paid by the Fund and the Adviser under the
Rule 12b-1 Plan with respect to Class B shares, $___________ was
spent on advertising, $________ on the printing and mailing of
prospectuses for persons other than current shareholders,
$___________ for compensation to broker-dealers and other
financial intermediaries (including $_________ to the Fund's
Principal Underwriter), $__________ for compensation to sales
personnel, $____________ was spent on the printing of sales
literature, travel, entertainment, due diligence, other
promotional expenses and $____________ was spent on interest on
Class B shares financing. The additional $_________ in payments
to the Principal Underwriter will be carried forward and offset
against future distribution service fees payable under the Rule
12b-1 Plan.
During the Fund's fiscal year ended December 31, 1998,
the Fund paid distribution services fees for expenditures under
the Agreement, with respect to Class C shares, in amounts
28
<PAGE>
aggregating $__________, which constituted __% 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 as described above aggregating $__________. Of the
$___________ paid by the Fund and the Adviser under the Rule
12b-1 Plan with respect to Class C shares under the Agreement,
$____________ was spent on advertising, $_________ on the
printing and mailing of prospectuses for persons other than
current shareholders, $________ for compensation to broker-
dealers and other financial intermediaries (including $_________
to the Fund's Principal Underwriter), $________ for compensation
to sales personnel, $_______ was spent on the printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses and $_______ was spend on interest on
Class C shares financing.
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 at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined contingent deferred sales charge and
distribution services fee on the Class B shares and Class C
shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares and
that in each case the sales charge and distribution services fee
provide for the financing of the distribution of the relevant
class of the Fund's shares.
The Rule 12b-1 Plan provides that AFD will use the
distribution services fee received from the 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 Rule 12b-1 Plan are used to
compensate financial intermediaries with trail or maintenance
commissions in an amount equal to .25%, annualized, with respect
to Class A shares and Class B shares, and 1.00%, annualized, with
respect to Class C shares, of the assets maintained in the Fund
by its customers. Distribution services fees received from the
Fund 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 Fund, with respect to Class B and Class C
shares, may be used for these purposes. The Rule 12b-1 Plan also
29
<PAGE>
provides that the Adviser may use its own resources to finance
the distribution of the Fund's shares. The Fund is not obligated
under the Rule 12b-1 Plan to pay any distribution services fee in
excess of the amounts set forth above. With respect to Class A
shares of the 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 for any
given year, however, will probably exceed the distribution
services fee payable under the Rule 12b-1 Plan with respect to
the class involved and, in the case of Class B and Class C
shares, payments received from Contingent Deferred Sales Charges
("CDSCs"). The excess will be carried forward by AFD and
reimbursed from distribution services fees payable under the Rule
12b-1 Plan with respect to the class involved and, in the case of
Class B and Class C shares, payments subsequently received
through CDSCs, so long as the Rule 12b-1 Plan is in effect.
Unreimbursed distribution expenses incurred as of the
end of the 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 the Fund, were, as of that time
$________ (___% as a percentage of Net Assets of Class B Shares)
and $_________ (___% as a percentage of Net Assets of Class C
Shares), respectively.
The Rule 12b-1 Plan is in compliance with rules of the
National Association of Securities Dealers, Inc. which
effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets
attributable to that class. The rules also limit the aggregate
of all front-end, deferred and asset-based sales charges imposed
with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per
annum.
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, with
respect to Class A shares and Class B shares, and was amended as
of April 30, 1993 to permit the distribution of Class C shares
30
<PAGE>
and September 30, 1996 to permit the distribution of Advisor
Class shares.
The Adviser may from time to time and from its own funds
or such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
The Agreement 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, 1999 at their
meeting held on October 15, 1998.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be
approved by a vote of the Directors or the holders of the Fund's
outstanding voting securities, voting separately by class, and in
either case, by a majority of the disinterested Directors, cast
in person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that the Fund may bear pursuant to
the Agreement without the approval of a majority of the holders
of the outstanding voting shares of the class or classes
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class or by a majority vote of the disinterested Directors as
defined in the 1940 Act, or (b) by the Principal Underwriter. To
terminate the Agreement, any party must give the other party 60
31
<PAGE>
days' written notice; to terminate the Rule 12b-1 Plan only, the
Fund is not required to give prior written notice to the
Principal Underwriter. The Agreement will terminate
automatically in the event of its assignment.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
service arrangements would be made and that shareholders would
not be adversely affected.
TRANSFER AGENCY
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the the Adviser, located at 500 Plaza Drive,
Secaucus, New Jersey 07094, acts as the Fund's registrar,
transfer agent and dividend-disbursing agent for a fee based upon
the number of account holders for each of the Class A, Class B,
Class C and Advisor Class shares of the Fund, plus reimbursement
for out-of-pocket expenses. The transfer agency fee with respect
to the Class B shares and Class C shares is higher than the
transfer agency fee with respect to the Class A shares and
Advisor Class shares, reflecting the addition costs associated
with the Class B and Class C contingent deferred sales charges.
For the fiscal year ended December 31, 1998, the Fund paid
Alliance Fund Services, Inc. $_________ pursuant to the Transfer
Agency Agreement.
________________________________________________________________
PURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under "Purchase and Sale of Shares--
How to Buy Shares."
GENERAL
Shares of the Fund are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase ("Class A shares"), with a
contingent deferred sales charge ("Class B shares"), without any
initial sales charge and, as long as the shares are held for one
year or more, without any contingent deferred sales charge
32
<PAGE>
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge, in each case as described below. Shares of
the Fund that are offered subject to a sales charge are offered
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") and (iii) the Principal
Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such person, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares) or (iv) by
directors and present or retired full-time employees of CB
Richard Ellis, Inc. Generally, a fee-based program must charge
an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
approved by AFD for investment in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or
other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Fund, including requirements as to the minimum initial and
subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Fund's shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of the
33
<PAGE>
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 Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "Class
A Shares." On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the 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.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset values
of the Class A shares and Advisor Class shares, as a result of
the differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents, or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. Eastern time (certain selected dealers, agents or
34
<PAGE>
financial representatives may enter into operating agreements
permitting them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value.) If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as
applicable. If the selected dealer, agent or financial
representative, as applicable, receives the order after the close
of regular trading on the Exchange, the price will be based on
the net asset value determined as of the close of regular trading
on the Exchange on the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by electronic
funds transfer from a bank account maintained by the shareholder
at a bank that is a member of the National Automated Clearing
House Association ("NACHA"). If a shareholder's telephone
purchase request is received before 3:00 p.m. Eastern time on a
Fund business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription.
As a convenience to the subscriber, and to avoid unnecessary
expense to the Fund, stock certificates representing shares of
the Fund are not issued except upon written request to the Fund
by the shareholder or his or her authorized selected dealer or
agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost
or stolen certificates. No certificates are issued for
fractional shares, although such shares remain in the
shareholder's account on the books of the Fund.
In addition to the discount or commission paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
35
<PAGE>
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 performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
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 and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
each bear the expense of a higher distribution services fee than
that borne by Class A shares, and Advisor Class shares do not
bear such a fee, (iii) Class B and Class C shares bear higher
transfer agency costs than those borne by Class A shares and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders and the Class A shareholders, the Class B
shareholders and the Advisor Class shareholders will vote
separately by class, and (v) Class B shares and Advisor Class
shares are subject to a conversion feature. Each class has
different exchange privileges and certain different shareholder
service options available.
The Directors of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Directors of the Fund, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
36
<PAGE>
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charge on Class B shares prior to
conversion, or the accumulated distribution services fee and
contingent deferred sales charge on Class C shares, would be less
than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans and certain
employee benefit plans) for more than $250,000 for Class B
shares. (See Appendix C for information concerning the
eligibility of certain employee benefit plans to purchase Class B
shares at net asset value without being subject to a contingent
deferred sales charge and the ineligibility of certain such plans
to purchase Class A shares.) Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year period and one-year period, respectively. For example,
37
<PAGE>
based on current fees and expenses, an investor subject to the
4.25% initial sales charge on Class A shares would have to hold
his or her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
the accumulated distribution services fee of Class A shares. In
this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A
shares. This example does not take into account the time value
of money, which further reduces the impact of the Class C
distribution services fees on the investment, fluctuations in net
asset value or the effect of different performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Fund's fiscal years ended December 31, 1998,
1997 and 1996, the aggregate amount of underwriting commission
payable with respect to shares of the Fund in each year was
$_________, $161,344 and $262,789, respectively. Of that amount,
the Principal Underwriter received $______, $3,059 and $10,808,
respectively, representing that portion of the sales charges paid
on 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 Fund's fiscal years ended
in 1998, 1997 and 1996, the Principal Underwriter received
contingent deferred sales charges of $___, $42 and $-0-,
respectively, on Class A shares, $________, $98,198 and $385,449,
respectively, on Class B shares, and $_________, $7,666 and
$2,401, respectively, on Class C shares.
CLASS A SHARES
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below.
38
<PAGE>
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ ________ ________ ____________
Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 3.36 3.25 3.00
$250,000 but
less than
$500,000 2.30 2.25 2.00
$500,000 but
less than
$1,000,000* 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends and
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the 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
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connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "--Class
B Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Fund receives the entire net
asset value of its Class A shares sold to investors. The
Principal Underwriter's commission is the sales charge shown
above less any applicable discount or commission "reallowed" to
selected dealers and agents. The Principal Underwriter will
reallow discounts to selected dealers and agents in the amounts
indicated in the table above. In this regard, the Principal
Underwriter may elect to reallow the entire sales charge to
selected dealers and agents for all sales with respect to which
orders are placed with the Principal Underwriter. A selected
dealer who receives reallowance in excess of 90% of such a sales
charge may be deemed to be an "underwriter" under the Securities
Act.
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 above
at a price based upon the net asset value of Class A shares of
the Fund on December 31, 1998.
Net Asset Value per Class A
Share at December 31, 1998 $_____
Per Share Sales Charge - 4.25%
of offering price (4.44%
of net asset value per share) .__
Class A Per Share Offering Price $_____
to the Public =====
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Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges above by combining purchases of shares of the
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 Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc
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<PAGE>
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "For Literature" telephone number
shown on the front cover of this Statement of Additional
Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION).
An investor's purchase of additional Class A shares of the Fund
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all shares of the Fund held by the
investor and (b) all shares of any other Alliance Mutual Fund
held by the investor; and
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<PAGE>
(iii) the net asset value of all shares described
in paragraph (ii) owned by another shareholder eligible to
combine his or her purchase with that of the investor into a
single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class 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% sales charge on the total amount being invested (the sales
charge applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
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<PAGE>
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher sales
charge applicable to the shares actually purchased if the full
amount indicated is not purchased, and such escrowed shares will
be involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow
will be released. To the extent that an investor purchases more
than the dollar amount indicated on the Statement of Intention
and qualifies for a further reduced sales charge, the sales
charge will be adjusted for the entire amount purchased at the
end of the 13-month period. The difference in the sales charge
will be used to purchase additional shares of the Fund subject to
the rate of the sales charge applicable to the actual amount of
the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
CERTAIN RETIREMENT PLANS. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable
to each succeeding monthly purchase will be that normally
applicable, under such schedule, to an investment equal to the
sum of (i) the total purchase previously made during the 13-month
period and (ii) the current month's purchase multiplied by the
number of months (including the current month) remaining in the
13-month period. Sales charges previously paid during such
period will not be retroactively adjusted on the basis of later
purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that (i)
such reinvestment is made within 120 calendar days after the
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<PAGE>
redemption or repurchase date, and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. Investors
may exercise the reinstatement privilege by written request sent
to the Fund at the address shown on the cover of this Statement
of Additional Information.
SALES AT NET ASSET VALUE. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the 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;
and certain employee benefit plans for employees of the Adviser,
the Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their services and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial
intermediaries whose accounts are linked to the master account of
such investment adviser or financial intermediary on the books of
such approved broker or agent; (v) persons participating in a
fee-based program, sponsored and maintained by a registered
broker-dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for services in the nature of
investment advisory or administrative services; (vi) persons who
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<PAGE>
establish to the Principal Underwriter's satisfaction that they
are investing, within such time period as may be designated by
the Principal Underwriter, proceeds of redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and (vii)
employer-sponsored qualified pension or profit-sharing plans
(including Section 401(k) plans), custodial accounts maintained
pursuant to Section 403(b)(7) retirement plans and individual
retirement accounts (including individual retirement accounts to
which simplified employee pension (SEP) contributions are made),
if such plans or accounts are established or administered under
programs sponsored by administrators or other persons that have
been approved by the Principal Underwriter.
CLASS B SHARES
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares that
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
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<PAGE>
second year after purchase, the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to the
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 2.0% (the
applicable rate in the second year after purchase, set forth
below).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
Year Since Purchase of Dollar Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the 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).
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<PAGE>
CONVERSION FEATURE. Six years after the end of the
calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Class B shares to Class A
shares does not constitute a taxable event under federal income
tax law. The conversion of Class B shares to Class A shares may
be suspended if such an opinion is no longer available at the
time such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
CLASS C SHARES
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
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<PAGE>
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1%, charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial
purchase price. In addition, no charge will be assessed on
shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
CONVERSION OF ADVISOR CLASS SHARES TO CLASS A SHARES
Advisor Class shares may be held solely through the fee-
based program accounts, employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares--General," and by
investment advisory clients of, and by certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in the
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<PAGE>
fee-based program or plan, or to be associated with the
investment advisory or financial intermediary, in each case, that
satisfies the requirements to purchase shares set forth under
"Purchase of Shares--General" or (ii) the holder is otherwise no
longer eligible to purchase Advisor Class shares as described in
the Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his or her Advisor Class shares, which would constitute a
taxable event under federal income tax law.
_____________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_____________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
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<PAGE>
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, Class B shares or Class C
shares, there is no redemption charge. Payment of the redemption
price will be made within seven days after the Fund's receipt of
such tender for redemption. If a shareholder is in doubt about
what documents are required by his or her fee-based program or
employee benefit plan, the shareholder should contact his or her
financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the Commission determines
that trading thereon is restricted, or for any period during
which an emergency (as determined by the Commission) exists as a
result of which disposal by the Fund of securities owned by it is
not reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of the Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds on Class A, Class B and Class C
shares will reflect the deduction of the contingent deferred
sales charge, if any. Payment received by a shareholder upon
redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result
in long-term or short-term capital gains (or loss) depending upon
the shareholder's holding period and basis in respect of the
shares redeemed.
To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
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To redeem shares of the Fund represented by share
certificates, the investor should forward the appropriate share
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
share 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 share certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application or, in the case of an existing shareholder, an
"Autosell" application obtained from Alliance Fund Services, Inc.
A telephone redemption request by electronic funds transfer may
not exceed $100,000 (except for certain omnibus accounts), and
must be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
EFT to a shareholder's designated bank account at a bank selected
by the shareholder that is a member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
TELEPHONE REDEMPTION--GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
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redemption service at any time without notice. Telephone
redemption by check is not available with respect to shares
(i) for which certificates have been issued, (ii) held in nominee
or "street name" accounts, (iii) held by a shareholder who has
changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter or
Alliance Fund Services, Inc. will be responsible for the
authenticity of telephone requests for redemptions that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for redemptions are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
REPURCHASE
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern Time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of the Fund to the Principal
Underwriter either directly or through a selected dealer or
agent. Neither the Fund nor the Principal Underwriter charges a
fee or commission in connection with the repurchase of shares
(except for the contingent deferred sales charge, if any, with
respect to Class A, Class B and Class C shares). Normally, if
shares of the Fund are offered through a financial intermediary
or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
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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(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Fund through an
automatic investment program utilizing electronic funds transfer
drawn on the investor's own bank account. Under such a program,
pre- authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
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contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request.
Telephone exchange requests must be received by Alliance Fund
Services, Inc. by 4:00 p.m. Eastern time on a Fund business day
in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purposes of determining the CDSC, if any, upon redemption
and, in the case of Class B shares, for the purpose of conversion
to Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call Alliance Fund Services, Inc. at (800) 221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
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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, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
Alliance Fund Services, Inc. receives written instruction to the
contrary from the shareholder, or the shareholder declines the
privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange, at 800-221-5672 before
4:00 p.m. Eastern time, on a Fund business day as defined above.
Telephone requests for exchange received before 4:00 p.m. Eastern
time on a Fund business day will be processed as of the close of
business on that day. During periods of drastic economic or
market developments, such as the market break of October 1987, it
is possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that the Fund reasonably believes to be genuine. The
Fund will employ reasonable procedures in order to verify that
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telephone requests for exchanges are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Selected dealers, agents or
financial representatives, as applicable, may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
RETIREMENT PLANS
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "For Literature" telephone number on the cover of
this Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, 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-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
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initial investment requirement may be waived with respect to
certain of these qualified plans.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B shares or Class
C shares of the Fund held by the plan can be exchanged at the
plan's request, without any sales charge, for Class A shares of
the Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation, minimum $25 per pay
period, may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
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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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 "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B Shares and Class C Shares.
Under a systematic withdrawal plan, up to 1% monthly, 2% bi-
monthly or 3% quarterly of the value at the time of redemption of
the Class B or Class C shares in a shareholder's account may be
redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
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With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations will be
subject to any otherwise applicable contingent deferred sales
charge.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class 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, Class C
or Advisor Class Fund shares be automatically reinvested, in any
amount, without the payment of any sales or service charges, in
shares of the same class of such other Alliance Mutual Fund(s).
Further information can be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
the Prospectus. Current shareholders should contact Alliance
Fund Services, Inc. to establish a dividend direction plan.
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 confirmation of each purchase and redemption. By
contacting his or her broker or Alliance Fund Services, Inc., a
shareholder can arrange for copies of his or her account
statements to be sent to another person.
CHECKWRITING
A new Class A or Class C investor may fill out the
Signature Card which is included in the Prospectus to authorize
the Fund to arrange for a checkwriting service through State
Street Bank and Trust Company (the "Bank") to draw against
Class A or Class C shares of the 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
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telephone or mail. Corporations, fiduciaries and institutional
investors are required to furnish a certified resolution or other
evidence of authorization. This checkwriting service will be
subject to the Bank's customary rules and regulations governing
checking accounts, and the 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
______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors of the
Fund deems appropriate or necessary in order to comply with Rule
22c-1 under the 1940 Act. The Fund's per share net asset value
is calculated by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any weekday on which the
Exchange is open for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
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States over-the-counter market) are valued, except as indicated
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each on
the business day as of which such value is being determined. If
there has been no sale on such day, the securities are valued at
the quoted bid prices on such day. If no bid prices are quoted
on such day, then the security is valued at the mean of the bid
and asked prices at the close of the Exchange on such day as
obtained from one or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or pursuant to procedures established by, the
Board of Directors. Securities for which no bid and asked price
quotations are readily available are valued in good faith at fair
value by, or in accordance with procedures established by, the
Board of Directors. Readily marketable securities not listed on
the Exchange or on a foreign securities exchange are valued in
like manner. Portfolio securities traded on the Exchange and on
one or more other foreign or other national securities exchanges,
and portfolio securities not traded on the Exchange but traded on
one or more foreign or other national securities exchanges are
valued in accordance with these procedures by reference to the
principal exchange on which the securities are traded.
Readily marketable securities traded only in the over-
the-counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and debt securities listed on a
U.S. national securities exchange whose primary market is
believed to be over-the-counter, are valued at the mean of the
bid and asked prices at the close of the Exchange on such day as
obtained from two or more dealers regularly making a market in
such security. Where a bid and asked price can be obtained from
only one such dealer, such security is valued at the mean of the
bid and asked price obtained from such dealer unless it is
determined that such price does not represent current market
value, in which case the security shall be valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Listed put and call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
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such a price, the most recent quoted bid price. If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by a pricing service take into account many
factors, including institutional size trading in similar groups-
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith
at fair value by, or in accordance with procedures established
by, the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless these prices do not reflect current
market value, in which case the securities will be valued in good
faith at fair value by, or in accordance with procedures
established by, the Board of Directors.
The Board of Directors may suspend the determination of
the Fund's net asset value (and the offering and sales of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
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order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. Dollars at the mean
of the current bid-and asked prices of such currency against the
U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
_____________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_____________________________________________________________
The Fund intends to qualify for each taxable year for
tax treatment as a "regulated investment company" under the Code.
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.
In order to qualify as a regulated investment company,
the Fund must, among other things, (i) derive at least 90% of its
gross income in each taxable year from dividends, interest,
certain payments with respect to securities loans and gains from
the sale or other disposition of stock, securities or foreign
currency, or certain other income (including, but not limited to,
gains from options, futures and forward contracts) derived with
respect to its business of investing in such stock, securities or
currency. In addition, the Fund will qualify as a regulated
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investment company for any taxable year only if it satisfies the
diversification requirements set forth in the Fund's Prospectus
under the heading "Additional Investment Considerations--Non-
Diversified Status."
The Fund intends to declare and distribute dividends in
the amounts and at the time necessary to avoid the application of
the 4% federal excise tax imposed on certain undistributed income
of regulated investment companies. The Fund will be required to
pay the 4% excise tax to the extent it does not distribute to its
shareholders during any calendar year an amount equal to the sum
of (i) 98% of its ordinary taxable income for the calendar year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve months ended October 31 of such year (or
December 31 if elected by the Fund), and (iii) any ordinary
income or capital gain net income from the preceding calendar
year that was not distributed during such year. For this
purpose, income or gain retained by the Fund that is subject to
corporate income tax will be considered to have been distributed
by the Fund by year-end. For federal income and excise tax
purposes, dividends declared and payable to shareholders of
record as of a date in October, November or December but actually
paid during the following January will be taxable to these
shareholders for the year declared, and not for the subsequent
calendar year in which the shareholders actually receive the
dividend.
Dividends of the Fund's net ordinary income and
distributions of any net realized short-term capital gain are
taxable to shareholders as ordinary income. 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.
Distributions of net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) are
taxable as long-term capital gain, regardless of how long a
shareholder has held shares in the Fund. Any dividend or
distribution received by a shareholder on shares of the Fund will
have the effect of reducing the net asset value of such shares by
the amount of such dividend or distribution. Furthermore, a
dividend or distribution made shortly after the purchase of
shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to the
shareholder, would be taxable to the shareholder as described
above. If a shareholder has held shares in the Fund for six
months or less and during that period has received a distribution
of net capital gain, any loss recognized by the shareholder on
the sale of those shares during the six-month period will be
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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's
Common Stock.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, 403(b)(7) retirement plan or
corporate pension or profit-sharing plan, generally will not be
taxable to the plan. Distributions from such plans will be
taxable to individual participations under applicable tax rules
without regard to the character of the income earned by the
qualified plan.
The Fund may be required to withhold United States
federal income tax at the rate of 31% of all taxable
distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to
make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other types of
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
The foregoing discussion relates only to U.S. federal
income tax law as it affects shareholders who are U.S. residents
or U.S. corporations. The effects of federal income tax law on
shareholders who are non-resident aliens or foreign corporations
may be substantially different. Foreign investors should consult
their counsel for further information as to the U.S. tax
consequences of receipt of income from the Fund.
Certain listed options and regulated futures contracts
are considered "section 1256 contracts" for federal income tax
purposes. Section 1256 contracts held by the Fund at the end of
each taxable year will be "marked to market" and treated for
federal income tax purposes as though sold for fair market value
on the last business day of such taxable year. Gain or loss
realized by the Fund on section 1256 contracts generally will be
considered 60% long-term and 40% short-term capital gain or loss.
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
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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.
Any option, futures contracts, interest rate swap, cap
or floor, 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. 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.
_____________________________________________________________
BROKERAGE AND 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 years ended December 31, 1998, 1997 and 1996
the Fund incurred no brokerage commissions.
The Adviser makes the Fund's portfolio decisions and
determines the brokers or dealers 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
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
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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 or 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. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
_____________________________________________________________
GENERAL INFORMATION
_____________________________________________________________
CAPITALIZATION
The Fund is a Maryland corporation organized in 1983.
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,
600,000,000 shares of Class C Common Stock, $.01 par value, and
600,000,000 shares of Advisor Class Common Stock, $.01 par value.
Class A, Class B, Class C and Advisor Class shares each represent
interests in the assets of the Fund. 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, Class C and Advisor Class Common Stock. The Board of
Directors is also authorized to reclassify and issue any unissued
shares to any number of additional series and classes without
shareholder approval. Any issuance of shares of another series
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would be governed by the 1940 Act and the laws of the State of
Maryland.
A shareholder will be entitled to share pro rata with
other holders of the same class of shares all dividends and
distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund
represented by the redeemed shares less any applicable CDSC. The
Fund is empowered to establish, without shareholder approval,
additional portfolios, which may have different investment
objectives and policies than those of the Fund, and additional
classes of shares within the Fund. If an additional portfolio or
class were established in the 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. 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.
Class A, Class B and Class C shares of the Fund have identical
voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses.
Each class of shares of the Fund votes separately with respect to
the Fund's Rule 12b-1 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 the Fund, are entitled to
receive the net assets of the Fund. Certain additional matters
relating to the Fund's organization are discussed in this
Statement of Additional Information.
It is anticipated that annual shareholder meetings will
not be held; shareholder meetings will be held only when required
by federal or state law. Shareholders have available certain
procedures for the removal of Directors.
Procedures for calling a shareholders meeting for the
removal of Directors of the 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 _____________, 1999,
there were __________ shares of common stock outstanding. Of
this amount, __________ shares were Class A shares, ________
shares were Class B shares and _________ shares were Class C
shares. To the knowledge of the Fund, the following persons
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owned of record, or beneficially, 5% or more of the outstanding
shares of the Fund as of _______________, 1999:
NO. OF % of % of % of
NAME AND ADDRESS SHARES CLASS A CLASS B CLASS C
CUSTODIAN
State Street Bank and Trust Company ("State Street"),
225 Franklin Street, Boston, Massachusetts 02110, acts as the
Fund's Custodian for the assets of the Fund, but plays no part in
deciding on the purchase or sale of portfolio securities.
Subject to the supervision of the Fund's Directors, State Street
may enter into sub-custodial agreements for the holding of the
Fund's foreign securities.
PRINCIPAL UNDERWRITER
Alliance Fund Distributors, Inc., an indirect wholly-
owned subsidiary of the Adviser, located at 1345 Avenue of the
Americas, New York, New York 10105, is the principal underwriter
of shares of the Fund and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
Principal Underwriters, 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 stock offered hereby are passed upon by Seward &
Kissel, New York, New York. Seward & Kissel has relied upon the
opinion of Venable, Baetjer and Howard, LLP, Baltimore, Maryland,
for matters relating to Maryland law.
INDEPENDENT AUDITORS
Ernst & Young LLP, New York, New York, have been
appointed as independent auditors for the Fund.
YIELD AND TOTAL RETURN QUOTATIONS
From time to time, the Fund advertises its "yield" and
"total return," which are computed 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
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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 may also state in
sales literature an "actual distribution rate" for each class
which is computed in the same manner as yield except that actual
income dividends declared per share during the period in question
are substituted for net investment income per share. The actual
distribution rate is computed separately for Class A, Class B and
Class C shares. Advertisements of the Fund's total return
disclose its average annual compounded total return for the
periods prescribed by the Commission. 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 the investment at
the end of the period. For purpose of computing total return,
income dividends and capital gains distributions paid on shares
of the Fund are assumed to have been reinvested when paid and the
maximum sales charges applicable to purchases and redemptions of
the Fund's shares are assumed to have been paid.
The Fund's yield for the month ended December 31, 1998,
was _____% for Class A shares, ____% for Class B shares and ____%
for Class C shares. The Fund's actual distribution rate for such
period was ____% for Class A shares, ____% for Class B shares and
____% for Class C shares.
The average annual total return based on net asset value
for each class of shares for the one-, five-and ten-year periods
ended December 31, 1998 (or since inception through that date, as
noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
12/31/98 12/31/98 12/31/98
_________ _____________ ______________
Class A _____% ______% _____%
Class B _____% ______% _____%*
Class C _____% ______% _____%*
*Inception Dates: Class B - January 30, 1992
Class C - May 3, 1993
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
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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 and ratings
of the Fund as measured by financial publications or by
independent organizations such as Lipper Analytical Services,
Inc. ("Lipper") and Morningstar, Inc. (or compare the Fund's
performance to various indices) and advertisements presenting the
historical record payment of income dividends by the Fund may
also from time to time be sent to investors or placed in
newspapers, magazines such as BARRONS, BUSINESS WEEK, CHANGING
TIMES, 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."
ADDITIONAL INFORMATION
Any shareholder inquiries may be directed to the
shareholder's broker or other financial adviser or to Alliance
Fund Services, Inc. at the address or telephone numbers shown on
the front cover of this Statement of Additional Information.
This Statement of Additional Information does not contain all the
information set forth in the Registration Statement filed by the
Fund with the Commission under the Securities Act. Copies of the
Registration Statement may be obtained at a reasonable charge
from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
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____________________________________________________________
REPORT OF INDEPENDENT AUDITORS
AND FINANCIAL STATEMENTS
____________________________________________________________
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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
futures 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 futures 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 or taking 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 the short-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.
B-6
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____________________________________________________________
APPENDIX C
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are intended to
be tax-qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended ("Tax Qualified Plans"), for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
by Merrill Lynch as of the date the plan
becomes an Active Plan.
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For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the
above-described Merrill Lynch Plans are to be replaced at
Merrill Lynch's direction through conversion, exchange or
otherwise by Class A shares of the Fund on the earlier of
the date that the value of the plan's aggregate assets first
equals or exceeds $5 million or the date on which any Class
B share of the Fund held by the plan would convert to a
Class A share of the Fund as described under "Purchase of
Shares" and "Redemption and Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund
without being subject to a contingent deferred sales charge
under the above criteria is eligible to purchase Class B
shares subject to a contingent deferred sales charge as well
as other classes of shares of the Fund as set forth above
under "Purchase of Shares" and "Redemption and Repurchase of
Shares."
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<PAGE>
PART C
OTHER INFORMATION
ITEM 23.EXHIBITS:
(a) (1) Articles of Restatement to Articles of
Incorporation of the Registrant dated and
filed March 11, 1992 - Incorporated by
reference to Exhibit 1(a) to Post-Effective
Amendment No. 30 of the Registrant's
Registration Statement on Form N-1A (File Nos.
2-85921 and 811-03829) filed with the
Securities and Exchange Commission on October
31, 1997.
(2) Articles of Amendment of the Articles of
Incorporation of the Registrant dated October
27, 1992 and filed November 2, 1992 -
Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 32 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 30, 1998.
(3) Articles of Amendment of the Articles of
Incorporation of the Registrant dated December
23, 1992 and filed December 29, 1992 -
Incorporated by reference to Exhibit 1(c) to
Post-Effective Amendment No. 32 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 30, 1998.
(4) Articles of Amendment of the Articles of
Incorporation of the Registrant dated April
29, 1993 and filed April 30, 1993 -
Incorporated by reference to Exhibit 1(d) to
Post-Effective Amendment No. 32 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 30, 1998.
(5) Articles Supplementary to the Articles of
Incorporation of the Registrant dated
September 30, 1996 and filed October 2, 1996 -
Incorporated by reference to Exhibit 1(b) to
Post-Effective Amendment No. 27 of the
Registrant's Registration Statement on Form N-
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1A (File Nos. 2-85921 and 811-3829) filed with
the Securities and Exchange Commission on
October 31, 1996.
(b) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to Post-Effective
Amendment No. 30 of the Registrant's
Registration Statement on Form N-1A (File Nos.
2-85921 and 811-03829) filed with the
Securities and Exchange Commission on October
31, 1997
(c) Not applicable.
(d) Advisory Agreement between Registrant and
Alliance Capital Management L.P. -
Incorporated by reference to Exhibit 5 to
Post-Effective Amendment No. 30 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 31, 1997.
(e) (1) Distribution Services Agreement between the
Registrant and Alliance Fund Distributors,
Inc. - Incorporated by reference to Exhibit
6(a) to Post-Effective Amendment No. 30 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 31, 1997.
(2) Amendment to the Distribution Services
Agreement between the Registrant and Alliance
Fund Distributors, Inc. dated June 4, 1996 -
Incorporated by reference to Exhibit 6(d) to
Post-Effective Amendment No. 27 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 28921 and 811-3829) filed with
the Securities and Exchange Commission on
October 31, 1996.
(3) Amended Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected
dealers offering shares to Registrant -
Incorporated by reference to Exhibit 6(c) to
Post-Effective Amendment No. 30 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 31, 1997.
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<PAGE>
(4) Amended Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected
agents making available shares to Registrant -
Incorporated by reference to Exhibit 6(d) to
Post-Effective Amendment No. 30 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 31, 1997.
(f) Not applicable.
(g) Custodian Contract between the Registrant and
State Street Bank and Trust Company -
Incorporated by reference to Exhibit 8 to
Post-Effective Amendment No. 30 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 31, 1997.
(h) Transfer Agency Agreement between Registrant
and Alliance Fund Services, Inc. -
Incorporated by reference to Exhibit 9 to
Post-Effective Amendment No. 32 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 30, 1998.
(i) Opinion and Consent of Seward & Kissel
Incorporated by reference to Exhibit 10 to
Post-Effective Amendment No. 29 of the
Registrant's Registration Statement on Form N-
1A (File Nos. 2-85931 and 811-03829) filed
with the Securities and Exchange Commission on
May 9, 1997.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Plan - See Exhibit (e)(1) above.
(n) Not applicable.
(o) Amended and Restated Rule 18f-3 Plan -
Incorporated by reference to Exhibit 18(a) to
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<PAGE>
Post-Effective Amendment No. 27 of
Registrant's Registration Statement on Form
N-1A (File Nos. 2-85921 and 811-3829) filed
with the Securities and Exchange Commission on
October 31, 1996.
Other Exhibits:
Powers of Attorney of Ruth S. Block, John D.
Carifa, David H. Dievler, John H. Dobkin, William
H. Foulk, Jr., James M. Hester, Clifford L. Michel
and Donald J. Robinson - Incorporated by reference
to Other Exhibits to Post-Effective Amendment No.
32 of the Registrant's Registration Statement on
Form N-1A (File Nos. 2-85921 and 811-03829) filed
with the Securities and Exchange Commission on
October 30, 1998.
ITEM 24. Persons Controlled by or under Common Control with the
Fund.
None.
ITEM 25. Indemnification
It is the 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 (a)(1) and Section 10 of
the Distribution Services Agreement filed as Exhibit
(e)(1), all as set forth below. The Advisers liability
for any loss suffered by the Registrant or its
shareholders is set forth in Section 4 of the Advisory
Agreement filed as Exhibit (d), as set forth below.
SECTION 2-418 OF THE MARYLAND GENERAL CORPORATION LAW
READS AS FOLLOWS:
"2-418 INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS.--(a) In this section the
following words have the meaning indicated.
(1) "Directors" means any person who is or was a
director of a corporation and any person who, while a
director of a corporation, is or was serving at the
request of the corporation as a director, officer,
partner, trustee, employee, or agent of another foreign
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<PAGE>
or domestic corporation, partnership, joint venture,
trust, other enterprise, or employee benefit plan.
(2) "Corporation" includes any domestic or foreign
predecessor entity of a corporation in a merger,
consolidation, or other transaction in which the
predecessors existence ceased upon consummation of the
transaction.
(3) "Expenses" include attorney's fees.
(4) "Official capacity" means the following:
(i) When used with respect to a director, the
office of director in the corporation; and
(ii) When used with respect to a person other
than a director as contemplated in subsection (j), the
elective or appointive office in the corporation held by
the officer, or the employment or agency relationship
undertaken by the employee or agent in behalf of the
corporation.
(iii) "Official capacity" does not include
service for any other foreign or domestic corporation or
any partnership, joint venture, trust, other enterprise,
or employee benefit plan.
(5) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in
a proceeding.
(6) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative.
(b)(1) A corporation may indemnify any director
made a party to any proceeding by reason of service in
that capacity unless it is established that:
(i) The act or omission of the director was
material to the 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
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<PAGE>
(iii) In the case of any criminal proceeding, the
director had reasonable cause to believe that the act or
omission was unlawful.
(2) (i) Indemnification may be against judgments,
penalties, fines, settlements, and reasonable expenses
actually incurred by the director in connection with the
proceeding.
(ii) However, if the proceeding was one by or in
the right of the corporation, indemnification may not be
made in respect of any proceeding in which the director
shall have been adjudged to be liable to the
corporation.
(3) (i) The termination of any proceeding by
judgment, order or settlement does not create a
presumption that the director did not meet the requisite
standard of conduct set forth in this subsection.
(ii) The termination of any proceeding by
conviction, or a plea of nolo contendere or its
equivalent, or an entry of an order of probation prior
to judgment, creates a rebuttable presumption that the
director did not meet that standard of conduct.
(c) A director may not be indemnified under
subsection (b) of this section in respect of any
proceeding charging improper personal benefit to the
director, whether or not involving action in the
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 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
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<PAGE>
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:
(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.
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<PAGE>
(3) Authorization of indemnification and
determination as to reasonableness of expenses shall be
made in the same manner as the determination that
indemnification is permissible. However, if the
determination that indemnification is permissible is
made by special legal counsel, authorization of
indemnification and determination as to reasonableness
of expenses shall be made in the manner specified in
subparagraph (ii) of paragraph (2) of this subsection
for selection of such counsel.
(4) Shares held by directors who are parties to
the proceeding may not be voted on the subject matter
under this subsection.
(f)(1) Reasonable expenses incurred by a director
who is a party to a proceeding may be paid or reimbursed
by the corporation in advance of the final disposition
of the proceeding, upon receipt by the corporation of:
(i) A written affirmation by the director of
the 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
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<PAGE>
director in connection with an appearance as a witness
in a proceeding at a time when the director has not been
made a named defendant or respondent in the proceeding.
(i) For purposes of this section:
(1) The corporation shall be deemed to have
requested a director to serve an employee benefit plan
where the performance of the 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.
(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
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<PAGE>
at the request, of the corporation as a director,
officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit
plan against any liability asserted against and incurred
by such person in any such capacity or arising out of
such persons position, whether or not the corporation
would have the power to indemnify against liability
under the provisions of this section.
(2) A corporation may provide similar protection,
including a trust fund, letter of credit, or surety
bond, not inconsistent with this section.
(3) The insurance or similar protection may be
provided by a subsidiary or an affiliate of the
corporation.
(1) 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 REGISTRANTS ARTICLES OF
INCORPORATION READS AS FOLLOWS:
EIGHTH: To the maximum extent permitted by the
General Corporation Law of the State of Maryland as from
time to time amended, the Corporation shall indemnify
its currently acting and its former directors and
officers and those persons who, at the request of the
Corporation, serve or have served another corporation,
partnership, joint venture, trust or other enterprise in
one or more of such capacities.
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, 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.
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<PAGE>
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 and Alliance Capital Management L.P. and the
Distribution Services Agreement between Registrant and
Alliance Fund Distributors, Inc. which are filed as
Exhibits (a)(1), (d) and (e)(1), respectively in
response to Item 23 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
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jurisdiction the question of whether such
indemnification by it is against public policy as
expressed in the Securities Act and will be governed by
the final adjudication of such issue.
In accordance with Release No. IC-11330 (September
2, 1980), the Registrant will indemnify its directors,
officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance, (1)
the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or (3)
a majority of a quorum of disinterested, non-party
directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
ITEM 26. 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.
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<PAGE>
The information as to the directors and executive
officers of Alliance Capital Management Corporation, the
general partner of Alliance Capital Management L.P., set
forth in Alliance Capital Management L.P.'s Form ADV
filed with the Securities and Exchange Commission on
April 21, 1988 (File No. 801-32361) and amended through
the date hereof, is incorporated by reference.
ITEM 27. Principal Underwriters
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant. Alliance Fund Distributors,
Inc. also acts as Principal Underwriter or Distributor
for the following investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
C-13
<PAGE>
The Alliance Portfolios
(b) The following are the Directors and Officers of Alliance
Fund Distributors, Inc., the principal place of business
of which is 1345 Avenue of the Americas, New York, New
York, 10105.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director and Chairman
John D. Carifa Director
Robert L. Errico Director and President
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Richard A. Davies Senior Vice President
and Managing Director
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Anne S. Drennan Senior Vice President
and Treasurer
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
C-14
<PAGE>
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Kevin A. Rowell Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
William C. White Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President and
Controller
Ricardo Arreola Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
C-15
<PAGE>
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
John W. Cronin Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Joseph C. Gallagher Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Alex G. Garcia Vice President
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
John Grambone Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Michael S. Hart Vice President
Scott F. Heyer Vice President
Timothy A. Hill Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
C-16
<PAGE>
Michael J. Hutten Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
Donna M. Lamback Vice President
P. Dean Lampe Vice President
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
C-17
<PAGE>
Richard J. Sidell Vice President
Clara Sierra Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Martine H. Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
David R. Turnbough Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Secretary
Counsel
Patrick Look Assistant Vice
President and
Assistant Treasurer
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
Charles M. Barrett Assistant Vice
President
Robert F. Brendli Assistant Vice
President
John M. Capeci Assistant Vice
President
C-18
<PAGE>
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
Jean A. Coomber Assistant Vice
President
Russell R. Corby Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
John E. English Assistant Vice
President
Duff C. Ferguson Assistant Vice
President
Theresa Iosca Assistant Vice
President
Erik A. Jorgensen Assistant Vice
President
Eric G. Kalender Assistant Vice
President
Edward W. Kelly Assistant Vice
President
Victor Kopelakis Assistant Vice
President
Michael Laino Assistant Vice
President
Nicholas J. Lapi Assistant Vice
President
C-19
<PAGE>
Kristine J. Luisi Assistant Vice
President
Kathryn Austin Masters Assistant Vice
President
Richard F. Meier Assistant Vice
President
Richard J. Olszewski Assistant Vice
President
Catherine N. Peterson Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Mark V. Spina Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Eileen Stauber Assistant Vice
President
Vincent T. Strangio Assistant Vice
President
Margaret M. Tompkins Assistant Vice
President
Marie R. Vogel Assistant Vice
President
Wesley S. Williams Assistant Vice
President
Matthew Witschel Assistant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
C-20
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ITEM 28. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the Rules thereunder
are maintained as follows: journals, ledgers, securities
records and other original records are maintained
principally at the offices of Alliance Fund Services,
Inc., 500 Plaza Drive, Secaucus, New Jersey 07094, and
at the offices of State Street Bank and Trust Company,
the 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.
ITEM 29. Management Services.
Not applicable.
ITEM 30. Undertakings
The Registrant undertakes to furnish each person to whom
a prospectus is delivered with a copy of the
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-21
<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 has duly caused this amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 22nd day of December, 1998
ALLIANCE MORTGAGE SECURITIES
INCOME FUND, INC.
by /s/John D. Carifa
_______________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933 this Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the dates
indicated:
SIGNATURE TITLE DATE
1) Principal
Executive Officer
/s/John D. Carifa Chairman and
___________________ President December 22, 1998
John D. Carifa
2) Principal Financial
and Accounting Officer
/s/Mark D. Gersten Treasurer and December 22, 1998
_______________________ Chief
Mark D. Gersten Financial Officer
C-22
<PAGE>
3) ALL OF THE DIRECTORS
Ruth Block
John D. Carifa
David H. Dievler
John H. Dobkin
William H. Foulk, Jr.
James M. Hester
Clifford L. Michel
Donald J. Robinson
by /s/Edmund P. Bergan, Jr. December 22, 1998
_________________________
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-23
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INDEX TO EXHIBITS
None.
C-24
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