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This is filed pursuant to Rule 497(c).
File Nos. 33-12988 and 811-05088.
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<PAGE>
The Alliance
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Stock Funds
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
November 1, 1995
Domestic Stock Funds Global Stock Funds
-The Alliance Fund -Alliance International Fund
-Alliance Growth Fund -Alliance Worldwide Privatization Fund
-Alliance Premier Growth Fund -Alliance New Europe Fund
-Alliance Counterpoint Fund -Alliance All-Asia Investment Fund
-Alliance Technology Fund -Alliance Global Small Cap Fund
-Alliance Quasar Fund
Total Return Funds
-Alliance Strategic Balanced Fund
-Alliance Balanced Shares
-Alliance Income Builder Fund
-Alliance Utility Income Fund
-Alliance Growth and Income Fund
Table of Contents Page
The Funds at a Glance..................................................... 2
Expense Information....................................................... 4
Financial Highlights...................................................... 7
Glossary.................................................................. 17
Description of the Funds.................................................. 18
Investment Objectives and Policies.................................... 18
Additional Investment Practices....................................... 27
Certain Fundamental Investment Policies............................... 34
Risk Considerations................................................... 36
Purchase and Sale of Shares............................................... 40
Management of the Funds................................................... 42
Dividends, Distributions and Taxes........................................ 45
General Information....................................................... 46
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Stock Funds provide a broad selection of investment alternatives to
investors seeking capital growth or high total return. The Domestic Stock Funds
invest mainly in the United States equity markets and the Global Stock Funds
diversify their investments among equity markets around the world, while the
Total Return Funds invest in both equity and fixed-income securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund which provides
further information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or "Literature" telephone number.
Each Fund offers three classes of shares which may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within four
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"). See "Purchase and Sale
of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance/(R)/
Mutual funds without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
<PAGE>
The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 104 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $140 billion in
assets under management as of September 30, 1995. Alliance provides investment
management services to 29 of the FORTUNE 100 companies.
Domestic Stock Funds
Alliance Fund
Seeks . . . Long-term growth of capital and income primarily through investment
in common stocks.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, have the potential to achieve capital appreciation.
Growth Fund
Seeks . . . Long-term growth of capital by investing primarily in common stocks
and other equity securities.
Invests Principally in . . . A diversified portfolio of equity securities of
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
Premier Growth Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A non-diversified portfolio of equity securities
that, in the judgment of Alliance, are likely to achieve superior earnings
growth. Normally, approximately 40 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Counterpoint Fund
Seeks . . . Long-term capital growth, primarily, and current income,
secondarily.
Invests Principally in . . . A diversified portfolio of price-depressed,
undervalued or out-of-favor equity securities.
Technology Fund
Seeks . . . Growth of capital through investment in companies expected to
benefit from advances in technology.
Invests Principally in . . . A diversified portfolio of securities of companies
which use technology extensively in the development of new or improved products
or processes.
Quasar Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Global Stock Funds
International Fund
Seeks . . . A total return on its assets from long-term growth of capital and
from income.
Invests Principally in . . . A diversified portfolio of marketable securities of
established non-United States companies, companies participating in foreign
economies with prospects for growth, and foreign government securities.
Worldwide Privatization Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities
issued by enterprises that are undergoing, or have undergone, privatization. The
balance of the Fund's investment portfolio will include securities of companies
that are believed by Alliance to be beneficiaries of the privatization process.
New Europe Fund
Seeks . . . Long-term capital appreciation through investment primarily in the
equity securities of companies based in Europe.
Invests Principally in . . . A non-diversified portfolio of equity securities of
European companies.
All-Asia Investment Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Asian/Pacific companies.
Global Small Cap Fund
Seeks . . . Long-term growth of capital.
Invests Principally in . . . A diversified global portfolio of the equity
securities of small capitalization companies.
2
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Total Return Funds
Strategic Balanced Fund
Seeks . . . A high long-term total return by investing in a combination of
equity and debt securities.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks and fixed-income securities, and also in equity-type securities such as
warrants, preferred stocks and convertible debt instruments.
Balanced Shares
Seeks . . . A high return through a combination of current income and capital
appreciation.
Invests Principally in . . . A diversified portfolio of equity and fixed-income
securities such as common and preferred stocks, U.S. Government and agency
obligations, bonds and senior debt securities.
Income Builder Fund
Seeks . . . Both an attractive level of current income and long-term growth of
income and capital.
Invests Principally in . . . A non-diversified portfolio of fixed-income
securities and dividend-paying common stocks. Alliance currently expects to
continue to maintain approximately 60% of the Fund's net assets in fixed-income
securities and 40% in equity securities.
Utility Income Fund
Seeks . . . Current income and capital appreciation through investment in the
utilities industry.
Invests Principally in . . . A diversified portfolio of equity securities, such
as common stocks, securities convertible into common stocks and rights and
warrants to subscribe for purchase of common stocks, and in fixed-income
securities such as bonds and preferred stocks.
Growth and Income Fund
Seeks . . . Income and appreciation through investment in dividend-paying common
stocks of quality companies.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks of good quality, and, under certain market conditions, other types of
securities, including bonds, convertible bonds and preferred stocks.
A Word About Risk . . .
The price of the shares of the Alliance Stock Funds will fluctuate as the daily
prices of the individual securities in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. With
respect to those Funds permitted to invest in foreign currency denominated
securities, these fluctuations may be magnified by changes in foreign exchange
rates. Investment in the Global Stock Funds involves risks not associated with
funds that invest primarily in securities of U.S. issuers. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. These risks are fully discussed in
this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Funds offer
several time and money saving services to investors. Be sure to ask your
financial representative about:
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Automatic Reinvestment
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Automatic Investment Program
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Retirement Plans
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Shareholder Communications
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Dividend Direction Plans
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Auto Exchange
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Systematic Withdrawals
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A Choice Of Purchase Plans
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Telephone Transactions
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24 Hour Information
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Alliance/(R)/
Mutual funds without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
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Expense Information
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in a Fund and annual expenses for each class of shares of each
Fund. For each Fund, the "Examples" to the right of the table below show the
cumulative expenses attributable to a hypothetical $1,000 investment in each
class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price).................................................. 4.25%(a) None None
Sales charge imposed on dividend reinvestments................... None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).............................................. None(a) 4.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
fourth year (b)
Exchange fee..................................................... None None None
</TABLE>
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(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred sales
charge on redemptions within one year of purchase. See "Purchase and Sale of
Shares--How to Buy Shares" -page 40.
(b) Class B shares of each Fund other than Premier Growth Fund automatically
convert to Class A shares after eight years and the Class B shares of
Premier Growth Fund convert to Class A shares after six years. See "Purchase
and Sale of Shares--How to Buy Shares" -page 40.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------------- ---------------------------------------------------------------
Alliance Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .71% .71% .71% After 1 year $ 53 $ 59 $ 19 $ 19
12b-1 fees .19% 1.00% 1.00% After 3 years $ 74 $ 79 $ 59 $ 59
Other expenses (a) .15% .18% .16% After 5 years $ 98 $102 $102 $101
---- ---- ---- After 10 years $165 $199(b) $199(b) $220
Total fund
operating expenses 1.05% 1.89% 1.87%
==== ==== ====
<CAPTION>
Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 56 $ 61 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 83 $ 84 $ 64 $ 64
Other expenses (a) .30% .30% .30% After 5 years $113 $110 $110 $110
---- ---- ---- After 10 years $198 $220(b) $220(b) $239
Total fund
operating expenses 1.35% 2.05% 2.05%
==== ==== ====
<CAPTION>
Premier Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 60 $ 65 $ 25 $ 25
12b-1 fees .37% 1.00% 1.00% After 3 years $ 97 $ 97 $ 77 $ 77
Other expenses (a) .44% .46% .45% After 5 years $136 $131 $131 $131
---- ---- ---- After 10 years $246 $248(b) $243(b) $279
Total fund
operating expenses 1.81% 2.46% 2.45%
==== ==== ====
<CAPTION>
Counterpoint Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 61 $ 68 $ 28 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $105 $ 85 $ 83
Other expenses (a) .89% .98% .91% After 5 years $143 $144 $144 $141
---- ---- ---- After 10 years $259 $287(b) $287(b) $299
Total fund
operating expenses 1.94% 2.73% 2.66%
==== ==== ====
</TABLE>
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Please refer to the footnotes on page 6.
4
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- --------------------------------------------------------------- ---------------------------------------------------------------
Technology Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 65 $ 25 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 93 $ 96 $ 76 $ 75
Other expenses (a) .36% .43% .41% After 5 years $129 $130 $130 $129
---- ---- ---- After 10 years $231 $258(b) $258(b) $275
Total fund
operating expenses 1.66% 2.43% 2.41%
==== ==== ====
<CAPTION>
Quasar Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 65 $ 25 $ 25
12b-1 fees .21% 1.00% 1.00% After 3 years $ 93 $ 98 $ 78 $ 77
Other expenses (a) .46% .50% .48% After 5 years $129 $133 $133 $132
---- ---- ---- After 10 years $232 $263(b) $263(b) $282
Total fund
operating expenses 1.67% 2.50% 2.48%
==== ==== ====
<CAPTION>
International Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 66 $ 26 $ 26
12b-1 fees .18% 1.00% 1.00% After 3 years $ 95 $100 $ 80 $ 79
Other expenses (a) .55% .57% .54% After 5 years $132 $137 $137 $135
---- ---- ---- After 10 years $238 $270(b) $270(b) $288
Total fund
operating expenses 1.73% 2.57% 2.54%
==== ==== ====
<CAPTION>
Worldwide Privatization Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 60 $ 65 $ 25 $ 25
12b-1 fees .30% 1.00% 1.00% After 3 years $ 96 $ 97 $ 77 $ 77
Other expenses (a) .48% .48% .48% After 5 years $135 $132 $132 $132
---- ---- ---- After 10 years $243 $264(b) $264(b) $282
Total fund
operating expenses 1.78% 2.48% 2.48%
==== ==== ====
<CAPTION>
New Europe Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.07% 1.07% 1.07% After 1 year $ 63 $ 68 $ 28 $ 28
12b-1 fees .30% 1.00% 1.00% After 3 years $105 $107 $ 87 $ 86
Other expenses (a) .72% .72% .71% After 5 years $150 $147 $147 $147
---- ---- ---- After 10 years $274 $295(b) $295(b) $311
Total fund
operating expenses 2.09% 2.79% 2.78%
==== ==== ====
<CAPTION>
All-Asia Investment Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees After 1 year $ 70 $ 75 $ 35 $ 35
(after waiver) (c) 0.00% 0.00% 0.00% After 3 years $126 $127 $107 $107
12b-1 fees .30% 1.00% 1.00% After 5 years $184 $182 $182 $182
Other expenses After 10 years $342 $362(b) $362(b) $377
Administration fees
(after waiver) (f) 0.00% 0.00% 0.00%
Other operating expenses (a)
(after reimbursement) (d) 2.50% 2.50% 2.50%
---- ---- ----
Total other expenses 2.50% 2.50% 2.50%
---- ---- ----
Total fund
operating expenses (d) 2.80% 3.50% 3.50%
==== ==== ====
<CAPTION>
Global Small Cap Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 67 $ 72 $ 32 $ 33
12b-1 fees .30% 1.00% 1.00% After 3 years $118 $119 $ 99 $100
Other expenses (a) 1.24% 1.20% 1.25% After 5 years $172 $167 $167 $170
---- ---- ---- After 10 years $318 $335(b) $335(b) $355
Total fund
operating expenses (g) 2.54% 3.20% 3.25%
==== ==== ====
<CAPTION>
Strategic Balanced Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees
(after waiver) (c) .45% .45% .45% After 1 year $ 56 $ 61 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 86 $ 66 $ 66
Other expenses (a) After 5 years $116 $113 $113 $113
(after reimbursement) (d) .65% .65% .65% After 10 years $203 $225(b) $225(b) $243
---- ---- ----
Total fund
operating expenses (d) 1.40% 2.10% 2.10%
==== ==== ====
</TABLE>
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Please refer to the footnotes on page 6.
5
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- --------------------------------------------------------------- ---------------------------------------------------------------
Balanced Shares Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .63% .63% .63% After 1 year $ 55 $ 61 $ 21 $ 21
12b-1 fees .24% 1.00% 1.00% After 3 years $ 83 $ 86 $ 66 $ 65
Other expenses (a) .45% .48% .46% After 5 years $112 $113 $113 $112
---- ---- ---- After 10 years $195 $224(b) $224(b) $242
Total fund
operating expenses 1.32% 2.11% 2.09%
==== ==== ====
<CAPTION>
Income Builder Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 67 $ 71 $ 31 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $118 $115 $ 95 $ 83
Other expenses (a) 1.47% 1.34% .92% After 5 years $171 $162 $162 $141
---- ---- ---- After 10 years $316 $327(b) $327(b) $300
Total fund
operating expenses 2.52% 3.09% 2.67%
==== ==== ====
<CAPTION>
Utility Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 57 $ 62 $ 22 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 88 $ 89 $ 69 $ 69
Other expenses (a) .45% .45% .45% After 5 years $121 $118 $118 $118
---- ---- ---- After 10 years $214 $236(b) $236(b) $253
Total fund
operating expenses (e) 1.50% 2.20% 2.20%
==== ==== ====
<CAPTION>
Growth and Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .53% .53% .53% After 1 year $ 53 $ 59 $ 19 $ 19
12b-1 fees .20% 1.00% 1.00% After 3 years $ 74 $ 78 $ 58 $ 58
Other expenses (a) .30% .32% .31% After 5 years $ 97 $100 $100 $100
---- ---- ---- After 10 years $163 $195(b) $195(b) $216
Total fund
operating expenses 1.03% 1.85% 1.84%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(b) Assumes Class B shares converted to Class A shares after eight years, or six
years with respect to Premier Growth Fund.
(c) Net of voluntary fee waiver. In the absence of such waiver, management fees
would be .75% for Strategic Balanced Fund and 1.00% for All-Asia Investment
Fund.
(d) Net of voluntary fee waiver and expense reimbursement. In the absence of
such waiver and reimbursement, other expenses for Strategic Balanced Fund
would have been .76%, .74% and .75%, respectively, for Class A, Class B and
Class C shares, and total fund operating expenses for Strategic Balanced
Fund would have been 1.81%, 2.49% and 2.50%, respectively, for Class A,
Class B and Class C shares. In the absence of such waiver and
reimbursements, other expenses for All-Asia Investment Fund would have been
7.81%, 7.83% and 7.83%, respectively for Class A, Class B and Class C
shares, and total fund operating expenses for All-Asia Investment Fund would
have been 9.26%, 9.98% and 9.98%, respectively, for Class A, Class B and
Class C shares.
(e) Net of expense reimbursements. Absent expense reimbursements, total fund
operating expenses for Utility Income Fund would be 13.72%, 14.42% and
14.42%, respectively, for Class A, Class B and Class C shares.
(f) Reflects the fees payable by All-Asia Investment Fund to Alliance pursuant
to an administration agreement net of voluntary fee waiver. In the absence
of such fee waiver, the administration fee would be .15%.
(g) Net of expense reimbursements. Absent of expense reimbursements, total fund
operating expenses for Global Small Cap Fund would be 2.61%, 3.27% and
3.31%, respectively, for Class A, Class B and Class C shares.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. Long-term shareholders of a Fund may pay aggregate sales charges
totaling more than the economic equivalent of the maximum initial sales charges
permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. See "Management of the Funds--Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the remaining
portion of the Rule 12b-1 fee. The information shown in the table for Alliance
Fund, Growth Fund and Technology Fund reflects annualized expenses based on the
Fund's most recent fiscal periods. The information shown in the table for
Alliance Premier Growth Fund and All-Asia Investment Fund reflects estimated
annualized expenses for the Fund's current fiscal period. "Total Fund Operating
Expenses" for Utility Income Fund are based on estimated amounts for the Funds'
current fiscal year. See "Management of the Funds." "Other Expenses" for Class
A, Class B and Class C shares of All-Asia Investment Fund and Worldwide
Privatization Fund are based on estimated amounts for each Fund's current fiscal
year. The management fee rates of Growth Fund, Premier Growth Fund, Counterpoint
Fund, Strategic Balanced Fund, Technology Fund, International Fund, Worldwide
Privatization Fund, New Europe Fund, All-Asia Investment Fund, Income Builder
Fund, Utility Income Fund and Global Small Cap Fund are higher than those paid
by most other investment companies, but Alliance believes the fees are
comparable to those paid by investment companies of similar investment
orientation. The expense ratios for Class B and Class C shares of Counterpoint
Fund, Technology Fund and Quasar Fund, and for each Class of shares of Global
Small Cap Fund and Worldwide Privatization Fund, are higher than the expense
ratios of most other mutual funds, but are comparable to the expense ratios of
mutual funds whose shares are similarly priced. The examples set forth above
assume reinvestment of all dividends and distributions and utilize a 5% annual
rate of return as mandated by Commission regulations. The examples should not be
considered representative of past or future expenses; actual expenses may be
greater or less than those shown.
6
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for Alliance Fund, Growth Fund, Premier Growth Fund,
Strategic Balanced Fund, Balanced Shares, Utility Income Fund, Worldwide
Privatization Fund and Growth and Income Fund has, except as noted otherwise,
been audited by Price Waterhouse LLP, the independent accountants for each Fund,
and for Counterpoint Fund, Technology Fund, Quasar Fund, International Fund, New
Europe Fund, Global Small Cap Fund and Income Builder Fund by Ernst & Young LLP,
the independent auditors for each Fund. A report of Price Waterhouse LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund, except All-Asia Investment Fund which has not yet been audited or it has
not completed a fiscal year, appears in the Fund's Statement of Additional
Information. The following information for each Fund should be read in
conjunction with the financial statements and related notes which are included
in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "Literature" telephone number
shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All-Asia Investment Fund
Class A
11/28/94+ to 4/30/95+++... $ 10.00 $ .11 (c) $ .13 $ .24 $ 0.00 $ 0.00
Class B
11/28/94+ to 4/30/95+++... $ 10.00 $ .09 (c) $ .13 $ .22 $ 0.00 $ 0.00
Class C
11/28/94+ to 4/30/95+++... $ 10.00 $ .08 (c) $ .16 $ .24 $ 0.00 $ 0.00
Alliance Fund
Class A
12/1/94 to 5/31/95+++..... $ 6.63 $ .01 $ .81 $ .82 $ (.01) $ (1.00)
1/1/94 to 11/30/94**...... 6.85 .01 (.23) (.22) 0.00 0.00
Year ended 12/31/93....... 6.68 .02 .93 .95 (.02) (.76)
Year ended 12/31/92....... 6.29 .05 .87 .92 (.05) (.48)
Year ended 12/31/91....... 5.22 .07 1.70 1.77 (.07) (.63)
Year ended 12/31/90....... 6.87 .09 (.32) (.23) (.18) (1.24)
Year ended 12/31/89....... 5.60 .12 1.19 1.31 (.04) 0.00
Year ended 12/31/88....... 5.15 .08 .80 .88 (.08) (.35)
Year ended 12/31/87....... 6.87 .08 .27 .35 (.13) (1.94)
Year ended 12/31/86....... 11.15 .11 .87 .98 (.10) (5.16)
Year ended 12/31/85....... 9.18 .20 2.51 2.71 (.23) (.51)
Class B
12/1/94 to 5/31/95+++..... $ 6.50 $ .05 $ .72 $ .77 $ 0.00 $ (1.00)
1/1/94 to 11/30/94**...... 6.76 (.03) (.23) (.26) 0.00 0.00
Year ended 12/31/93....... 6.64 (.03) .91 .88 0.00 (.76)
Year ended 12/31/92....... 6.27 (.01)(b) .87 .86 (.01) (.48)
3/4/91++ to 12/31/91...... 6.14 .01 (b) .79 .80 (.04) (.63)
Class C
12/1/94 to 5/31/95+++..... $ 6.50 $ (.10) $ .87 $ .77 $ 0.00 $ (1.00)
1/1/94 to 11/30/94**...... 6.77 (.03) (.24) (.27) 0.00 0.00
5/3/93++ to 12/31/93...... 6.67 (.02) .88 .86 0.00 (.76)
Growth Fund (i)
Class A
11/1/94 to 4/30/95+++..... $ 25.08 $ .08 $ .88 $ .96 $ (.11) $ (.41)
5/1/94 to 10/31/94**...... 23.89 .09 1.10 1.19 0.00 0.00
Year ended 4/30/94........ 22.67 (.01)(c) 3.55 3.54 0.00 (2.32)
Year ended 4/30/93........ 20.31 .05 (c) 3.68 3.73 (.14) (1.23)
Year ended 4/30/92........ 17.94 .29 (c) 3.95 4.24 (.26) (1.61)
9/4/90++ to 4/30/91....... 13.61 .17 (c) 4.22 4.39 (.06) 0.00
Class B
11/1/94 to 4/30/95+++..... $ 21.21 $ 0.00 $ .74 $ .74 $ (.01) $ (.41)
5/1/94 to 10/31/94**...... 20.27 .01 .93 .94 0.00 0.00
Year ended 4/30/94........ 19.68 (.07)(c) 2.98 2.91 0.00 (2.32)
Year ended 4/30/93........ 18.16 (.06)(c) 3.23 3.17 (.03) (1.62)
Year ended 4/30/92........ 16.88 .17 (c) 3.67 3.84 (.21) (2.35)
Year ended 4/30/91........ 14.38 .08 (c) 3.22 3.30 (.09) (.71)
Year ended 4/30/90........ 14.13 .01 (b)(c) 1.26 1.27 0.00 (1.02)
Year ended 4/30/89........ 12.76 (.01)(c) 2.44 2.43 0.00 (1.06)
10/23/87+ to 4/30/88...... 10.00 (.02)(c) 2.78 2.76 0.00 0.00
Class C
11/1/94 to 4/30/95+++..... $ 21.22 $ 0.00 $ .73 $ .73 $ (.01) $ (.41)
5/1/94 to 10/31/94**...... 20.28 .01 .93 .94 0.00 0.00
8/2/93++ to 4/30/94....... 21.47 (.02)(c) 1.15 1.13 0.00 (2.32)
Premier Growth Fund
Class A
12/1/94 to 5/31/95+++..... $ 11.41 $ (.02) $ 2.15 $ 2.13 $ 0.00 $ (.67)
Year ended 11/30/94....... 11.78 (.09) (.28) (.37) 0.00 0.00
Year ended 11/30/93....... 10.79 (.05) 1.05 1.00 (.01) 0.00
9/28/92+ to 11/30/92...... 10.00 .01 .78 .79 0.00 0.00
Class B
12/1/94 to 5/31/95+++..... $ 11.29 $ (.05) $ 2.13 $ 2.08 $ 0.00 $ (.67)
Year ended 11/30/94....... 11.72 (.15) (.28) (.43) 0.00 0.00
Year ended 11/30/93....... 10.79 (.10) 1.03 .93 0.00 0.00
9/28/92+ to 11/30/92...... 10.00 0.00 .79 .79 0.00 0.00
Class C
12/1/94 to 5/31/95+++..... $ 11.30 $ (.05) $ 2.13 $ 2.08 $ 0.00 $ (.67)
Year ended 11/30/94....... 11.72 (.09) (.33) (.42) 0.00
5/3/93++ to 11/30/93...... 10.48 (.05) 1.29 1.24 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
8
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.00 $10.24 2.40% $ 1,917 .19%* 3.44%* 51%
$ 0.00 $10.22 2.20% $ 3,019 .90%* 2.73%* 51%
$ 0.00 $10.24 2.40% $ 185 .71%* 2.87%* 51%
$(1.01) $ 6.44 15.01% $ 812,401 1.07%* .44%* 41%
0.00 6.63 (3.21) 760,679 1.05* .21* 63
(.78) 6.85 14.26 831,814 1.01 .27 66
(.53) 6.68 14.70 794,733 .81 .79 58
(.70) 6.29 33.91 748,226 .83 1.03 74
(1.42) 5.22 (4.36) 620,374 .81 1.56 71
(.04) 6.87 23.42 837,429 .75 1.79 81
(.43) 5.60 17.10 760,619 .82 1.38 65
(2.07) 5.15 4.90 695,812 .76 1.03 100
(5.26) 6.87 12.60 652,009 .61 1.39 46
(.74) 11.15 31.52 710,851 .59 1.96 62
$(1.00) $ 6.27 14.36% $ 22,603 1.88%* (.32)%* 41%
0.00 6.50 (3.85) 18,138 1.89* (.60)* 63
(.76) 6.76 13.28 12,402 1.90 (.64) 66
(.49) 6.64 13.75 3,825 1.64 (.04) 58
(.67) 6.27 13.10 852 1.64* .10* 74
$(1.00) $ 6.27 14.36% $ 6,868 1.91%* (.38)%* 41%
0.00 6.50 (3.99) 6,230 1.87* (.59)* 63
(.76) 6.77 13.95 4,006 1.94* (.74)* 66
$ (.52) $25.52 4.04% $ 213,281 1.37%* .69%* 25%
0.00 25.08 4.98 167,800 1.35* .86* 24
(2.32) 23.89 15.66 102,406 1.40 (f) .32 87
(1.37) 22.67 18.89 13,889 1.40 (f) .20 124
(1.87) 20.31 23.61 8,228 1.40 (f) 1.44 137
(.06) 17.94 32.40 713 1.40*(f) 1.99* 130
$ (.42) $21.53 3.68% $1,051,753 2.07%* (.01)%* 25%
0.00 21.21 4.64 751,521 2.05* .16* 24
(2.32) 20.27 14.79 394,227 2.10 (f) (.36) 87
(1.65) 19.68 18.16 56,704 2.15 (f) (.53) 124
(2.56) 18.16 22.75 37,845 2.15 (f) .78 137
(.80) 16.88 24.72 22,710 2.10 (f) .56 130
(1.02) 14.38 8.81 15,800 2.00 (f) .07 165
(1.06) 14.13 20.31 7,672 2.00 (f) (.03) 139
0.00 12.76 27.60 1,938 2.00*(f) (.40)* 52
$ (.42) $21.53 3.63% $ 154,857 2.07%* (.01)%* 25%
0.00 21.22 4.64 114,455 2.05* .16* 24
(2.32) 20.28 5.27 64,030 2.10*(f) (.31)* 87
$ (.67) $12.87 19.94% $ 41,921 1.92%* (.36)%* 58%
0.00 11.41 (3.14) 35,146 1.96 (.67) 98
(.01) 11.78 9.26 40,415 2.18 (.61) 68
0.00 10.79 7.90 4,893 2.17*(f) .91*(f) 0
$ (.67) $12.70 19.70% $ 157,167 2.43%* (.88)%* 58%
0.00 11.29 (3.67) 139,988 2.47 (1.19) 98
0.00 11.72 8.64 151,600 2.70 (1.14) 68
0.00 10.79 7.90 19,941 2.68*(f) .35*(f) 0
$ (.67) $12.71 19.68% $ 8,638 2.42%* (.87)%* 58%
0.00 11.30 (3.58) 7,332 2.47 (1.16) 98
0.00 11.72 11.83 3,899 2.79* (1.35)* 68
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Counterpoint Fund
Class A
10/1/94 to 3/31/95+++..... $17.14 $(.07) $ 1.31 $ 1.24 $0.00 $(2.62)
Year ended 9/30/94........ 20.89 (.10) (.82) (.92) 0.00 (2.83)
Year ended 9/30/93........ 19.45 (.01) 2.60 2.59 (.04) (1.11)
Year ended 9/30/92........ 19.08 .13 1.76 1.89 (.16) (1.36)
Year ended 9/30/91........ 15.18 .17 4.92 5.09 (.20) (.99)
Year ended 9/30/90........ 19.86 .23 (3.63) (3.40) (.20) (1.08)
Year ended 9/30/89........ 15.02 .21 5.30 5.51 (.23) (.44)
Year ended 9/30/88........ 18.05 .27 (2.09) (1.82) (.26) (.95)
Year ended 9/30/87........ 14.26 .26 4.20 4.46 (.36) (.31)
Year ended 9/30/86........ 10.98 .37 3.31 3.68 (.35) (.09)
2/28/85+ to 9/30/85....... 10.00 .13 .85 .98 0.00 0.00
Class B
10/1/94 to 3/31/95+++..... $16.94 $(.07) $ 1.23 $ 1.16 $0.00 $(2.62)
Year ended 9/30/94........ 20.82 (.08) (.97) (1.05) 0.00 (2.83)
5/3/93++ to 9/30/93....... 18.51 (.07) 2.38 2.31 0.00 0.00
Class C
10/1/94 to 3/31/95+++..... $16.95 $(.10) $ 1.26 $ 1.16 $0.00 $(2.62)
Year ended 9/30/94........ 20.83 (.14) (.91) (1.05) 0.00 (2.83)
5/3/93++ to 9/30/93....... 18.51 (.05) 2.37 2.32 0.00 0.00
Technology Fund
Class A
12/1/94 to 5/31/95+++..... $31.98 $(.11) $ 7.94 $ 7.83 $0.00 $(3.17)
1/1/94 to 11/30/94**...... 26.12 (.32) 6.18 5.86 0.00 0.00
Year ended 12/31/93....... 28.20 (.29) 6.39 6.10 0.00 (8.18)
Year ended 12/31/92....... 26.38 (.22)(b) 4.31 4.09 0.00 (2.27)
Year ended 12/31/91....... 19.44 (.02) 10.57 10.55 0.00 (3.61)
Year ended 12/31/90....... 21.57 (.03) (.56) (.59) 0.00 (1.54)
Year ended 12/31/89....... 20.35 0.00 1.22 1.22 0.00 0.00
Year ended 12/31/88....... 20.22 (.03) .16 .13 0.00 0.00
Year ended 12/31/87....... 23.11 (.10) 4.54 4.44 0.00 (7.33)
Year ended 12/31/86....... 20.64 (.14) 2.62 2.48 (.01) 0.00
Year ended 12/31/85....... 16.52 .02 4.30 4.32 (.20) 0.00
Class B
12/1/94 to 5/31/95+++..... $31.61 $(.14) $ 7.75 $ 7.61 $0.00 $(3.17)
1/1/94 to 11/30/94**...... 25.98 (.23) 5.86 5.63 0.00 0.00
5/3/93++ to 12/31/93...... 27.44 (.12) 6.84 6.72 0.00 (8.18)
Class C
12/1/94 to 5/31/95+++..... $31.61 $(.18) $ 7.79 $ 7.61 $0.00 $(3.17)
1/1/94 to 11/30/94**...... 25.98 (.24) 5.87 5.63 0.00 0.00
5/3/93++ to 12/31/93...... 27.44 (.13) 6.85 6.72 0.00 (8.18)
Quasar Fund
Class A
10/1/94 to 3/31/95+++..... $22.65 $(.13) $ .54 $ .41 $0.00 $(3.86)
Year ended 9/30/94........ 24.43 (.60) (.36) (.96) 0.00 (.82)
Year ended 9/30/93........ 19.34 (.41) 6.38 5.97 0.00 (.88)
Year ended 9/30/92........ 21.27 (.24) (1.53) (1.77) 0.00 (.16)
Year ended 9/30/91........ 15.67 (.05) 5.71 5.66 (.06) 0.00
Year ended 9/30/90........ 24.84 .03 (b) (7.18) (7.15) 0.00 (2.02)
Year ended 9/30/89........ 17.60 .02 (b) 7.40 7.42 0.00 (.18)
Year ended 9/30/88........ 24.47 (.08) (2.08) (2.16) 0.00 (4.71)
Year ended 9/30/87(d)..... 21.80 (.14) 5.88 5.74 0.00 (3.07)
Year ended 9/30/86(d)..... 17.25 0.00 5.54 5.54 (.03) (.96)
Year ended 9/30/85(d)..... 14.67 .04 2.87 2.91 (.11) (.22)
Class B
10/1/94 to 3/31/95+++..... $21.92 $(.19) $ .50 $ .31 $0.00 $(3.86)
Year ended 9/30/94........ 23.88 (.53) (.61) (1.14) 0.00 (.82)
Year ended 9/30/93........ 19.07 (.18) 5.87 5.69 0.00 (.88)
Year ended 9/30/92........ 21.14 (.39) (1.52) (1.91) 0.00 (.16)
Year ended 9/30/91........ 15.66 (.13) 5.67 5.54 (.06) 0.00
9/17/90++ to 9/30/90...... 17.17 (.01) (1.50) (1.51) 0.00 0.00
Class C
10/1/94 to 3/31/95+++..... $21.92 $(.20) $ .53 $ .33 $0.00 $(3.86)
Year ended 9/30/94........ 23.88 (.36) (.78) (1.14) 0.00 (.82)
5/3/93++ to 9/30/93....... 20.33 (.10) 3.65 3.55 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
10
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$(2.62) $15.76 9.07% $ 36,714 2.23%* (.84)%* 8%
(2.83) 17.14 (4.91) 42,712 1.94 (.43) 25
(1.15) 20.89 13.76 67,356 1.79 (.04) 48
(1.52) 19.45 10.76 70,876 1.62 .79 39
(1.19) 19.08 35.39 59,690 1.64 1.02 38
(1.28) 15.18 (17.91) 49,198 1.72 1.38 57
(.67) 19.86 38.25 60,478 1.69 1.28 37
(1.21) 15.02 (8.94) 44,789 1.76 1.93 33
(.67) 18.05 32.24 57,752 1.64 (f) 1.68 (f) 24
(.40) 14.26 34.00 36,713 1.55 (f) 2.88 (f) 17
0.00 10.98 9.80 22,365 1.50*(f) 3.20*(f) 6
$(2.62) $15.48 8.67% $ 1,303 3.03%* (1.57)%* 8%
(2.83) 16.94 (5.63) 527 2.73 (1.17) 25
0.00 20.82 12.48 120 3.35* (1.60)* 48
$(2.62) $15.49 8.66% $ 483 2.94%* (1.54)%* 8%
(2.83) 16.95 (5.62) 418 2.66 (1.11) 25
0.00 20.83 12.53 242 3.22* (1.34)* 48
$(3.17) $36.64 27.21% $255,131 1.59%* (.65)%* 23%
0.00 31.98 22.43 202,929 1.66* (1.22)* 55
(8.18) 26.12 21.63 173,732 1.73 (1.32) 64
(2.27) 28.20 15.50 173,566 1.61 (.90) 73
(3.61) 26.38 54.24 191,693 1.71 (.20) 134
(1.54) 19.44 (3.08) 131,843 1.77 (.18) 147
0.00 21.57 6.00 141,730 1.66 .02 139
0.00 20.35 0.64 169,856 1.42(f) (.16)(f) 139
(7.33) 20.22 19.16 167,608 1.31(f) (.56)(f) 248
(.01) 23.11 12.03 147,733 1.13(f) (.57)(f) 141
(.20) 20.64 26.24 147,114 1.14(f) .07 (f) 259
$(3.17) $36.05 26.80% $ 88,367 2.47%* (1.51)%* 23%
0.00 31.61 21.67 18,397 2.43* (1.95)* 55
(8.18) 25.98 24.49 1,645 2.57* (2.30)* 64
$(3.17) $36.05 26.80% $ 16,555 2.45%* (1.49)%* 23%
0.00 31.61 21.67 7,470 2.41* (1.94)* 55
(8.18) 25.98 24.49 1,096 2.52* (2.25)* 64
$(3.86) $19.20 3.89% $131,172 1.80%* (1.26)%* 80%
(.82) 22.65 (4.05) 155,470 1.67 (1.15) 110
(.88) 24.43 31.58 228,874 1.65 (1.00) 102
(.16) 19.34 (8.34) 252,140 1.62 (.89) 128
(.06) 21.27 36.28 333,806 1.64 (.22) 118
(2.02) 15.67 (30.81) 251,102 1.66 .16 90
(.18) 24.84 42.68 263,099 1.73 .10 90
(4.71) 17.60 (8.61) 90,713 1.28(f) (.40)(f) 58
(3.07) 24.47 29.61 134,676 1.18(f) (.56)(f) 76
(.99) 21.80 33.79 144,959 1.18 .02 84
(.33) 17.25 20.29 77,067 1.18 .22 77
$(3.86) $18.37 3.52% $ 12,876 2.63%* (2.08)%* 80%
(.82) 21.92 (4.92) 13,901 2.50 (1.98) 110
(.88) 23.88 30.53 16,779 2.46 (1.81) 102
(.16) 19.07 (9.05) 9,454 2.42 (1.67) 128
(.06) 21.14 35.54 7,346 2.41 (1.28) 118
0.00 15.66 (8.79) 71 2.09* (.26)* 90
$(3.86) $18.39 3.62% $ 1,032 2.59%* (2.06)%* 80%
(.82) 21.92 (4.92) 1,220 2.48 (1.96) 110
0.00 23.88 17.46 118 2.49* (1.90)* 102
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
International Fund
Class A
Year ended 6/30/95....... $18.38 $ .04 $ .01 $ .05 $0.00 $(1.62)
Year ended 6/30/94....... 16.01 (.09) 3.02 2.93 0.00 (.56)
Year ended 6/30/93....... 14.98 (.01) 1.17 1.16 (.04) (.09)
Year ended 6/30/92....... 14.00 .01 (b) 1.04 1.05 (.07) 0.00
Year ended 6/30/91....... 17.99 .05 (3.54) (3.49) (.03) (.47)
Year ended 6/30/90....... 17.24 .03 2.87 2.90 (.04) (2.11)
Year ended 6/30/89....... 16.09 .05 3.73 3.78 (.13) (2.50)
Year ended 6/30/88....... 23.70 .17 (1.22) (1.05) (.21) (6.35)
Year ended 6/30/87....... 22.02 .15 4.31 4.46 (.03) (2.75)
Year ended 6/30/86....... 11.94 .02 10.50 10.52 (.03) (.41)
Class B
Year ended 6/30/95....... $17.90 $(.01) $ (.08) $ (.09) $0.00 $(1.62)
Year ended 6/30/94....... 15.74 (.19) (b) 2.91 2.72 0.00 (.56)
Year ended 6/30/93....... 14.81 (.12) 1.14 1.02 0.00 (.09)
Year ended 6/30/92....... 13.93 (.11) (b) 1.02 .91 (.03) 0.00
9/17/90++ to 6/30/91..... 15.52 .03 (1.12) (1.09) (.03) (.47)
Class C
Year ended 6/30/95....... $17.91 $(.14) $ .05 $ (.09) $0.00 $(1.62)
Year ended 6/30/94....... 15.74 (.11) 2.84 2.73 0.00 (.56)
5/3/93++ to 6/30/93...... 15.93 0.00 (.19) (.19) 0.00 0.00
Worldwide Privatization Fund
Class A
Year ended 6/30/95....... $ 9.75 $ .06 $ .37 $ .43 $0.00 $ 0.00
6/2/94+ to 6/30/94....... 10.00 .01 (.26) (.25) 0.00 0.00
Class B
Year ended 6/30/95....... $ 9.74 $ .02 $ .34 $ .36 $0.00 $ 0.00
6/2/94+ to 6/30/94....... 10.00 .00 (.26) (.26) 0.00 0.00
Class C
2/8/95++ to 6/30/95...... $ 9.53 $ .05 $ .52 $ .57 $0.00 $ 0.00
New Europe Fund
Class A
Year ended 7/31/95....... $12.66 $ .04 $ 2.50 $ 2.54 $ (.09) $ 0.00
Period ended 7/31/94**... 12.53 .09 .04 .13 0.00 0.00
Year ended 2/28/94....... 9.37 .02 (b) 3.14 3.16 0.00 0.00
Year ended 2/28/93....... 9.81 .04 (.33) (.29) (.15) 0.00
Year ended 2/29/92....... 9.76 .02 (b) .05 .07 (.02) 0.00
4/2/90+ to 2/28/91....... 11.11 (e) .26 (.91) (.65) (.26) (.44)
Class B
Year ended 7/31/95....... $12.41 $(.05) $ 2.44 $ 2.39 $ (.09) $ 0.00
Period ended 7/31/94**... 12.32 .07 .02 .09 0.00 0.00
Year ended 2/28/94....... 9.28 (.05) (b) 3.09 3.04 0.00 0.00
Year ended 2/28/93....... 9.74 (.02) (.33) (.35) (.11) 0.00
3/5/91++ to 2/29/92...... 9.84 (.04) (b) (.04) (.08) (.02) 0.00
Class C
Year ended 7/31/95....... $12.42 $(.07) $ 2.46 $ 2.39 $ (.09) $ 0.00
Period ended 7/31/94**... 12.33 .06 .03 .09 0.00 0.00
5/3/93++ to 2/28/94...... 10.21 (.04) (b) 2.16 2.12 0.00 0.00
Global Small Cap Fund
Class A
Year ended 7/31/95....... $11.08 $(.09) $ 1.50 $ 1.41 $0.00 $(2.11) (k)
Period ended 7/31/94**... 11.24 (.15) (.01) (.16) 0.00 0.00
Year ended 9/30/93....... 9.33 (.15) 2.49 2.34 0.00 (.43)
Year ended 9/30/92....... 10.55 (.16) (1.03) (1.19) 0.00 (.03)
Year ended 9/30/91....... 8.26 (.06) 2.35 2.29 0.00 0.00
Year ended 9/30/90....... 15.54 (.05) (b) (4.12) (4.17) 0.00 (3.11)
Year ended 9/30/89....... 11.41 (.03) 4.25 4.22 0.00 (.09)
Year ended 9/30/88....... 15.07 (.05) (1.83) (1.88) 0.00 (1.78)
Year ended 9/30/87....... 15.47 (.07) 4.19 4.12 (.04) (4.48)
Year ended 9/30/86....... 12.94 .05 3.74 3.79 (.04) (1.22)
Class B
Year ended 7/31/95....... $10.78 $(.12) $ 1.40 $ 1.28 $0.00 $(2.11) (k)
Period ended 7/31/94**... 11.00 (.17) (b) (.05) (.22) 0.00 0.00
Year ended 9/30/93....... 9.20 (.15) 2.38 2.23 0.00 (.43)
Year ended 9/30/92....... 10.49 (.20) (1.06) (1.26) 0.00 (.03)
Year ended 9/30/91....... 8.26 (.07) 2.30 2.23 0.00 0.00
9/17/90++ to 9/30/90..... 9.12 (.01) (.85) (.86) 0.00 0.00
Class C
Year ended 7/31/95....... $10.79 $(.17) $ 1.45 $ 1.28 $0.00 $(2.11) (k)
Period ended 7/31/94**... 11.00 (.17) (b) (.04) (.21) 0.00 0.00
5/3/93++ to 9/30/93...... 9.86 (.05) 1.19 1.14 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
12
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$(1.62) $16.81 .59% $165,584 1.73% .26% 119%
(.56) 18.38 18.68 201,916 1.90 (.50) 97
(.13) 16.01 7.86 161,048 1.88 (.14) 94
(.07) 14.98 7.52 179,807 1.82 .07 72
(.50) 14.00 (19.34) 214,442 1.73 .37 71
(2.15) 17.99 16.98 265,999 1.45 .33 37
(2.63) 17.24 27.65 166,003 1.41 .39 87
(6.56) 16.09 (4.20) 132,319 1.41 .84 55
(2.78) 23.70 23.05 194,716 1.30 .77 58
(.44) 22.02 90.87 139,326 1.29 .16 62
$(1.62) $16.19 (.22)% $ 48,998 2.57% (.62)% 119%
(.56) 17.90 17.65 29,943 2.78 (1.15) 97
(.09) 15.74 6.98 6,363 2.70 (.96) 94
(.03) 14.81 6.54 5,585 2.68 (.70) 72
(.50) 13.93 (6.97) 3,515 3.39* .84* 71
$(1.62) $16.20 (.22)% $ 19,395 2.54% (.88)% 119%
(.56) 17.91 17.72 13,503 2.78 (1.12) 97
0.00 15.74 (1.19) 229 2.57* .08* 94
$ 0.00 $10.18 4.41% $ 13,535 2.56% .66% 36%
0.00 9.75 (2.50) 4,990 2.75* 1.03* 0
$ 0.00 $10.10 3.70% $ 79,359 3.27% .01% 36%
0.00 9.74 (2.60) 22,859 3.45* .33* 0
$ 0.00 $10.10 5.98% $ 338 3.27%* 2.65%* 36%
$ (.09) $15.11 20.22% $ 86,112 2.09% .37% 74%
0.00 12.66 1.04 86,739 2.06* 1.85* 35
0.00 12.53 33.73 90,372 2.30 .17 94
(.15) 9.37 (2.82) 79,285 2.25 .47 125
(.02) 9.81 .74 108,510 2.24 .16 34
(.70) 9.76 (5.63) 188,016 1.52* 2.71* 48
$ (.09) $14.71 19.42% $ 34,527 2.79% (.33)% 74%
0.00 12.41 .73 31,404 2.76* 1.15* 35
0.00 12.32 32.76 20,729 3.02 (.52) 94
(.11) 9.28 (3.49) 1,732 3.00 (.50) 125
(.02) 9.74 .03 1,423 3.02* (.71)* 34
$ (.09) $14.72 19.40% $ 7,802 2.78% (.33)% 74%
0.00 12.42 .73 11,875 2.76* 1.15* 35
0.00 12.33 20.77 10,886 3.00* (.52)* 94
$(2.11) $10.38 16.62% $ 60,057 2.54%(f) (1.17)%(f) 128%
0.00 11.08 (1.42) 61,372 2.42* (1.26)* 78
(.43) 11.24 25.83 65,713 2.53 (1.13) 97
(.03) 9.33 (11.30) 58,491 2.34 (.85) 108
0.00 10.55 27.72 84,370 2.29 (.55) 104
(3.11) 8.26 (31.90) 68,316 1.73 (.46) 89
(.09) 15.54 37.34 113,583 1.56 (.17) 106
(1.78) 11.41 (8.11) 90,071 1.54 (f) (.50) (f) 74
(4.52) 15.07 34.11 113,305 1.41 (f) (.44) (f) 98
(1.26) 15.47 31.76 90,354 1.22 (f) .30 (f) 107
$(2.11) $ 9.95 15.77% $ 5,164 3.20%(f) (1.92)%(f) 128%
0.00 10.78 (2.00) 3,889 3.15* (1.93)* 78
(.43) 11.00 24.97 1,150 3.26 (1.85) 97
(.03) 9.20 (12.03) 819 3.11 (1.31) 108
0.00 10.49 27.00 121 2.98 (1.39) 104
0.00 8.26 (9.43) 183 2.61* (1.30)* 89
$(2.11) $ 9.96 15.75% $ 1,407 3.25%(f) (2.10)%(f) 128%
0.00 10.79 (1.91) 1,330 3.13* (1.92)* 78
0.00 11.00 11.56 261 3.75* (2.51)* 97
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Strategic Balanced Fund (i)
Class A
Year ended 7/31/95........ $16.26 $ .34 (c) $ 1.64 $ 1.98 $ (.22) $ (.04)
Period ended 7/31/94**.... 16.46 .07 (c) (.27) (.20) 0.00 0.00
Year ended 4/30/94........ 16.97 .16 (c) .74 .90 (.24) (1.17)
Year ended 4/30/93........ 17.06 .39 (c) .59 .98 (.42) (.65)
Year ended 4/30/92........ 14.48 .27 (c) 2.80 3.07 (.17) (.32)
9/4/90++ to 4/30/91....... 12.51 .34 (c) 1.66 2.00 (.03) 0.00
Class B
Year ended 7/31/95........ $14.10 $ .22 (c) $ 1.40 $ 1.62 $ (.12) $ (.04)
Period ended 7/31/94**.... 14.30 .03 (c) (.23) (.20) 0.00 0.00
Year ended 4/30/94........ 14.92 .06 (c) .63 .69 (.14) (1.17)
Year ended 4/30/93........ 15.51 .23 (c) .53 .76 (.25) (1.10)
Year ended 4/30/92........ 13.96 .22 (c) 2.70 2.92 (.29) (1.08)
Year ended 4/30/91........ 12.40 .43 (c) 1.60 2.03 (.47) 0.00
Year ended 4/30/90........ 11.97 .50 (b)(c) .60 1.10 (.25) (.42)
Year ended 4/30/89........ 11.45 .48 (c) 1.11 1.59 (.30) (.77)
10/23/87+ to 4/30/88...... 10.00 .13 (c) 1.38 1.51 (.06) 0.00
Class C
Year ended 7/31/95........ $14.11 $ .16 (c) $ 1.46 $ 1.62 $ (.12) $ (.04)
Period ended 7/31/94**.... 14.31 .03 (c) (.23) (.20) 0.00 0.00
8/2/93++ to 4/30/94....... 15.64 .15 (c) (.17) (.02) (.14) (1.17)
Balanced Shares
Class A
Year ended 7/31/95........ $13.38 $ .46 $ 1.62 $ 2.08 $ (.36) $ (.02)
Period ended 7/31/94**.... 14.40 .29 (.74) (.45) (.28) (.29)
Year ended 9/30/93........ 13.20 .34 1.29 1.63 (.43) 0.00
Year ended 9/30/92........ 12.64 .44 .57 1.01 (.45) 0.00
Year ended 9/30/91........ 10.41 .46 2.17 2.63 (.40) 0.00
Year ended 9/30/90........ 14.13 .45 (2.14) (1.69) (.40) (1.63)
Year ended 9/30/89........ 12.53 .42 2.18 2.60 (.46) (.54)
Year ended 9/30/88........ 16.33 .46 (1.07) (.61) (.44) (2.75)
Year ended 9/30/87........ 14.64 .67 1.62 2.29 (.60) 0.00
Year ended 9/30/86........ 11.74 .68 3.40 4.08 (.65) (.53)
Class B
Year ended 7/31/95........ $13.23 $ .30 $ 1.65 $ 1.95 $ (.28) $ (.02)
Period ended 7/31/94**.... 14.27 .22 (.75) (.53) (.22) (.29)
Year ended 9/30/93........ 13.13 .29 1.22 1.51 (.37) 0.00
Year ended 9/30/92........ 12.61 .37 .54 .91 (.39) 0.00
2/4/91++ to 9/30/91....... 11.84 .25 .80 1.05 (.28) 0.00
Class C
Year ended 7/31/95........ $13.24 $ .30 $ 1.65 $ 1.95 $ (.28) $ (.02)
Period ended 7/31/94**.... 14.28 .24 (.77) (.53) (.22) (.29)
5/3/93++ to 9/30/93....... 13.63 .11 .71 .82 (.17) 0.00
Income Builder Fund (h)
Class A
11/1/94 to 4/30/95+++..... $ 9.69 $ .28 $ .04 $ .32 $ (.25) $ 0.00
3/25/94++ to 10/31/94..... 10.00 .96 (1.02) (.06) (.05)(g) (.20)
Class B
11/1/94 to 4/30/95+++..... $ 9.68 $ .24 $ .06 $ .30 $ (.22) $ 0.00
3/25/94++ to 10/31/94..... 10.00 .88 (.98) (.10) (.06)(g) (.16)
Class C
11/1/94 to 4/30/95+++..... $ 9.66 $ .25 $ .04 $ .29 $ (.22) $ 0.00
Year ended 10/31/94....... 10.47 .50 (.85) (.35) (.11)(g) (.35)
Year ended 10/31/93....... 9.80 .52 .51 1.03 (.36) 0.00
Year ended 10/31/92....... 10.00 .55 (.28) .27 (.47) 0.00
10/25/91+ to 10/31/91..... 10.00 .01 0.00 .01 (.01) 0.00
Utility Income Fund
Class A
12/1/94 to 5/31/95+++..... $ 8.97 $ .20 (c) $ .67 $ .87 $ (.23) $ 0.00
Year ended 11/30/94....... 9.92 .42 (c) (.89) (.47) (.48) 0.00
10/18/93+ to 11/30/93..... 10.00 .02 (c) (.10) (.08) 0.00 0.00
Class B
12/1/94 to 5/31/95+++..... $ 8.96 $ .15 (c) $ .69 $ .84 $ (.20) $ 0.00
Year ended 11/30/94....... 9.91 .37 (c) (.91) (.54) (.41) 0.00
10/18/93+ to 11/30/93..... 10.00 .01 (c) (.10) (.09) 0.00 0.00
Class C
12/1/94 to 5/31/95+++..... $ 8.97 $ .13 (c) $ .71 $ .84 $ (.20) $ 0.00
Year ended 11/30/94....... 9.92 .39 (c) (.93) (.54) (.41) 0.00
10/27/93+ to 11/30/93..... 10.00 .01 (c) (.09) (.08) 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
14
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (.26) $17.98 12.40% $ 10,952 1.40% (f) 2.07% 172%
0.00 16.26 (1.22) 9,640 1.40* (f) 1.63* 21
(1.41) 16.46 5.06 9,822 1.40 (f) 1.67 139
(1.07) 16.97 5.85 8,637 1.40 (f) 2.29 98
(.49) 17.06 20.96 6,843 1.40 (f) 1.92 103
(.03) 14.48 16.00 443 1.40* (f) 3.54* 137
$ (.16) $15.56 11.63% $ 37,301 2.10% (f) 1.38% 172%
0.00 14.10 (1.40) 43,578 2.10* (f) .92* 21
(1.31) 14.30 4.29 43,616 2.10 (f) .93 139
(1.35) 14.92 4.96 36,155 2.15 (f) 1.55 98
(1.37) 15.51 20.14 31,842 2.15 (f) 1.34 103
(.47) 13.96 16.73 22,552 2.10 (f) 3.23 137
(.67) 12.40 8.85 19,523 2.00 (f) 3.85 120
(1.07) 11.97 14.66 5,128 2.00 (f) 4.31 103
(.06) 11.45 15.10 2,344 2.00* (f) 2.44* 72
$ (.16) $15.57 11.62% $ 4,113 2.10% (f) 1.38% 172%
0.00 14.11 (1.40) 4,317 2.10* (f) .93* 21
(1.31) 14.31 .45 4,289 2.10* (f) .69* 139
$ (.38) $15.08 15.99% $122,033 1.32% 3.12% 179%
(.57) 13.38 (3.21) 157,637 1.27* 2.50* 116
(.43) 14.40 12.52 172,484 1.35 2.50 188
(.45) 13.20 8.14 143,883 1.40 3.26 204
(.40) 12.64 25.52 154,230 1.44 3.75 70
(2.03) 10.41 (13.12) 140,913 1.36 4.01 169
(1.00) 14.13 22.27 159,290 1.42 3.29 132
(3.19) 12.53 (1.10) 111,515 1.42 3.74 190
(.60) 16.33 15.80 129,786 1.17 4.14 136
(1.18) 14.64 35.01 78,900 .99 4.78 26
$ (.30) $14.88 15.07% $ 15,080 2.11% 2.30% 179%
(.51) 13.23 (3.80) 14,347 2.05* 1.73* 116
(.37) 14.27 11.65 12,789 2.13 1.72 188
(.39) 13.13 7.32 6,499 2.16 2.46 204
(.28) 12.61 8.96 1,830 2.13* 3.19* 70
$ (.30) $14.89 15.06% $ 5,108 2.09% 2.32% 179%
(.51) 13.24 (3.80) 6,254 2.03* 1.81* 116
(.17) 14.28 6.01 1,487 2.29* 1.47* 188
$ (.25) $ 9.76 3.48% $ 1,237 2.25%* 6.00%* 105%
(.25) 9.69 (.54) 600 2.52* 6.11* 126
$ (.22) $ 9.76 3.21% $ 2,876 2.93%* 5.30%* 105%
(.22) 9.68 (.99) 1,998 3.09* 5.07* 126
$ (.22) $ 9.73 3.11% $ 52,193 2.89%* 5.28%* 105%
(.46) 9.66 (3.44) 64,027 2.67 3.82 126
(.36) 10.47 10.65 106,034 2.32 6.85 101
(.47) 9.80 2.70 152,617 2.33 5.47 108
(.01) 10.00 .11 41,813 0.00* (f) .94* 0
$ (.23) $ 9.61 9.71% $ 2,510 1.50%*(f) 3.42*% 63%
(.48) 8.97 (4.86) 1,068 1.50 (f) 4.13 30
0.00 9.92 (.80) 229 1.50* (f) 2.35* 11
$ (.20) $ 9.60 9.31% $ 5,580 2.20%*(f) 2.74*% 63%
(.41) 8.96 (5.59) 2,353 2.20 (f) 3.53 30
0.00 9.91 (.90) 244 2.20* (f) 2.84* 11
$ (.20) $ 9.61 9.41 % $ 3,504 2.20%*(f) 2.83*% 63%
(.41) 8.97 (5.58) 2,651 2.20 (f) 3.60 30
0.00 9.92 (.80) 18 2.20* (f) 3.08* 11
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund
Class A
11/1/94 to 4/30/95+++.... $ 2.35 $ .02 $ .13 $ .15 $ (.03) $ (.12)
Year ended 10/31/94...... 2.61 .06 (.08) (.02) (.06) (.18)
Year ended 10/31/93...... 2.48 .06 .29 .35 (.06) (.16)
Year ended 10/31/92...... 2.52 .06 .11 .17 (.06) (.15)
Year ended 10/31/91...... 2.28 .07 .56 .63 (.09) (.30)
Year ended 10/31/90...... 3.02 .09 (.30) (.21) (.10) (.43)
Year ended 10/31/89...... 3.05 .10 .43 .53 (.08) (.48)
Year ended 10/31/88...... 3.48 .10 .33 .43 (.08) (.78)
Year ended 10/31/87...... 3.52 .11 (.03) .08 (.12) 0.00
Year ended 10/31/86...... 3.01 .12 .92 1.04 (.13) (.40)
Year ended 10/31/85...... 2.93 .14 .42 .56 (.15) (.33)
Class B
11/1/94 to 4/30/95+++.... $ 2.34 $ .01 $ .13 $ .14 $ (.02) $ (.12)
Year ended 10/31/94...... 2.60 .04 (.08) (.04) (.04) (.18)
Year ended 10/31/93...... 2.47 .05 .28 .33 (.04) (.16)
Year ended 10/31/92...... 2.52 .04 .11 .15 (.05) (.15)
2/8/91++ to 10/31/91..... 2.40 .04 .12 .16 (.04) 0.00
Class C
11/1/94 to 4/30/95+++.... $ 2.34 $ .01 $ .13 $ .14 $ (.02) $ (.12)
Year ended 10/31/94...... 2.60 .04 (.08) (.04) (.04) (.18)
5/3/93++ to 10/31/93..... 2.43 .02 .17 .19 (.02) 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations.
++ Commencement of distribution.
+++ Unaudited.
* Annualized.
** Reflects a change in fiscal year end.
(a) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return. Total investment returns calculated for periods of less
than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and/or expense reimbursement.
(d) Adjusted for a 200% stock dividend paid to shareholders of record on
January 15, 1988.
(e) Net of offering costs of ($.05).
(f) Net of expenses assumed and/or waived/reimbursed. If Growth Fund had borne
all expenses, the expense ratios would have been, with respect to Class A
shares, 8.79% (annualized) for 1991, 1.94% for 1992, 1.84% for 1993 and
1.46% for the fiscal period ended April 30, 1994; with respect to Class B
shares, 13.92% (annualized) for 1988, 7.03% for 1989, 3.62% for 1990, 3.06%
for 1991, 2.65% for 1992, 2.52% for 1993 and 2.13% for the fiscal period
ended April 30, 1994; and with respect to Class C shares, 2.13% (annualized)
for the fiscal period ended April 30, 1994. If Premier Growth Fund had borne
all expenses, the expense ratios would have been 3.33% (annualized) and
3.78% (annualized) for Class A and Class B shares, respectively; and net
investment income ratios would have been (.25)% (annualized) and (.75)%
(annualized) for Class A and Class B shares, respectively. If Counterpoint
Fund had borne all expenses, the expense ratios for Class A shares would
have been 1.77% (annualized), 1.60% and 1.73% for the periods ended in 1985,
1986 and 1987, respectively; and the investment income ratios for Class A
shares would have been 2.93% (annualized) for 1985, 2.83% for 1986 and 1.51%
for 1987. If Technology Fund had borne all expenses, the expense ratios
would have been 1.43%, 1.40%, 1.59% and 1.73% for the periods ended in 1985,
1986, 1987, and 1988, respectively; and the investment income ratios would
have been (.23)% for 1985, (.85)% for 1986, (.84)% for 1987, and (.46)% for
1988. If Quasar Fund had borne all expenses, the expense ratios would have
been 1.37% for 1987 and 1.64% for 1988; and the investment income ratios
would have been (.75)% for 1987 and (.75)% for 1988. If Global Small Cap
Fund had borne all expenses, the expense ratios would have been 1.33% for
1986, 1.61% for 1987 and 1.86% for 1988; and 2.61%, 3.27%, and 3.31% for
Class A, Class B and Class C shares, respectively, for the fiscal year ended
July 31, 1995 and the investment income ratios would have been .19% for
1986, (.63)% for 1987 and (.82)% for 1988. If Strategic Balanced Fund had
borne all expenses, the expense ratios would have been, with respect to
Class A shares, 11.59% (annualized) for 1991, 2.05% for 1992, 1.85% for
1993, 1.70% for the fiscal year ended April 30, 1994, 1.94% (annualized) for
the fiscal period ended July 31, 1994, and 1.81% for fiscal year ended July
31, 1995; with respect to Class B shares, 10.61% (annualized) for 1988,
7.82% for 1989, 3.59% for 1990, 2.93% for 1991, 2.70% for 1992, 2.56% for
1993, 2.42% for the fiscal year ended April 30, 1994, 2.64% (annualized) for
the fiscal period ended July 31, 1994 and 2.49% for fiscal year ended July
31, 1995; and with respect to Class C shares, 2.07% (annualized) for the
fiscal period ended April 30, 1994, 2.64% (annualized) for the fiscal period
ended July 31, 1994 and 2.50% for the fiscal year ended July 31, 1995. If
Income Builder Fund had borne all expenses, the expense ratio would have
been 1.99% (annualized). If Utility Income Fund had borne all expenses, the
expense ratios would have been 145.63% (annualized), 133.62% (annualized)
and 148.03% (annualized) for Class A, Class B and Class C shares,
respectively, for the fiscal period ended November 30, 1993, 13.72%, 14.42%
and 14.42% for Class A, Class B and Class C shares, respectively, for 1994,
and 6.70% (annualized), 7.41% (annualized), and 7.40% (annualized) for Class
A, Class B, and Class C shares respectively for the fiscal period ended
May 31, 1995.
(g) "Dividends from Net Investment Income" includes a return of capital. Income
Builder Fund had a return of capital with respect to Class A shares, for the
period ended October 31, 1994, of $(.01); with respect to Class B shares,
$(.01); and with respect to Class C shares, for the year ended October 31,
1994, $(.02).
(h) On March 25, 1994, all existing shares of Income Builder Fund, previously
known as Alliance Multi-Market Income and Growth Trust, were converted into
Class C shares.
(i) Prior to July 22, 1993, Equitable Capital Management Corporation ("Equitable
Capital") served as the investment adviser to the predecessor to The
Alliance Portfolios, of which Growth Fund and Strategic Balanced Fund are
series. On July 22, 1993, Alliance acquired the business and substantially
all assets of Equitable Capital and became investment adviser to the Funds.
(j) Includes $(.08) distribution from paid-in capital.
(k) "Distributions from Net Realized Gains" includes a return of capital. Global
Small Cap Fund had a return of capital with respect to Class A shares, for
the year ended July 31, 1995, of $(.12); with respect to Class B shares,
$(.12); and with respect to Class C shares, $(.12).
16
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (.15) $ 2.35 5.70 % $410,917 2.00%* 1.07%* 92%
(.24) 2.35 (.67) 414,386 1.03 2.36 68
(.22) 2.61 14.98 459,372 1.07 2.38 91
(.21) 2.48 7.23 417,018 1.09 2.63 104
(.39) 2.52 31.03 409,597 1.14 2.74 84
(.53) 2.28 (8.55) 314,670 1.09 3.40 76
(.56) 3.02 21.59 377,168 1.08 3.49 79
(.86) 3.05 16.45 350,510 1.09 3.09 66
(.12) 3.48 2.04 348,375 .86 2.77 60
(.53) 3.52 34.92 347,679 .81 3.31 11
(.48) 3.01 19.53 275,681 .95 3.78 15
$ (.14) $ 2.34 6.25 % $108,846 1.17%* 1.88%* 92%
(.22) 2.34 (1.50) 102,546 1.85 1.56 68
(.20) 2.60 14.22 76,633 1.90 1.58 91
(.20) 2.47 6.22 29,656 1.90 1.69 104
(.04) 2.52 6.83 10,221 1.99* 1.67* 84
$ (.14) $ 2.34 6.25 % $ 23,863 1.16%* 1.87%* 92%
(.22) 2.34 (1.50) 19,395 1.84 1.61 68
(.02) 2.60 7.85 7,774 1.96* 1.45* 91
</TABLE>
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Please refer to the footnotes on page 16.
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Glossary
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The following terms are frequently used in this Prospectus.
Equity securities are (i) common stocks, partnership interests, business trust
shares and other equity or ownership interests in business enterprises, and (ii)
securities convertible into, and rights and warrants to subscribe for the
purchase of, such stocks, shares and interests.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Asian company is an entity that (i) is organized under the laws of an Asian
country and conducts business in an Asian country, (ii) derives 50% or more of
its total revenues from business in Asian countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in an Asian
country.
Asian countries are Australia, the Democratic Socialist Republic of Sri Lanka,
Hong Kong, the Islamic Republic of Pakistan, Japan, the Kingdom of Thailand,
Malaysia, Negara Brunei Darussalam (Brunei), New Zealand, the People's Republic
of China, the People's Republic of Kampuchea (Cambodia), the Republic of China
(Taiwan), the Republic of India, the Republic of Indonesia, the Republic of
Korea (South Korea), the Republic of the Philippines, the Republic of Singapore,
the Socialist Republic of Vietnam and the Union of Myanmar.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, Inc.
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or BBB and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
17
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Description Of The Funds
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Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
Domestic Stock Funds
The Domestic Stock Funds have been designed to offer investors seeking capital
appreciation a range of alternative approaches to investing in the U.S. equity
markets.
The Alliance Fund
The Alliance Fund, Inc. ("Alliance Fund") is a diversified investment company
that seeks long-term growth of capital and income primarily through investment
in common stocks. The Fund normally invests substantially all of its assets in
common stocks that Alliance believes will appreciate in value, but it may invest
in other types of securities such as convertible securities, high-grade
instruments, U.S. Government securities and high-quality, short-term obligations
such as repurchase agreements, bankers' acceptances and domestic certificates of
deposit, and may invest without limit in foreign securities. While the
diversification and generally high quality of the Fund's investments cannot
prevent fluctuations in market values, they tend to limit investment risk and
contribute to achieving the Fund's objective. The Fund generally does not effect
portfolio transactions in order to realize short-term trading profits or
exercise control.
The Fund may also: (i) make secured loans of its portfolio securities equal
in value up to 25% of its total assets to brokers, dealers and financial
institutions; (ii) enter into repurchase agreements of up to one week in
duration with commercial banks, but only if those agreements together with
any restricted securities and any securities which do not have readily
available market quotations do not exceed 10% of its net assets; and (iii)
write exchange-traded covered call options with respect to up to 25% of its
total assets. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance Growth Fund
Alliance Growth Fund ("Growth Fund") is a diversified investment company that
seeks long-term growth of capital. Current income is only an incidental
consideration. The Fund seeks its objective by investing primarily in equity
securities of companies with favorable earnings outlooks and whose long-term
growth rates are expected to exceed that of the U.S. economy. The Fund's
investment objective is not fundamental.
The Fund may also invest up to 25% of its total assets in lower-rated
fixed-income and convertible securities. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The Fund
generally will not invest in securities with ratings below Caa- by Moody's
and CCC- by S&P, Duff & Phelps or Fitch or in securities judged by Alliance
to be of comparable investment quality. However, from time to time, the Fund
may invest in securities rated in the lowest grades (i.e., C by Moody's or D
or equivalent by S&P, Duff & Phelps or Fitch), or securities Alliance judges
to be of comparable investment quality, if there are prospects for an upgrade
or a favorable conversion into equity securities. For the period ended
September 29, 1995, the Fund did not invest in any lower-rated securities. If
the credit rating of a security held by the Fund falls below its rating at
the time of purchase (or Alliance determines that the quality of such
security has so deteriorated), the Fund may continue to hold the security if
such investment is considered appropriate under the circumstances.
The Fund may also: (i) invest in "zero-coupon" bonds and "payment-in-kind"
bonds; (ii) invest in foreign securities, although the Fund will not
generally invest more than 15% of its total assets in foreign securities;
(iii) invest in securities that are not publicly traded, including Rule 144A
securities; (iv) buy or sell foreign currencies, options on foreign
currencies, foreign currency futures contracts (and related options) and deal
in forward foreign exchange contracts; (v) lend portfolio securities
amounting to not more than 25% of its total assets; (vi) enter into
repurchase agreements on up to 25% of its total assets and purchase and sell
securities on a forward commitment basis; (vii) buy and sell stock index
futures contracts and buy and sell options on those contracts and on stock
indices; (viii) purchase and sell futures contracts, options thereon and
options with respect to U.S. Treasury securities; (ix) write covered call and
put options on securities it owns or in which it may invest; and (x) purchase
and sell put and call options. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment
Practices."
Alliance Premier Growth Fund
Alliance Premier Growth Fund, Inc. ("Premier Growth Fund") is a
non-diversified investment company that seeks long-term growth of capital by
investing predominantly in the equity securities of a limited number of
large, carefully selected, high-quality U.S. companies that are judged likely
to achieve superior earnings growth. Normally, about 40 companies will be
represented in the Fund's portfolio, with the 25 most highly regarded of
these companies usually constituting approximately 70% of the Fund's net
assets. The Fund is thus atypical from most equity mutual funds in its focus
on a relatively small number of intensively researched companies and is
designed for those seeking to accumulate capital over time with less
volatility than that associated with investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of
its total assets in the equity securities of U.S. companies. These are
companies (i) organized under U.S. law that have their principal office in
the U.S., and (ii) the equity securities of which are traded principally in
the U.S.
Alliance's investment strategy for the Fund emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally
18
<PAGE>
follows a primary research universe of more than 600 companies that have
strong management, superior industry positions, excellent balance sheets and
superior earnings growth prospects. An emphasis is placed on identifying
companies whose substantially above average prospective earnings growth is
not fully reflected in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing
the number of companies represented in its portfolio. Alliance thus seeks to
gain positive returns in good markets while providing some measure of
protection in poor markets.
Alliance expects the average market capitalization of companies represented
in the Fund's portfolio normally to be in the range, or in excess, of the
average market capitalization of companies comprising the "S&P 500" (the
Standard & Poor's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity).
The Fund may also: (i) invest up to 20% of its net assets in convertible
securities of companies whose common stocks are eligible for purchase by it;
(ii) invest up to 5% of its net assets in rights or warrants; (iii) invest up to
15% of its total assets in securities of foreign issuers whose common stocks are
eligible for purchase by it; (iv) purchase and sell exchange-traded index
options and stock index futures contracts; and (v) write covered exchange-traded
call options on common stocks, unless as a result, the amount of its securities
subject to call options would exceed 15% of its total assets, and purchase and
sell exchange-traded call and put options on common stocks written by others,
but the total cost of all options held by the Fund (including exchange-traded
index options) may not exceed 10% of its total assets. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices." The Fund will not write put options.
Alliance Counterpoint Fund
Alliance Counterpoint Fund ("Counterpoint Fund") is a diversified investment
company that seeks long-term capital growth by investing principally in
price-depressed, undervalued or out-of-favor equity securities. Secondarily,
the Fund seeks current income. The Fund follows a flexible investment policy
which allows it to shift among equity alternatives depending on such factors
as relative growth rates, normalized price-earnings ratios and yields. It
selects securities based on fundamental business and financial factors (e.g.,
financial strength, book values, asset values, earnings and dividends) and
reasonable current valuations (weighing the factors against market prices)
and focuses on the relationship of a company's earning power and dividend
payout to the price of its stock. The Fund's investment strategy can be
characterized as unconventional or "contrarian" in that its holdings often
have relatively low normalized price-earnings ratios and, when purchased, are
often believed by Alliance to be overlooked or undervalued in the
marketplace. (A "normalized" price-earnings ratio is one that has been
adjusted to eliminate the effects of the economic cycle. Alliance may
conclude that a company's normalized price-earnings ratio is low in
comparison to either the company's price-earnings history or the
price-earnings ratios of comparable companies.)
Because it evaluates securities based on their long-term potential, the Fund is
best suited for investors who understand and can accept the risk that the
securities held by the Fund may not appreciate or yield significant income over
the shorter term. The Fund invests in companies experiencing poor operating
results, which may include companies whose earnings have been severely depressed
by unfavorable operating conditions or special competitive or product
obsolescence problems, if it believes that they will react positively to
changing economic conditions or will restructure or take other actions to
overcome adversity. The Fund invests in listed and unlisted securities, and will
invest in any company and industry and in any type of security that may help it
achieve its objectives. While its strategy normally emphasizes equity
securities, the Fund also invests in fixed-income securities when such
investments can provide capital growth, such as when interest rates decline, and
to generate income.
The Fund may also: (i) invest up to 5% of its total assets in warrants; (ii)
invest up to 15% of its total assets in foreign securities; (iii) invest in
restricted securities and in other assets having no ready market if as a
result no more than 5% of its net assets would be invested in such securities
and assets; (iv) write exchange-listed covered call options, unless as a
result the amount of its securities subject to call options would exceed 5%
of its total assets; (v) lend portfolio securities equal in value to not more
than 15% of its total assets; (vi) purchase and sell stock index futures
contracts; and (vii) enter into repurchase agreements on U.S. Government
securities with member banks of the Federal Reserve System or primary dealers
in such securities. For additional information on the use, risks and costs of
these policies and practices see "Additional Investment Practices."
Alliance Technology Fund
Alliance Technology Fund, Inc. ("Technology Fund") is a diversified
investment company that emphasizes growth of capital and invests for capital
appreciation, and only incidentally for current income. The Fund may seek
income by writing listed call options. The Fund invests primarily in
securities of companies expected to benefit from technological advances and
improvements (i.e., companies that use technology extensively in the
development of new or improved products or processes). The Fund will normally
have at least 80% of its assets invested in the securities of these
19
<PAGE>
companies. The Fund normally will have substantially all its assets invested
in equity securities, but it also invests in debt securities offering an
opportunity for price appreciation. The Fund will invest in listed and
unlisted securities and U.S. and foreign securities, but it will not purchase
a foreign security if as a result 10% or more of the Fund's total assets
would be invested in foreign securities.
The Fund's policy is to invest in any company and industry and in any type of
security with potential for capital appreciation. It invests in well-known
and established companies and in new and unseasoned companies.
The Fund may also: (i) write and purchase exchange-listed call options and
purchase listed put options, including exchange-traded index put options;
(ii) invest up to 10% of its total assets in warrants; (iii) invest in
restricted securities and in other assets having no ready market if as a
result no more than 10% of the Fund's net assets are invested in such
securities and assets; (iv) lend portfolio securities equal in value to not
more than 30% of the Fund's total assets; and (v) invest up to 10% of its
total assets in foreign securities. For additional information on the use,
risks and costs of the policies and practices see "Additional Investment
Practices."
Alliance Quasar Fund
Alliance Quasar Fund, Inc. ("Quasar Fund") is a diversified investment
company that seeks growth of capital by pursuing aggressive investment
policies. It invests for capital appreciation and only incidentally for
current income. The selection of securities based on the possibility of
appreciation cannot prevent loss in value. Moreover, because the Fund's
investment policies are aggressive, an investment in the Fund is risky and
investors who want assured income or preservation of capital should not
invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities,
Alliance considers the economic and political outlook, the values of specific
securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund
invests in listed and unlisted U.S. and foreign securities. The Fund
periodically invests in special situations, which occur when the securities
of a company are expected to appreciate due to a development particularly or
uniquely applicable to that company and regardless of general business
conditions or movements of the market as a whole.
The Fund may also: (i) invest in restricted securities and in other assets
having no ready market, but not more than 10% of its total assets may be
invested in such securities or assets; (ii) make short sales of securities
"against the box," but not more than 15% of its net assets may be deposited
on short sales; and (iii) write call options and purchase and sell put and
call options written by others. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment
Practices."
Global Stock Funds
The Global Stock Funds have been designed to enable investors to participate
in the potential for long-term capital appreciation available from investment
in foreign securities.
Alliance International Fund
Alliance International Fund ("International Fund") is a diversified investment
company that seeks a total return on its assets from long-term growth of capital
and from income primarily through a broad portfolio of marketable securities of
established non-U.S. companies, companies participating in foreign economies
with prospects for growth, including U.S. companies having their principal
activities and interests outside the U.S. and foreign government securities.
Normally, more than 80% of the Fund's assets will be invested in such issuers.
The Fund expects to invest primarily in common stocks of established non-U.S.
companies that Alliance believes have potential for capital appreciation or
income or both, but the Fund is not required to invest exclusively in common
stocks or other equity securities, and it may invest in any other type of
investment grade security, including convertible securities, warrants, or
obligations of the U.S. or foreign governments and their political
subdivisions.
The Fund intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest
a substantial portion of its assets in one or more of such countries. At July
31, 1995, approximately 36% of the Fund's assets were invested in securities
of Japanese issuers. The Fund may invest in companies, wherever organized,
that Alliance judges have their principal activities and interests outside
the U.S. These companies may be located in developing countries, which
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less
stability, than those of developed countries. The Fund currently does not
intend to invest more than 10% of its total assets in companies in, or
governments of, developing countries.
The Fund may also: (i) purchase or sell forward foreign currency exchange
contracts; (ii) write, sell and purchase U.S. or foreign exchange-listed put
and call options, including exchange-traded index options; (iii) enter into
financial futures contracts, including contracts for the purchase or sale for
future delivery of foreign currencies and stock index futures, and purchase
and write put and call options on futures contracts traded on U.S. or foreign
exchanges or over-the-counter; (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or
over-the-counter; (v) lend portfolio securities equal in value to not more
than 30% of its total assets; and (vi) enter into repurchase agreements of up
to seven days' duration,
20
<PAGE>
provided that more than 10% of the Fund's total assets would be so invested.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Worldwide Privatization Fund
Alliance Worldwide Privatization Fund, Inc. ("Worldwide Privatization Fund")
is a non-diversified investment company that seeks long-term capital
appreciation. As a fundamental policy, the Fund invests at least 65% of its
total assets in equity securities issued by enterprises that are undergoing,
or have undergone, privatization (as described below), although normally
significantly more of its assets will be invested in such securities. The
balance of its investments will include securities of companies believed by
Alliance to be beneficiaries of privatizations. The Fund is designed for
investors desiring to take advantage of investment opportunities,
historically inaccessible to U.S. individual investors, that are created by
privatizations of state enterprises in both established and developing
economies, including those in Western Europe and Scandinavia, Australia, New
Zealand, Latin America, Asia and Eastern and Central Europe and, to a lesser
degree, Canada and the United States.
The Fund's investments in enterprises undergoing privatization may comprise
three distinct situations. First, the Fund may invest in the initial offering
of publicly traded equity securities (an "initial equity offering") of a
government- or state-owned or controlled company or enterprise (a "state
enterprise"). Secondly, the Fund may purchase securities of a current or
former state enterprise following its initial equity offering. Finally, the
Fund may make privately negotiated purchases of stock or other equity
interests in a state enterprise that has not yet conducted an initial equity
offering. Alliance believes that substantial potential for capital
appreciation exists as privatizing enterprises rationalize their management
structures, operations and business strategies in order to compete
efficiently in a market economy, and the Fund will thus emphasize investments
in such enterprises.
The Fund diversifies its investments among a number of countries and normally
invests in issuers based in at least four, and usually considerably more,
countries. No more than 15% of the Fund's total assets, however, will be
invested in issuers in any one foreign country, except that the Fund may
invest up to 30% of its total assets in issuers in any one of France,
Germany, Great Britain, Italy and Japan. The Fund may invest all of its
assets within a single region of the world. To the extent that the Fund's
assets are invested within any one region, the Fund may be subject to any
special risks that may be associated with that region.
Privatization is a process through which the ownership and control of
companies or assets changes in whole or in part from the public sector to the
private sector. Through privatization a government or state divests or
transfers all or a portion of its interest in a state enterprise to some form
of private ownership. Governments and states with established economies,
including France, Great Britain, Germany and Italy, and those with developing
economies, including Argentina, Mexico, Chile, Indonesia, Malaysia, Poland
and Hungary, are engaged in privatizations. Although the Fund will invest in
any country believed to present attractive investment opportunities,
currently approximately 70% of the Fund's total assets are invested in
countries with established economies.
A major premise of the Fund's approach is that the equity securities of
privatized companies offer opportunities for significant capital
appreciation. In particular, because privatizations are integral to a
country's economic restructuring, securities sold in initial equity offerings
often are priced attractively so as to secure the issuer's successful
transition to private sector ownership. Additionally, these enterprises often
dominate their local markets and typically have the potential for significant
managerial and operational efficiency gains.
Although the Fund anticipates that it will not concentrate its investments in
any industry, it is permitted to invest more than 25% of its total assets in
issuers whose primary business activity is that of national commercial
banking. Prior to so concentrating, however, the Fund's Directors must
determine that its ability to achieve its investment objective would be
adversely affected if it were not permitted to concentrate. The staff of the
Commission is of the view that registered investment companies may not,
absent shareholder approval, change between concentration and
non-concentration in a single industry. The Fund disagrees with the staff's
position but has undertaken that it will not concentrate in the securities of
national commercial banks until, if ever, the issue is resolved. If the Fund
were to invest more than 25% of its total assets in national commercial
banks, the Fund's performance could be significantly influenced by events or
conditions affecting this industry, which is subject to, among other things,
increases in interest rates and deteriorations in general economic
conditions, and the Fund's investments may be subject to greater risk and
market fluctuation than if its portfolio represented a broader range of
investments.
The Fund may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Fund. The Fund may maintain not more than 5% of its net
assets in lower-rated securities. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The Fund
will not retain a non-convertible security that is downgraded below C or
determined by Alliance to have undergone similar credit quality deterioration
following purchase.
The Fund may also: (i) invest up to 20% of its total assets in rights or
warrants; (ii) write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest and on
exchange-traded index options; (iii) 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 may purchase
and write options on future contracts; (iv) purchase and write put and call
options on
21
<PAGE>
foreign currencies for hedging purposes; (v) purchase or sell forward
contracts; (vi) enter in forward commitments for the purchase or sale of
securities; (vii) enter into standby commitment agreements; (viii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain a short position; and (xi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities
with which it can enter into repurchase agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices".
Alliance New Europe Fund
Alliance New Europe Fund, Inc. ("New Europe Fund") is a non-diversified
investment company that seeks long-term capital appreciation through
investment primarily in the equity securities of companies based in Europe.
The Fund intends to invest substantially all of its assets in the equity
securities of European companies and has a fundamental policy of normally
investing at least 65% of its total assets in such securities. Up to 35% of
its total assets may be invested in high-quality U.S. dollar or foreign
currency denominated fixed-income securities issued or guaranteed by European
governmental entities, or by European or multinational companies or
supranational organizations.
Alliance believes that the quickening pace of economic integration and
political change in Europe creates the potential for many European companies
to experience rapid growth and that the emergence of new market economies in
Europe and the broadening and strengthening of other European economies may
significantly accelerate economic development. The Fund will invest in
companies that Alliance believes possess rapid growth potential. Thus, the
Fund will emphasize investments in smaller, emerging companies, but will also
invest in larger, established companies in such growing economic sectors as
capital goods, telecommunications, pollution control and consumer services.
The Fund will emphasize investment in companies believed to be the likely
beneficiaries of a program, originally known as the "1992 Program," to remove
substantially all barriers to the free movement of goods, persons, services
and capital within the European Community. Alliance believes that the
beneficial effects of this program upon economies, sectors and companies may
be most pronounced in the decade following 1992. The European Community is a
Western European economic cooperative organization consisting of Belgium,
Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain and the United Kingdom.
In recent years, economic ties between the former "east bloc" countries of
Eastern Europe and certain other European countries have been strengthened.
Alliance believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment
opportunities among such companies and, as such become available, within the
former "east bloc," although the Fund will not invest more than 20% of its
total assets in issuers based therein, or more than 10% of its total assets
in issuers based in any one such country.
The Fund diversifies its investments among a number of European countries and,
under normal circumstances, will invest in companies based in at least three
such countries. Subject to the foregoing and to the limitation on investment in
any one former "east bloc" country, the Fund may invest without limit in a
single European country. While the Fund does not intend to concentrate its
investments in a single country, at times 25% or more of its assets may be
invested in issuers located in a single country. During such times, the Fund
would be subject to a correspondingly greater risk of loss due to adverse
political or regulatory developments, or an economic downturn, within that
country. At July 31, 1995, approximately 30% of the Fund's assets were invested
in securities of issuers in the United Kingdom.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants and rights to purchase equity securities of European companies;
(iii) invest in depositary receipts or other securities convertible into
securities of companies based in European countries, debt securities of
supranational entities denominated in the currency of any European country,
debt securities denominated in European Currency Units of an issuer in a
European country (including supranational issuers) and "semi-governmental
securities"; (iv) purchase and sell forward contracts; (v) write, sell and
purchase exchange-traded put and call options, including exchange-traded
index options; (vi) enter into financial futures contracts, including
contracts for the purchase or sale for future delivery of foreign currencies
and futures contracts based on stock indices, and purchase and write options
on futures contracts; (vii) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or
over-the-counter; (viii) make secured loans of portfolio securities not in
excess of 30% of its total assets to brokers, dealers and financial
institutions; (ix) enter into forward commitments for the purchase or sale of
securities; and (x) enter into standby commitment agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance All-Asia Investment Fund
Alliance All-Asia Investment Fund, Inc. ("All-Asia Fund") is a
non-diversified investment company whose investment objective is to seek
long-term capital appreciation. In seeking to achieve its investment
objective, the Fund will invest at least 65% of its total assets in equity
securities (for the purposes of this investment policy, rights, warrants and
options to purchase common stocks are not deemed to be equity securities),
preferred stocks and equity-linked debt securities issued by Asian companies.
The Fund may invest up to 35% of its total assets in debt securities issued
or guaranteed by Asian companies or by Asian governments, their
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agencies or instrumentalities. The Fund may also invest in securities issued
by non-Asian issuers, provided that the Fund will invest at least 80% of its
total assets in securities issued by Asian companies and the Asian debt
securities referred to above. The Fund expects to invest, from time to time,
a significant portion, but less than 50%, of its assets in equity securities
of Japanese companies.
In the past decade, Asian countries generally have experienced a high level
of real economic growth due to political and economic changes, including
foreign investment and reduced government intervention in the economy.
Alliance believes that certain conditions exist in Asian countries which
create the potential for continued rapid economic growth. These conditions
include favorable demographics and competitive wage rates, increasing levels
of foreign direct investment, rising per capita incomes and consumer demand,
a high savings rate and numerous privatization programs. Asian countries are
also becoming more industrialized and are increasing their intra-Asian
exports while reducing their dependence on Western export demand. Alliance
believes that these conditions are important to the long-term economic growth
of Asian countries.
As the economies of many Asian countries move through the "emerging market"
stage, thus increasing the supply of goods, services and capital available to
less developed Asian markets and helping to spur economic growth in those
markets, the potential is created for many Asian companies to experience
rapid growth. In addition, many Asian companies the securities of which are
listed on exchanges in more developed Asian countries will be participants in
the rapid economic growth of the lesser developed countries. These companies
generally offer the advantages of more experienced management and more
developed market regulation.
As their economies have grown, the securities markets in Asian countries have
also expanded. New exchanges have been created and the number of listed
companies, annual trading volume and overall market capitalization have
increased significantly. Additionally, new markets continue to open to
foreign investments. For example, South Korea and India have recently relaxed
investment restrictions and Vietnamese direct investments have recently
become available to U.S. investors. The Fund also offers investors the
opportunity to access relatively restricted markets. Alliance believes that
investment opportunities in Asian countries will continue to expand.
The Fund will invest in companies believed to possess rapid growth potential.
Thus, the Fund will invest in smaller, emerging companies, but will also
invest in larger, more established companies in such growing economic sectors
as capital goods, telecommunications and consumer services.
The Fund will invest in investment grade debt securities, except that the
Fund may maintain not more than 5% of its net assets in lower-rated
securities and lower-rated loans and other lower-rated direct debt
instruments. See "Risk Considerations--Securities Ratings", "--Investment in
Lower-Rated Fixed-Income Securities" and Appendix C in the Fund's Statement
of Additional Information for a description of such ratings. The Fund will
not retain a security that is downgraded below C or determined by Alliance to
have undergone similar credit quality deterioration following purchase.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and "semi-
governmental securities;" (iv) invest up to 25% of its net assets in equity-
linked debt securities with the objective of realizing capital appreciation; (v)
invest up to 25% of its net assets in loans and other direct debt instruments;
(vi) write covered put and call options on securities of the types in which it
is permitted to invest and on exchange-traded index options; (vii) 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, securities issued by foreign
government entities, or common stock and may purchase and write options on
future contracts; (viii) purchase and write put and call options on foreign
currencies for hedging purposes; (ix) purchase or sell forward contracts; (x)
enter into interest rate swaps and purchase or sell interest rate caps and
floors; (xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xv) make short sales of
securities or maintain a short position, in each case only if "against the box;"
and (xvi) make secured loans of its portfolio securities not in excess of 30% of
its total assets to entities with which it can enter into repurchase agreements.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices".
Alliance Global Small Cap Fund
Alliance Global Small Cap Fund, Inc. ("Global Small Cap Fund") is a
diversified investment company that seeks long-term growth of capital through
investment in a global portfolio of the equity securities of selected
companies with relatively small market capitalization. The Fund's portfolio
emphasizes companies with market capitalizations that would have placed them
(when purchased) in about the smallest 20% by market capitalization of
actively traded U.S. companies, or market capitalizations of up to about $1
billion. Because the Fund applies the U.S. size standard on a global basis,
its foreign investments might rank above the lowest 20%, and, in fact, might
in some countries rank among the largest, by market capitalization in local
markets. Normally, the Fund invests at least 65% of its assets in equity
securities of these smaller capitalization issuers, and these issuers are
located in at least three countries, one of which may be the U.S. Up to 35%
of the Fund's total assets may be invested in securities of
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companies whose market capitalizations exceed the Fund's size standard. The
Fund's portfolio securities may be listed on a U.S. or foreign exchange or
traded over-the-counter.
Alliance believes that smaller capitalization issuers often have sales and
earnings growth rates exceeding those of larger companies, and that these
growth rates tend to cause more rapid share price appreciation. Investing in
smaller capitalization stocks, however, involves greater risk than is
associated with larger, more established companies. For example, smaller
capitalization companies often have limited product lines, markets, or
financial resources. They may be dependent for management on one or a few key
persons, and can be more susceptible to losses and risks of bankruptcy. Their
securities may be thinly traded (and therefore have to be sold at a discount
from current market prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts and may be
subject to wider price swings and thus may create a greater chance of loss
than when investing in securities of larger capitalization companies.
Transaction costs in small capitalization stocks may be higher than in those
of larger capitalization companies.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants to purchase equity securities; (iii) invest in depositary receipts
or other securities representing securities of companies based in countries
other than the U.S.; (iv) purchase or sell forward foreign currency
contracts; (v) write and purchase exchange-traded call options and purchase
exchange-traded put options, including put options on market indices; and
(vi) make secured loans of portfolio securities not in excess of 30% of its
total assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Total Return Funds
The Total Return Funds have been designed to provide a range of investment
alternatives to investors seeking both growth of capital and current income.
Alliance Strategic Balanced Fund
Alliance Strategic Balanced Fund ("Strategic Balanced Fund") is a diversified
investment company that seeks a high long-term total return by investing in a
combination of equity and debt securities. The portion of the Fund's assets
invested in each type of security varies in accordance with economic
conditions, the general level of common stock prices, interest rates and
other relevant considerations, including the risks associated with each
investment medium. The Fund's investment objective is not fundamental.
The Fund's equity securities will generally consist of dividend-paying common
stocks and other equity securities of companies with favorable earnings outlooks
and long-term growth rates that Alliance expects will exceed that of the U.S.
economy. The Fund's debt securities may include U.S. Government securities and
securities issued by private corporations. The Fund may also invest in mortgage-
backed securities, adjustable rate securities, asset-backed securities and so-
called "zero-coupon" bonds and "payment-in-kind" bonds.
As a fundamental policy, the Fund will invest at least 25% of its total
assets in fixed-income securities, which for this purpose include debt
securities, preferred stocks and that portion of the value of convertible
securities that is attributable to the fixed-income characteristics of those
securities.
The Fund's debt securities will generally be of investment grade. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." In the event that the rating of any debt securities
held by the Fund falls below investment grade, the Fund will not be
obligated to dispose of such obligations and may continue to hold them if
considered appropriate under the circumstances.
The Fund may also: (i) invest in foreign securities, although the Fund will
not generally invest more than 15% of its total assets in foreign securities;
(ii) invest, without regard to this 15% limit, in Eurodollar CDs, which are
dollar-denominated certificates of deposit issued by foreign branches of U.S.
banks that are not insured by any agency or instrumentality of the U.S.
Government; (iii) write covered call and put options on securities it owns or
in which it may invest; (iv) buy and sell put and call options and buy and
sell combinations of put and call options on the same underlying securities;
(v) lend portfolio securities amounting to not more than 25% of its total
assets; (vi) enter into repurchase agreements on up to 25% of its total
assets; (vii) purchase and sell securities on a forward commitment basis;
(viii) buy or sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in forward foreign
exchange contracts; (ix) buy and sell stock index futures contracts and buy
and sell options on those contracts and on stock indices; (x) purchase and
sell futures contracts, options thereon and options with respect to U.S.
Treasury securities; and (xi) invest in securities that are not publicly
traded, including Rule 144A securities. For additional information on the
use, risks and costs of these policies and practices see "Additional
Investment Practices."
Alliance Balanced Shares
Alliance Balanced Shares, Inc. ("Balanced Shares") is a diversified
investment company that seeks a high return through a combination of current
income and capital appreciation. Although the Fund's investment objective is
not fundamental, the Fund is a "balanced fund" as a matter of fundamental
policy. The Fund will not purchase a security if as a result less than 25% of
its total assets will be in fixed-income senior securities (including short-
and long-term debt securities, preferred stocks, and convertible debt
securities and convertible preferred stocks to the extent that their values
are attributable to their fixed-income characteristics). Subject to these
restrictions, the percentage of the Fund's assets invested in each type of
security will vary. The Fund's assets are invested in U.S. Government
securities,
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bonds, senior debt securities and preferred and common stocks in such
proportions and of such type as are deemed best adapted to the current
economic and market outlooks. The Fund may invest up to 15% of the value of
its total assets in foreign equity and fixed-income securities eligible for
purchase by the Fund under its investment policies described above. See
"Risk Considerations--Foreign Investment."
The Fund may also: (i) enter into contracts for the purchase or sale for
future delivery of foreign currencies; and (ii) purchase and write put and
call options on foreign currencies and enter into forward foreign currency
exchange contracts for hedging purposes. Subject to market conditions, the
Fund may also seek to realize income by writing covered call options listed
on a domestic exchange. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices."
Alliance Income Builder Fund
Alliance Income Builder Fund, Inc. ("Income Builder Fund") is a
non-diversified investment company that seeks an attractive level of current
income and long-term growth of income and capital by investing principally in
fixed-income securities and dividend-paying common stocks. Its investments in
equity securities emphasize common stocks of companies with a historical or
projected pattern of paying rising dividends. Normally, at least 65% of the
Fund's total assets are invested in income-producing securities. The Fund may
vary the percentage of assets invested in any one type of security based upon
Alliance's evaluation as to the appropriate portfolio structure for achieving
the Fund's investment objective, although Alliance currently maintains
approximately 60% of the Fund's net assets in fixed-income securities and 40%
in equity securities.
The Fund may invest in fixed-income securities of domestic and foreign
issuers, including U.S. Government securities and repurchase agreements
pertaining thereto, corporate fixed-income securities of U.S. issuers,
qualifying bank deposits and prime commercial paper.
The Fund may maintain up to 35% of its net assets in lower-rated securities.
See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The Fund will not retain a
non-convertible security that is downgraded below CCC or determined by
Alliance to have undergone similar credit quality deterioration following
purchase.
Foreign securities in which the Fund invests may include fixed-income
securities of foreign corporate and governmental issuers, denominated in U.S.
Dollars, and equity securities of foreign corporate issuers, denominated in
foreign currencies or in U.S. Dollars. The Fund will not invest more than 10%
of its net assets in equity securities of foreign issuers nor more than 15%
of its total assets in issuers of any one foreign country. See "Risk
Considerations--Foreign Investment."
The Fund may also: (i) invest up to 5% of its net assets in rights or warrants;
(ii) invest in depositary receipts and U.S. Dollar denominated securities issued
by supranational entities: (iii) write covered put and call options and purchase
put and call options on securities of the types in which it is permitted to
invest that are exchange-traded; (iv) purchase and sell exchange-traded options
on any securities index composed of the types of securities in which it may
invest; (v) 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, corporate fixed income securities, or common stock, and purchase and
write options on future contracts; (vi) purchase and write put and call options
on foreign currencies and enter into forward contracts for hedging purposes;
(vii) enter into interest rate swaps and purchase or sell interest rate caps and
floors; (viii) enter into forward commitments for the purchase or sale of
securities; (ix) enter into standby commitment agreements; (x) enter into
repurchase agreements pertaining to U.S. Government securities with member banks
of the Federal Reserve System or primary dealers in such securities; (xi) make
short sales of securities or maintain a short position as described below under
"Additional Investment Policies and Practices--Short Sales;" and (xii) make
secured loans of its portfolio securities not in excess of 20% of its total
assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance Utility Income Fund
Alliance Utility Income Fund, Inc. ("Utility Income Fund") is a diversified
investment company that seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry. The Fund may invest in securities of both U.S. and
foreign issuers, although no more than 15% of the Fund's total assets will be
invested in issuers in any one foreign country. The utilities industry
consists of companies engaged in (i) the manufacture, production, generation,
provision, transmission, sale and distribution of gas and electric energy,
and communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities
for the public, or (ii) the provision of other utility or utility-related
goods and services, including, but not limited to, entities engaged in water
provision, cogeneration, waste disposal system provision, solid waste
electric generation, independent power producers and non-utility generators.
The Fund is designed to take advantage of the characteristics and historical
performance of securities of utility companies, many of which pay regular
dividends and increase their common stock dividends over time. As a
fundamental policy, the Fund normally invests at least 65% of its total
assets in securities of companies in the utilities industry. The Fund
considers a company to be in the utilities industry if, during the most
recent twelve-month period, at
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least 50% of the company's gross revenues, on a consolidated basis, were
derived from its utilities activities.
At least 65% of the Fund's total assets are invested in income-producing
securities, but there is otherwise no limit on the allocation of the Fund's
investments between equity securities and fixed-income securities. The Fund
may maintain up to 35% of its net assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a security that is
downgraded below B or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The United States utilities industry has experienced significant changes in
recent years. Electric utility companies in general have been favorably
affected by lower fuel costs, the full or near completion of major
construction programs and lower financing costs. In addition, many utility
companies have generated cash flows in excess of current operating expenses
and construction expenditures, permitting some degree of diversification into
unregulated businesses. Regulatory changes with respect to nuclear and
conventionally fueled generating facilities, however, could increase costs or
impair the ability of such electric utilities to operate such facilities,
thus reducing their ability to service dividend payments with respect to the
securities they issue. Furthermore, rates of return of utility companies
generally are subject to review and limitation by state public utilities
commissions and tend to fluctuate with marginal financing costs. Rate
changes, however, ordinarily lag behind the changes in financing costs, and
thus can favorably or unfavorably affect the earnings or dividend pay-outs on
utilities stocks depending upon whether such rates and costs are declining or
rising.
Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been
adversely affected by declines in the prices of alternative fuels, and have
also been affected by oversupply conditions and competition. Telephone
utilities are still experiencing the effects of the break-up of American
Telephone & Telegraph Company, including increased competition and rapidly
developing technologies with which traditional telephone companies now
compete. Although there can be no assurance that increased competition and
other structural changes will not adversely affect the profitability of such
utilities, or that other negative factors will not develop in the future, in
Alliance's opinion, increased competition and change may provide better
positioned utility companies with opportunities for enhanced profitability.
Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and
regulatory changes. There can also be no assurance that regulatory policies
or accounting standards changes will not negatively affect utility companies'
earnings or dividends. Utility companies are subject to regulation by various
authorities and may be affected by the imposition of special tariffs and
changes in tax laws. To the extent that rates are established or reviewed by
governmental authorities, utility companies are subject to the risk that such
authorities will not authorize increased rates. Because of the Fund's policy
of concentrating its investments in utility companies, the Fund is more
susceptible than most other mutual funds to economic, political or regulatory
occurrences affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although such regulations may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. and, as in the U.S., generally are required to seek government approval for
rate increases. In addition, because many foreign utility companies use fuels
that cause more pollution than those used in the U.S., such utilities may yet be
required to invest in pollution control equipment. Foreign utility regulatory
systems vary from country to country and may evolve in ways different from
regulation in the U.S. The percentage of the Fund's assets invested in issuers
of particular countries will vary. See "Risk Considerations--Foreign
Investments."
The Fund may invest up to 35% of its total assets in equity and fixed-income
securities of domestic and foreign corporate and governmental issuers other
than utility companies, including U.S. Government securities and repurchase
agreements pertaining thereto, foreign government securities, corporate
fixed-income securities of domestic issuers, corporate fixed-income
securities of foreign issuers denominated in foreign currencies or in U.S.
dollars (in each case including fixed-income securities of an issuer in one
country denominated in the currency of another country), qualifying bank
deposits and prime commercial paper.
The Fund may also: (i) invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 5% of its net assets in rights or warrants; (iii)
invest in depositary receipts, securities of supranational entities denominated
in the currency of any country, securities denominated in European Currency
Units and "semi-governmental securities;" (iv) write covered put and call
options and purchase put and call options on securities of the types in which
it is permitted to invest that are exchange-traded and over-the-counter; (v)
purchase and sell exchange-traded options on any securities index composed of
the types of securities in which it may invest; (vi) 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 an
index of U.S. Government securities, foreign government securities, corporate
fixed-income securities, or common stock, and may purchase and write options
on futures contracts; (vii) purchase and write put and call options on
foreign currencies traded on U.S. and foreign exchanges or over-the-counter
for hedging purposes; (viii) purchase or sell forward contracts; (ix) enter
into interest
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rate swaps and purchase or sell interest rate caps and floors; (x) enter in
forward commitments for the purchase or sale of securities; (xi) enter into
standby commitment agreements; (xii) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xiii) make short sales
of securities or maintain a short position as described below under
"Additional Investment Practices--Short Sales;" and (xiv) make secured loans
of its portfolio securities not in excess of 20% of its total assets to
brokers, dealers and financial institutions. For additional information on
the use, risk and costs of these policies and practices see "Additional
Investment Practices."
Alliance Growth and Income Fund
Alliance Growth and Income Fund, Inc. ("Growth and Income Fund") is a
diversified investment company that seeks appreciation through investments
primarily in dividend-paying common stocks of good quality, although it is
permitted to invest in fixed-income securities and convertible securities.
The Fund may also try to realize income by writing covered call options
listed on domestic securities exchanges. See "Additional Investment Practices
- --Options." The Fund also invests in foreign securities. Since the purchase of
foreign securities entails certain political and economic risks, the Fund has
restricted its investments in securities in this category to issues of high
quality. See "Risk Considerations--Foreign Investment."
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described above.
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
stock, although the higher yield tends to make the convertible security less
volatile than the underlying common stock. As with debt securities, the
market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. While convertible securities
generally offer lower interest or dividend yields than non-convertible debt
securities of similar quality, they enable investors to benefit from
increases in the market price of the underlying common stock. Convertible
debt securities that are rated Baa or lower by Moody's or BBB or lower by
S&P, Duff & Phelps or Fitch and comparable unrated securities as determined
by Alliance may share some or all of the risks of non-convertible debt
securities with those ratings. For a description of these risks, see "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities."
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts are not obligated to
disclose material information in the United States and, therefore, there may
not be a correlation between such information and the market value of the
depositary receipts. ADRs are depositary receipts typically issued by a U.S.
bank or trust company that evidence ownership of underlying securities issued
by a foreign corporation. GDRs and other types of depositary receipts are
typically issued by foreign banks or trust companies and evidence ownership
of underlying securities issued by either a foreign or a U.S. company.
Generally, depositary receipts in registered form are designed for use in the
U.S. securities markets, and depositary receipts in bearer form are designed
for use in foreign securities markets. The investments of Growth Fund,
Strategic Balanced Fund and Income Builder Fund in ADRs are deemed to be
investments in securities issued by U.S. issuers and those in GDRs and other
types of depositary receipts are deemed to be investments in the underlying
securities. The investments of All-Asia Investment Fund in depositary
receipts are deemed to be investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the
World Bank (International Bank for Reconstruction and Development) and the
European Investment Bank. A European Currency Unit is a basket of specified
amounts of the currencies of the member states of the European Economic
Community. "Semi-governmental securities" are securities issued by entities
owned by either a national, state or equivalent government or are obligations
of one of such government jurisdictions which are not backed by its full
faith and credit and general taxing powers.
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Mortgage-Backed Securities. Interest and principal payments (including
prepayments) on the mortgages underlying mortgage-backed securities are passed
through to the holders of the securities. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than their
stated maturity would indicate. Prepayments occur when the mortgagor on a
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. Because the prepayment characteristics of the underlying
mortgages vary, it is impossible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayments are
important because of their effect on the yield and price of the mortgage-backed
securities. During periods of declining interest rates, prepayments can be
expected to accelerate and a Fund investing in such securities would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, prepayments of mortgages underlying securities purchased at a premium
could result in capital losses.
Adjustable Rate Securities. Adjustable rate securities have interest rates
that are reset at periodic intervals, usually by reference to some interest
rate index or market interest rate. Some adjustable rate securities are
backed by pools of mortgage loans. Although the rate-adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
the issuer's creditworthiness. Changes in the interest rate on adjustable
rate securities may lag behind changes in prevailing market interest rates.
Also, some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors that limit the maximum change in interest rate.
Asset-Backed Securities. Asset-backed securities (unrelated to first mortgage
loans) represent fractional interests in pools of leases, retail installment
loans, revolving credit receivables and other payment obligations, both
secured and unsecured. These assets are generally held by a trust and
payments of principal and interest or interest only are passed through
monthly or quarterly to certificate holders and may be guaranteed up to
certain amounts by letters of credit issued by a financial institution
affiliated or unaffiliated with the trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which
may reduce the overall return to certificate holders. Certificate holders may
also experience delays in payment on the certificates if the full amounts due
on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
Zero-Coupon and Payment-in-Kind Bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer to make current interest
payments on the bonds in additional bonds. Because zero-coupon bonds and
payment-in-kind bonds do not pay current interest in cash, their value is
generally subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest in cash currently. Both
zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently. Even
though such bonds do not pay current interest in cash, a Fund is nonetheless
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, a Fund could be required at
times to liquidate other investments in order to satisfy its dividend
requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt securities, the
values of equity-linked debt securities will generally vary inversely with
changes in interest rates. The Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for such
securities. Investment in equity-linked debt securities may be considered to be
speculative. As with other securities, the Fund could lose its entire investment
in equity-linked debt securities.
Loans and Other Direct Debt Instruments. Loans and other direct debt
instruments are interests in amounts owned by a corporate, governmental or
other borrower to another party. They may represent amounts owed to lenders
or lending syndicates (loans and loan participations), to suppliers of goods
or services (trade claims or other receivables), or to other creditors.
Direct debt instruments involve the risk of loss in case of default or
insolvency of the borrower and may offer less legal protection to the Fund in
the event of fraud or misrepresentation than debt securities. In addition,
loan participations involve a risk of insolvency of the lending bank or other
financial intermediary. Direct debt instruments may also include standby
financing commitments that obligate the Fund to supply additional cash to the
borrower on demand. Loans and other direct debt instruments are generally
illiquid and may be transferred only through individually negotiated private
transactions.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If the Fund does not receive scheduled interest or
principal payments on such indebtedness, the Fund's share price and yield
could
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be adversely affected. Loans that are fully secured offer the Fund more
protection than unsecured loans in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or
that the collateral can be liquidated. Indebtedness of borrowers whose
creditworthiness is poor may involve substantial risks, and may be highly
speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of Asian countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund.
For example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may also involve a
risk of insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified on the loan agreement. Unless, under the terms of the loan or
other indebtedness, the Fund has direct recourse against the borrower, it may
have to rely on the agent to apply appropriate credit remedies against a
borrower. If assets held by the agent for the benefit of the Fund were
determined to be subject to the claims of the agent's general creditors, the
Fund might incur certain costs and delays in realizing payment on the loan or
loan participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments may
have the effect of requiring the Fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i)
direct placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market
(e.g., when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated investments in
state enterprises that have not yet conducted an initial equity offering,
(ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund
may not be able to realize their full value upon sale. With respect to each
Fund that may invest in such securities, Alliance will monitor their
illiquidity under the supervision of the Directors of the Fund. To the extent
permitted by applicable law, Rule 144A securities will not be treated as
"illiquid" for purposes of the foregoing restriction so long as such
securities meet liquidity guidelines established by a Fund's Directors.
Investment in non-publicly traded securities by each of Growth Fund and
Strategic Balanced Fund is restricted to 5% of its total assets (not
including for these purposes Rule 144A securities, to the extent permitted by
applicable law) and is also subject to the 15% restriction on investment in
illiquid securities described above.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. To the extent that
these securities are foreign securities, there is no law in many of the
countries in which a Fund may invest similar to the Securities Act requiring
an issuer to register the sale of securities with a governmental agency or
imposing legal restrictions on resales of securities, either as to length of
time the securities may be held or manner of resale. However, there may be
contractual restrictions on resale of securities.
Options. An option gives the purchaser of the option, upon payment of a
premium, the right to deliver to (in the case of a put) or receive from (in
the case of a call) the writer a specified amount of a security on or before
a fixed date at a predetermined price. 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.
A call option is for cross-hedging purposes if a Fund does not own the
underlying security, and is designed to provide a hedge against a decline in
value in another security which the Fund owns or has the right to acquire.
Worldwide Privatization Fund, All-Asia Investment Fund, Income Builder Fund
and Utility Income Fund each may write call options for cross-hedging
purposes. 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 would exceed that which would be received
from writing a covered call option, while at the same time achieving the
desired hedge.
In purchasing an option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in
the case of a call) or
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decreased (in the case of a put) by an amount in excess of the premium paid;
otherwise the Fund would experience a loss equal to the premium paid for the
option.
If an option written by a Fund were exercised, the Fund would be obligated to
purchase (in the case of a put) or sell (in the case of a call) the
underlying security at the exercise price. The risk involved in writing an
option is that, if the option were exercised, the underlying security would
then be purchased or sold by the Fund at a disadvantageous price. These risks
could be reduced by entering into a closing transaction (i.e., by disposing
of the option prior to its exercise). A Fund retains the premium received
from writing a put or call option whether or not the option is exercised. The
writing of covered call options could result in increases in a Fund's
portfolio turnover rate, especially during periods when market prices of the
underlying securities appreciate.
Technology Fund, Quasar Fund, International Fund, New Europe Fund and Global
Small Cap Fund will not write uncovered call options. Technology Fund and
Global Small Cap Fund will not write a call option if the premium to be
received by the Fund in doing so would not produce an annualized return of at
least 15% of the then current market value of the securities subject to the
option (without giving effect to commissions, stock transfer taxes and other
expenses that are deducted from premium receipts). Technology Fund, Quasar
Fund and Global Small Cap Fund will not write a call option if, as a result,
the aggregate of the Fund's portfolio securities subject to outstanding call
options (valued at the lower of the option price or market value of such
securities) would exceed 15% of the Fund's total assets or more than 10% of
the Fund's assets would be committed to call options that at the time of sale
have a remaining term of more than 100 days. The aggregate cost of all
outstanding options purchased and held by each of Premier Growth Fund,
Technology Fund, Quasar Fund and Global Small Cap Fund will at no time exceed
10% of the Fund's total assets. Neither International Fund nor New Europe
Fund will write uncovered put options.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance, and
Alliance has adopted procedures for monitoring the creditworthiness of such
entities. Options purchased or written by a Fund in negotiated transactions
are illiquid and it may not be possible for the Fund to effect a closing
transaction at an advantageous time. See "Illiquid Securities."
Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount
of cash if the closing level of the chosen index is greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the
contract at a specified price on a specified date. A "purchase" of a futures
contract means the incurring of an obligation to acquire the securities,
foreign currencies or other commodity called for by the contract at a
specified price on a specified date. The purchaser of a futures contract on
an index agrees to take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of the index on
the expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by a Fund will be traded on
U.S. or foreign exchanges or over-the-counter. These investment techniques
will be used only to hedge against anticipated future changes in market
conditions and interest or exchange rates which otherwise might either
adversely affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to purchase at a later
date.
No Fund will enter into any futures contracts or options on futures contracts
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
and Income Builder Fund will also not do so if immediately thereafter the
aggregate of initial margin deposits on all the outstanding futures contracts
of the Fund and premiums paid on outstanding options on futures contracts
would exceed 5% of the market value of the total assets of the Fund. Neither
Premier Growth Fund nor Counterpoint Fund may purchase or sell a stock index
future if immediately thereafter more than 30% of its total assets would be
hedged by stock index futures. In connection with the purchase of stock index
futures contracts, a Fund will deposit in a segregated account with its
custodian an amount of cash, U.S. Government securities or other liquid
high-quality debt securities equal to the market value of the futures
contracts less any amounts maintained in a margin account with the Fund's
broker. Premier Growth Fund and Counterpoint Fund may not purchase or sell a
stock index future if, immediately thereafter, the sum of the amount of
margin deposits on the Fund's existing futures positions would exceed 5% of
the market value of the Fund's total assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and a Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements
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adverse to a Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. See the Statement of Additional Information
of each Fund that may invest in options on foreign currencies for further
discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells
forward contracts to minimize the risk to it from adverse changes in the
relationship between the U.S. dollar and other currencies. A forward contract
is an obligation to purchase or sell a specific currency for an agreed price
at a future date, and is individually negotiated and privately traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with
respect to the currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency. When a Fund
believes that a foreign currency may suffer a substantial decline against the
U.S. dollar, it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when the Fund
believes that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount ("position hedge"). A Fund will
not position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to
the forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not entered
into such forward contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for a Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it anticipates.
International Fund, New Europe Fund and Global Small Cap Fund will not enter
into a forward contract with a term of more than one year or if, as a result,
more than 50% of its total assets would be committed to such contracts. The
dealings of International Fund, New Europe Fund and Global Small Cap Fund in
forward contracts will be limited to hedging involving either specific
transactions or portfolio positions.
Growth Fund and Strategic Balanced Fund may also purchase and sell foreign
currency on a spot basis.
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
(i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price 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 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 accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be canceled in the event
that the required conditions did not occur and the trade was canceled.
The use of forward commitments enables 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
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if Alliance were to
forecast incorrectly the direction of interest rate movements, a Fund might
be required to complete such when-issued or forward transactions at prices
inferior to the then current market values. When-issued securities and
forward commitments may be sold prior to the settlement date, but a Fund
enters into when-issued and forward commitments only with the intention of
actually receiving securities or delivering them, as the case may be. If a
Fund 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. Any significant commitment
of Fund assets to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of the Fund's net asset value. No forward
commitments will be made by New Europe Fund, All-Asia Investment Fund,
Worldwide Privatization Fund, Income Builder Fund or Utility Income Fund if,
as a result, the Fund's aggregate commitments under such transactions would
be more than 30% of the Fund's total assets. In the event the other party to
a forward commitment transaction were to default, a Fund might lose the
opportunity to invest money at favorable rates or to dispose of securities at
favorable prices.
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Standby Commitment Agreements. Standby commitment agreements 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, typically equal to
approximately 0.5% of the aggregate purchase price of the security the Fund
has committed to purchase. A Fund will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price considered advantageous to the Fund and unavailable on a firm
commitment basis. Each Fund, other than Income Builder Fund, will not enter
into a standby commitment with a remaining term in excess of 45 days and will
limit its investment in such commitments so that the aggregate purchase price
of the securities subject to the commitments will not exceed 25% with respect
to New Europe Fund, 50% with respect to Worldwide Privatization Fund and
All-Asia Investment Fund, and 20% with respect to Utility Income Fund, of its
assets taken at the time of making the commitment.
There is no guarantee that the securities subject to a standby commitment
will be issued and 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 underlying the commitment 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.
Currency Swaps. Currency swaps involve the individually negotiated exchange by a
Fund with another party of a series of payments in specified currencies. A
currency swap may involve the delivery at the end of the exchange period of a
substantial amount of one designated currency in exchange for the other
designated currency. Therefore the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis. A Fund will not enter into any currency swap unless
the credit quality of the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into the
transaction. If there is a default by the other party to such a transaction,
such Fund will have contractual remedies pursuant to the agreements related to
the transactions.
Interest Rate Transactions. Each Fund that may enter into interest rate
transactions expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Funds do not intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Interest rate swaps are entered 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). With
respect to All-Asia Investment Fund and Utility Income Fund, the exchange
commitments can involve payments in the same currency or in different
currencies. 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 such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on an agreed principal amount
from the party selling the interest rate 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. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap,
cap and floor is accrued daily. A Fund will not enter into an interest rate
swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is then rated in the highest
rating category of at least one nationally recognized rating organization.
Alliance will monitor the creditworthiness of counterparties on an ongoing
basis. 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 relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been developed
and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Alliance incorrectly
forecasted market values, interest rates and other applicable factors, the
investment performance of a Fund would be adversely affected by the use of
these investment techniques. Moreover, even if Alliance is correct in its
forecasts, there is a risk that the transaction position may correlate
imperfectly with the price of the asset or liability being hedged. 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. 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 transactions is limited to the net amount of interest payments that a
Fund is contractually obligated to make. If the other party to an interest
rate transaction defaults, a Fund's risk of loss consists of the net
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amount of interest payments that the Fund contractually is entitled to
receive.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an
agreed-upon future date, normally a day or a few days later. The resale price
is greater than the purchase price, reflecting an agreed-upon interest rate
for the period the buyer's money is invested in the security. Such agreements
permit a Fund to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. 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. Alliance monitors the
creditworthiness of the vendors with which the Fund enters into repurchase
agreements. There is no percentage restriction on a Fund's ability to enter
into repurchase agreements, other than as indicated under "Investment
Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does
not own, or if the Fund does own such security, it is not to be delivered
upon consummation of the sale. A short sale is "against the box" to the
extent that a Fund contemporaneously owns or has the right to obtain
securities identical to those sold short without payment. Worldwide
Privatization Fund, All-Asia Investment Fund, Income Builder Fund and Utility
Income Fund each may make short sales of securities or maintain short
positions only for the purpose of deferring realization of gain or loss for
U.S. federal income tax purposes, provided that at all times when a short
position is open the Fund owns an equal amount of securities of the same issue
as, and equal in amount to, the securities sold short. In addition, each of
those Funds may not make a short sale if as a result more than 10% of the Fund's
net assets would be held as collateral for short sales, except that All-Asia
Investment Fund may not make a short sale if as a result more than 25% of the
Fund's net 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 capital gain. See
"Certain Fundamental Investment Policies." Certain special federal income tax
considerations may apply to short sales entered into by a Fund. See "Dividends,
Distributions and Taxes" in the relevant Fund's Statement of Additional
Information.
Loans of Portfolio Securities. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower.
While securities are on loan, the borrower will pay the Fund any income
earned thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent collateral.
Each Fund will have the right to regain record ownership of loaned securities
or equivalent securities in order to exercise ownership rights such as voting
rights, subscription rights and rights to dividends, interest or
distributions. A Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan. A Fund will not lend its portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast price movements, interest
rates or currency exchange rate movements correctly. Should interest rates,
prices or exchange rates move unexpectedly, a Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus
be in a worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are
no daily price fluctuation limits with respect to certain options and forward
contracts, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the prices of futures contracts, options and forward contracts
and movements in the prices of the securities and currencies hedged or used
for cover will not be perfect and could produce unanticipated losses.
A Fund's ability to dispose of its position in futures contracts, options and
forward contracts depends on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of types
of securities and currencies are relatively new and still developing, and
there is no public market for forward contracts. It is impossible to predict
the amount of trading interest that may exist in various types of futures
contracts, options and forward contracts. If a secondary market does not
exist with respect to an option purchased or written by a Fund, it might not
be possible to effect a closing transaction in the option (i.e., dispose of
the option) with the result that (i) an option purchased by the Fund would
have to be exercised in order for the Fund to realize any profit and (ii) the
Fund may not be able to sell currencies or portfolio securities covering an
option written by the Fund until the option expires or it delivers the
underlying security, futures contract or currency upon exercise. Therefore,
no assurance can be given that the Funds will be able to utilize these
instruments effectively for the purposes set forth above. Furthermore, a
Fund's ability to engage in options and futures transactions may be limited
by tax considerations. See "Dividends, Distributions and Taxes" in the
Statement of Additional Information of each Fund that invests in options and
futures.
Future Developments. A Fund may, following written notice to
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its shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Fund or are not available but may yet
be developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
Defensive Position. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high-grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities including
notes and bonds. For Funds that may invest in foreign countries, such
securities may also include short-term, foreign-currency denominated
securities of the type mentioned above issued by foreign governmental
entities, companies and supranational organizations. For a complete
description of the types of securities each Fund may invest in while in a
temporary defensive position, please see such Fund's Statement of Additional
Information.
Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These portfolio turnover rates are greater than those of most
other investment companies, including those which emphasize capital
appreciation as a basic policy. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains.
See "Dividends, Distributions and Taxes" in each Fund's Statement of
Additional Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
Alliance Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government); (ii) acquire
more than 10% of the voting or other securities of any one issuer; or (iii)
buy securities of any company that (including its predecessors) has not been in
business at least three continuous years. Pursuant to investment policies
which are not fundamental, the Fund does not invest (i) in puts or calls
(except as discussed above); (ii) in straddles, spreads, or any combination
thereof; (iii) in oil, gas or other mineral exploration or development
programs; or (iv) more than 5% of its gross assets in securities the
disposition of which would be subject to restrictions under the federal
securities laws.
Growth Fund and Strategic Balanced Fund each may not: (i) invest more than 5%
of its total assets in the securities of any one issuer (other than U.S.
Government securities and repurchase agreements relating thereto), although
up to 25% of each Fund's total assets may be invested without regard to this
restriction; or (ii) invest 25% or more of its total assets in the securities
of any one industry.
Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Counterpoint Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities,
if as a result more than 5% of the value of its total assets would be
invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in a particular
industry; (iii) borrow money except for temporary or emergency purposes,
including meeting 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
its total assets at the time the borrowing is made; (iv) invest more than 10%
of its net assets in the aggregate in restricted and not readily marketable
securities; (v) invest more than 10% of its total assets in the securities of
any issuer that has a record of less than three years of continuous operation
(including the operation of any predecessor); or (vi) invest more than 10% of
the value of its total assets in the aggregate in illiquid securities or
repurchase agreements not terminable within seven days.
Technology Fund may not: (i) with respect to 75% of its total assets, have
such assets represented by other than: (a) cash and cash items, (b) U.S.
Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value
than 5% of the Fund's total assets, and not more than 10% of the outstanding
voting securities of such issuer; (ii) purchase the securities of any one
issuer, other than the U.S. Government and its agencies or instrumentalities,
if as a result (a) the value of the holdings of the Fund in the securities of
such issuer exceeds 25% of its total assets, or (b) the Fund owns more than
25% of the outstanding securities of any one
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class of securities of such issuer; (iii) concentrate its investments in any
one industry, but the Fund has reserved the right to invest up to 25% of its
total assets in a particular industry; and (iv) invest in the securities of
any issuer which has a record of less than three years of continuous
operation (including the operation of any predecessor) if such purchase would
cause 10% or more of its total assets to be invested in the securities of
such issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other
than the U.S. Government or any of its agencies or instrumentalities, if as a
result more than 5% of its total assets would be invested in such issuer or
the Fund would own more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of its total assets may be invested without
regard to these 5% and 10% limitations; (ii) invest more than 25% of its
total assets in any particular industry; (iii) borrow money except for
temporary or emergency purposes in an amount not exceeding 5% of its total
assets at the time the borrowing is made; or (iv) invest more than 10% of its
assets in restricted securities.
International Fund may not: (i) invest more than 5% of the value of its total
assets in securities of a single issuer (including repurchase agreements with
any one entity), except U.S. Government securities or foreign government
securities; provided, however, that the Fund may not, with respect to 75% of
its total assets, invest more than 5% of its total assets in securities of
any one foreign government issuer; (ii) own more than 10% of the outstanding
securities of any class of any issuer (for this purpose, all preferred stocks
of an issuer shall be deemed a single class, and all indebtedness of an
issuer shall be deemed a single class), except U.S. Government securities;
(iii) invest more than 25% of the value of its total assets in securities of
issuers having their principal business activities in the same industry;
provided, that this limitation does not apply to U.S. Government securities
or foreign government securities; (iv) invest more than 5% of the value of
its total assets in the securities of any issuer that has a record of less
than three years of continuous operation (including the operation of any
predecessor or unconditional guarantor), except U.S. Government securities or
foreign government securities; (v) invest more than 5% of the value of its
total assets in securities with legal or contractual restrictions on resale,
other than repurchase agreements, or more than 10% of the value of its total
assets in securities that are not readily marketable (including restricted
securities and repurchase agreements not terminable within seven business
days); and (vi) borrow money, except as a temporary measure for extraordinary
or emergency purposes, and then only from banks in amounts not exceeding 5%
of its total assets.
Worldwide Privatization Fund may not: (i) invest 25% or more of its total
assets in securities of issuers conducting their principal business
activities in the same industry, except that this restriction does not apply
to (a) U.S. Government securities, or (b) the purchase of securities of
issuers whose primary business activity is in the national commercial banking
industry, so long as the Fund's Directors determine, on the basis of factors
such as liquidity, availability of investments and anticipated returns, that
the Fund's ability to achieve its investment objective would be adversely
affected if the Fund were not permitted to invest more than 25% of its total
assets in those securities, and so long as the Fund notifies its shareholders
of any decision by the Directors to permit or cease to permit the Fund to
invest more than 25% of its total assets in those securities, such notice to
include a discussion of any increased investment risks to which the Fund may
be subjected as a result of the Directors' determination; (ii) borrow money
except from banks for temporary or emergency purposes, including the meeting
of redemption requests that 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 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 investments are made; or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings. The exception contained in clause (i)(b) above is
subject to the operating policy regarding concentration described in this
Prospectus.
New Europe Fund may not: (i) purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 15% of its total assets
in the securities of any one issuer or 25% or more of its total assets in the
same industry, provided, however, that the foregoing restriction shall not be
deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the issuer,
except that no such purchase may be made if as a result the Fund will fail to
meet the diversification requirements of the Code and any such acquisition in
excess of the foregoing 15% or 25% limits will be sold by the Fund as soon as
reasonably practicable (this restriction does not apply to U.S. Government
securities, but will apply to foreign government securities unless the
Commission permits their exclusion); (iii) borrow money except from banks for
temporary or emergency purposes, including the meeting of redemption requests
that 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 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
Fund's total assets will be repaid before any subsequent investments are
made; or (iv) purchase a security (unless the security is acquired pursuant
to a plan of reorganization or an offer of exchange) if, as a result, the
Fund would own any securities of an open-end investment company or more than
3% of the total outstanding voting stock of any closed-end investment
company, or more than 5% of the value of the Fund's total assets would be
invested in securities of any closed-end investment company, or more than 10%
of such value in closed-end investment companies in general.
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All-Asia Investment Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business activities in
the same industry; (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that 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 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 investments are made; or (iii)
pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure permitted borrowings.
Global Small Cap Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities,
if immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer or the Fund would own more than 10%
of the outstanding voting securities of such issuer, except that up to 25% of
the Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in the same
industry; this restriction does not apply to U.S. Government securities, but
will apply to foreign government securities unless the Commission permits
their exclusion; (iii) borrow money except from banks for emergency or
temporary purposes in an amount not exceeding 5% of the total assets of the
Fund; or (iv) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and
equal in amount to, the securities sold short and unless not more than 5% of
the Fund's net assets is held as collateral for such sales at any one time.
Balanced Shares may not: (i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S. Government securities; or (ii) own
more than 10% of the outstanding voting securities of any one issuer.
Income Builder Fund may not: (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry, except that
this restriction does not apply to U.S. Government securities; (ii) borrow
money except from banks for temporary or emergency purposes, including the
meeting of redemption requests that 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 Fund's
total assets (including the amount borrowed) less liabilities (not including
the amount borrowed) at the time borrowing is made; securities will not be
purchased while borrowings in excess of 5% of the Fund's total assets are
outstanding; or (iii) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
Utility Income Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although with respect
to 25% of its total assets it may invest in any number of issuers; (ii) invest
25% or more of its total assets in the securities of issuers conducting their
principal business activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the voting securities
of any one issuer; (iv) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that 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 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 Fund's total assets will be
repaid before any subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Fund's net assets would be invested in securities of any one or more closed-end
investment companies.
Growth and Income Fund may not (i) invest more than 5% of its net assets in
the security of any one issuer, except U.S. Government obligations or (ii)
own more than 10% of the outstanding voting securities of any issuer.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Investment in Privatized Enterprises by Worldwide Privatization Fund. In
certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or
terms on which the Fund may be able to participate may be less advantageous
than for local investors. Moreover, there can be no assurance that
governments that have embarked on privatization programs will continue to
divest their ownership of state enterprises, that proposed privatizations
will be successful or that governments will not re-nationalize enterprises
that have been privatized. Furthermore, in the case of certain of the
enterprises in which the Fund may invest, large blocks of the stock of those
enterprises may be held by a small group of stockholders, even after the
initial equity offerings by those enterprises. The sale of some portion or
all of those blocks could have an adverse effect on the price of the stock of
any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering
in an attempt to better enable these enterprises to compete in the private
sector. However, certain
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reorganizations could result in a management team that does not function as
well as the enterprise's prior management and may have a negative effect on
such enterprise. After making an initial equity offering, enterprises that
may have enjoyed preferential treatment from the respective state or
government that owned or controlled them may no longer receive such
preferential treatment and may become subject to market competition from
which they were previously protected. Some of these enterprises may not be
able to effectively operate in a competitive market and may suffer losses or
experience bankruptcy due to such competition. In addition, the privatization
of an enterprise by its government may occur over a number of years, with the
government continuing to hold a controlling position in the enterprise even
after the initial equity offering for the enterprise.
Currency Considerations. Substantially all of the assets of International
Fund, New Europe Fund, All-Asia Investment Fund, Global Small Cap Fund and
Worldwide Privatization Fund will be invested in securities denominated in
foreign currencies, and a corresponding portion of these Funds' revenues will
be received in such currencies. Therefore, the dollar equivalent of their net
assets, distributions and income will be adversely affected by reductions in
the value of certain foreign currencies relative to the U.S. dollar. If the
value of the foreign currencies in which a Fund receives its income falls
relative to the U.S. dollar between receipt of the income and the making of
Fund distributions, the Fund may be required to liquidate securities in order
to make distributions if it has insufficient cash in U.S. dollars to meet
distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if
an exchange rate declines between the time a Fund incurs expenses in U.S.
dollars and the time cash expenses are paid, the amount of the currency
required to be converted into U.S. dollars in order to pay expenses in U.S.
dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, which themselves involve
certain special risks. See "Additional Investment Practices" above.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of United States
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities settlements
may in some instances be subject to delays and related administrative
uncertainties. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. Certain foreign countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government notification or
authority, and if a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital remittances.
A Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected and Alliance will monitor the effect of
any such factor or factors on a Fund's in vestments. Furthermore, transaction
costs including brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such
matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. The
reporting, accounting and auditing standards of foreign countries may differ,
in some cases significantly, from U.S. standards in important respects and
less information may be available to investors in foreign securities than to
investors in U.S. securities. Substantially less information is publicly
available about certain non-U.S. issuers than is available about U.S.
issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
domestic product or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Nationalization, expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social instability or
diplomatic developments could affect adversely the economy of a foreign
country or the Fund's investments in such country. In the event of
expropriation, nationalization or other confiscation, a Fund could lose its
entire investment in the country involved. In addition, laws in foreign
countries governing business organizations, bankruptcy
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and insolvency may provide less protection to security holders such as the
Fund than that provided by U.S. laws.
Investment in United Kingdom Issuers by New Europe Fund. Investment in
securities of United Kingdom issuers involves certain considerations not
present with investment in securities of U.S. issuers. As with any investment
not denominated in the U.S. dollar, the U.S. dollar value of the Fund's
investment denominated in the British pound sterling will fluctuate with
pound sterling--dollar exchange rate movements. Since 1972, when the pound
sterling was allowed to float against other currencies, it has generally
depreciated against most major currencies, including the U.S. dollar. From
1990 through 1994, the pound sterling declined at an average annual rate of
approximately 3.6% against the U.S. dollar. Between September and December
1992, after the United Kingdom's exit from the Exchange Rate Mechanism of the
European Monetary System, the value of the pound sterling fell by almost 20%
against the U.S. dollar. The pound sterling continued to fall in early 1993,
but recovered due to interest rate cuts throughout Europe and an upturn in
the economy of the United Kingdom.
The United Kingdom's largest stock exchange is the International Stock Exchange
of the United Kingdom and the Republic of Ireland (The London Stock Exchange),
which is the third largest exchange in the world. As measured by the FT-SE 100
index, the performance of the 100 largest companies in the United Kingdom
reached a record high of 3593.0 on October 18, 1995, up 17% from the end of
1994.
The public sector borrowing requirement ("PSBR"), a mandated measure of the
amount required to balance the budget, is running in excess of the November
1994 budget estimate, as a result of decreased revenue growth and increased
government spending. The PSBR estimate for the 1996-97 fiscal year has also
been raised, but is still expected to be under the European Union limit.
Since 1979, the Conservative Party has controlled Parliament. However, in
recent years, this dominance has been called into question. In 1990, due to
an internal challenge for leadership the Conservative Party chose John Major
to replace Margaret Thatcher as Prime Minister. Mr. Major's position has been
strengthened by his reelection as leader of the Conservative Party and is
expected to retain that position until the next general election. Unless the
Conservative Party calls for an earlier election, the next general election
will take place in April 1997. For further information regarding the United
Kingdom, see the Fund's Statement of Additional Information.
Investment in Japanese Issuers by All-Asia Investment Fund and International
Fund. Investment in securities of Japanese issuers involves certain
considerations not present with investment in securities of U.S. issuers. As
with any investment not denominated in the U.S. dollar, the U.S. dollar value
of each Fund's investments denominated in the Japanese yen will fluctuate
with yen-dollar exchange rate movements. The Japanese yen has generally been
appreciating against the U.S. dollar for the past decade but has recently
fallen from its post-World War II high against the U.S. dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section
of which is reserved for larger, established companies. As measured by the
TOPIX, a capitalization-weighted composite index of all common stocks listed
in the First Section, the performance of the First Section reached a peak in
1989. Thereafter, the TOPIX declined approximately 46% through the beginning
of 1993. In 1993, the TOPIX increased by approximately 9% from the end of
1992, and by the end of 1994 increased by approximately 8% from the end of
1993. As of October 27, 1995, the TOPIX had declined by approximately 11% from
the end of 1994. Certain valuation measures, such as price-to-book value and
price-to-cash flow ratios, indicate that the Japanese stock market is near its
lowest level in the last twenty years relative to other world markets. The
price/earnings ratios of First Section companies, however, are on average high
in comparison with other major stock markets.
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund's investments in Japanese issuers also will be subject to
uncertainty resulting from the instability of recent Japanese ruling
coalitions. From 1955 to 1993, Japan's government was controlled by a single
political party. In August 1993, following a split in that party, a coalition
government was formed. That coalition government collapsed in April 1994, and
was replaced by a minority coalition that, in turn, collapsed in June 1994.
The stability of the current ruling coalition, the third since 1993, and the
first in 47 years led by a socialist, is not assured. For further information
regarding Japan, see each Fund's Statement of Additional Information.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Global Small Cap Fund and New Europe Fund will emphasize
investment in, and All-Asia Investment Fund may emphasize investment in,
smaller, emerging companies. Investment in such companies involves greater
risks than is customarily associated with securities of more established
companies. The securities of smaller companies may have relatively limited
marketability and may be subject to more abrupt or erratic market movements
than securities of larger companies or broad market indices.
U.S. and Foreign Taxes. Foreign taxes paid by a Fund may be creditable or
deductible by U.S. shareholders for U.S. income tax purposes. No assurance
can be given that applicable tax laws and interpretations will not change in
the future. Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the information
discussed under the heading "Dividends, Distributions and Taxes" and should
discuss with their tax advisers the specific tax consequences of investing in
a Fund.
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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 in
fixed-income securities will change as the general level of interest rates
fluctuates. During periods of falling interest rates, the values of
fixed-income securities generally rise. Conversely, during periods of rising
interest rates, the values of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of a
Fund's portfolio of debt or other fixed-income securities is expected to vary
between five and 30 years in the case of All-Asia Investment Fund, between
eight and 15 years in the case of Income Builder Fund, between five and 25
years in the case of Utility Income Fund and between one year or less and 30
years in the case of all other Funds that invest in such securities.
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps
and Fitch are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in credit risk of
securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make
risks appear somewhat larger than exist with securities rated Aaa or AAA.
Securities rated A are considered by Moody's to possess adequate factors
giving security to principal and interest. S&P, Duff & Phelps and Fitch
consider such securities to have a strong capacity to pay interest and repay
principal. Such securities are more susceptible to adverse changes in
economic conditions and circumstances than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. Sustained periods
of deteriorating economic conditions or of rising interest rates are more
likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities. Securities rated
Ba by Moody's and BB by S&P, Duff & Phelps and Fitch are considered to have
speculative characteristics with respect to capacity to pay interest and
repay principal over time; their future cannot be considered as well-assured.
Securities rated B by Moody's, S&P, Duff & Phelps and Fitch are considered to
have highly speculative characteristics with respect to capacity to pay
interest and repay principal. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are
of poor standing and there is a present danger with respect to payment of
principal or interest. Securities rated Ca by Moody's and CC by S&P and Fitch
are minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent
default in payment of principal or interest and have extremely poor prospects
of ever attaining any real investment standing. Securities rated D by S&P and
Fitch are in default. The issuer of securities rated DD by Duff & Phelps is
under an order of liquidation.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities, i.e.,
those rated Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps or
Fitch, are subject to greater risk of loss of principal and interest than
higher-rated securities. They are also generally considered to be subject to
greater market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition, lower-
rated securities may be more susceptible to real or perceived adverse economic
conditions than investment grade securities, although the market values of
securities rated below investment grade and comparable unrated securities tend
to react less to fluctuations in interest rate levels than do those of higher-
rated securities.
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. In addition, adverse publicity and investor perceptions about
lower-rated securities, whether or not factual, may tend to impair their
market value and liquidity.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of
its program for managing a Fund's securities than would be the case if a Fund
did not invest in lower-rated securities.
In seeking to achieve a Fund's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Fund's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in
yield and market values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset
value of a Fund. See the Statement of Additional Information for each Fund
that invests in lower-rated
39
<PAGE>
securities for a description of the bond ratings of Moody's, S&P, Duff & Phelps
and Fitch.
Certain lower-rated securities in which Growth Fund, Income Builder Fund and
Utility Income Fund may invest may contain call or buy-back features that permit
the issuers thereof to call or repurchase such securities. Such securities may
present risks based on prepayment expectations. If an issuer exercises such a
provision, a Fund may have to replace the called security with a lower yielding
security, resulting in a decreased rate of return to the Fund.
Non-Diversified Status. Each of Premier Growth Fund, Worldwide Privatization
Fund, New Europe Fund, All-Asia Investment Fund and Income Builder Fund is a
"non-diversified" investment company, which means the Fund is not limited in the
proportion of its assets that may be invested in the securities of a single
issuer. However, each Fund intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" for purposes of the Code, which
will relieve the Fund of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information. To so qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities are not subject to these limitations.
Because Premier Growth Fund, Worldwide Privatization Fund, New Europe Fund,
All-Asia Investment Fund and Income Builder Fund is each a non-diversified
investment company, it may invest in a smaller number of individual issuers than
a diversified investment company, and an investment in such Fund may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
- --------------------------------------------------------------------------------
Purchase And Sale
- --------------------------------------------------------------------------------
Of Shares
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund Distributors,
Inc. ("AFD"), each Fund's principal underwriter. The minimum initial investment
in each Fund is $250. The minimum for subsequent investments in each Fund is
$50. Investments of $25 or more are allowed under the automatic investment
program of each Fund. Share certificates are issued only upon request. See the
Subscription Application and Statement of Additional Information for more
information.
Each Fund offers three classes of shares, Class A, Class B and Class C.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- ---------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- ---------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- ---------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- ---------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and Statement of Additional
Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within four years after
purchase. The amount of the CDSC (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to the number of
years from the purchase of Class B shares until the redemption of those shares.
40
<PAGE>
The amount of the CDSC for each Fund is as set forth below. Class B shares of a
Fund purchased prior to the date of this Prospectus may be subject to a
different CDSC schedule, which was disclosed in the Fund's prospectus in use at
the time of purchase and is set forth in the Fund's current Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
-------------------------------------------------
<S> <C>
First.................................... 4.0%
Second................................... 3.0%
Third.................................... 2.0%
Fourth................................... 1.0%
Fifth.................................... None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period (after which they convert to Class A shares) of eight years, or six years
with respect to Premier Growth Fund. The higher fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares incur
higher distribution fees than Class A shares and do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans or pursuant to a systematic
withdrawal plan. See the Statements of Additional Information.
How the Funds Value Their Shares
The net asset value of each Class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that Class by the outstanding
shares of that Class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued at their current market value
determined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Fund's Directors believe would
accurately reflect fair market value.
General
The decision as to which Class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there are no initial or contingent deferred sales charges. Consult your
financial agent. Dealers and agents may receive differing compensation for
selling Class A, Class B or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class C shares is $5,000,000. The
maximum purchase of Class B shares is $250,000. The Funds may refuse any order
to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be utilized, in whole
or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class A and Class B shares) next calculated after the Fund receives your request
in proper form. Proceeds generally will be sent to you within seven days.
However, for shares recently purchased by check or electronic funds transfer, a
Fund will not send proceeds until it is reasonably satisfied that the check or
electronic funds transfer has been collected (which may take up to 15 days).
Selling Shares Through Your Broker
A Fund must receive your broker's request before 4:00 p.m. Eastern time for you
to receive that day's net asset value (less any applicable CDSC for Class A and
Class B shares). Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend-
disbursing agent, along with certificates, if any, that represent the shares you
want to sell. For your protection, signatures must be guaranteed by a bank,
41
<PAGE>
a member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial intermediary,
AFS, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672 by a
shareholder who has completed the Subscription Application or an "Autosell"
application obtained from AFS. Telephone redemption requests must be for at
least $500 and may not exceed $100,000, and must be made between 9 a.m. and 4
p.m. Eastern time on a Fund business day. Proceeds of telephone redemptions will
be sent by electronic funds transfer. Proceeds of telephone redemptions also may
be sent by check to a shareholder's address of record, but only once in any 30-
day period and in an amount not exceeding $50,000. Telephone redemption by check
is not available for shares purchased within 15 calendar days prior to the
redemption request, shares held in nominee or "street name" accounts or
retirement plan accounts or shares held by a shareholder who has changed his or
her address of record within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for shares of the same class of other
Alliance Mutual Funds (which include AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined without sales or service charges. Exchanges may be made by telephone
or written request.
Class A and Class B 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 purposes of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
- --------------------------------------------------------------------------------
Management Of The Funds
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
42
<PAGE>
<TABLE>
<CAPTION>
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
<S> <C> <C>
The Alliance Fund Alfred Harrison since 1989-- Associated with
Vice Chairman of Alliance Capital Alliance
Management Corporation
("ACMC")*
Paul H. Jenkel since 1985-- Associated with
Senior Vice President of ACMC Alliance
Growth Fund Tyler Smith since inception-- Associated with
Senior Vice President of ACMC Alliance since
July 1993; prior
thereto,
associated with
Equitable Capital
Management
Corporation
("Equitable
Capital")**
Premier Growth Fund Alfred Harrison since inception-- (see above)
(see above)
Counterpoint Fund David P. Handke, Jr. since Associated with
inception--Vice President of ACMC Alliance
Jon H. Outcalt since inception-- Associated with
Senior Vice President of ACMC Alliance
Technology Fund Peter Anastos since 1992-- Associated with
Senior Vice President of ACMC Alliance
Gerald T. Malone since 1992-- Associated with
Senior Vice President of ACMC Alliance since
1992; prior
thereto
associated with
College
Retirement
Equities Fund
Quasar Fund Alden M. Stewart since 1994-- Associated with
Executive Vice President of ACMC Alliance since
1993; prior
thereto,
associated with
Equitable Capital
Randall E. Haase since 1994-- Associated with
Senior Vice President of ACMC Alliance since July
1993; prior
thereto,
associated with
Equitable Capital
Timothy Rice since 1993-- Associated with
Vice President of ACMC Alliance
International Fund A. Rama Krishna since 1993-- Associated with
Senior Vice President of ACMC Alliance since
and director of Asian Equity 1993, prior
research thereto,
Chief Investment
Strategist and
Director--Equity
Research for CS
First Boston
Worldwide Mark H. Breedon since inception--- Associated with
Privatization Senior Vice President of ACMC Alliance
and Director and Vice President
of Alliance Capital Limited***
New Europe Fund Eric N. Perkins since 1992-- Associated with
Senior Vice President of ACMC Alliance
and director of European equity
research
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
<S> <C> <C>
All-Asia Investment A. Rama Krishna--since inception (see above)
Fund (see above)
Global Small Cap Ronald L. Simcoe since 1993-- Associated with
Fund Vice President of ACMC Alliance since
1993; prior
thereto,
associated with
Equitable Capital
Alden Stewart since 1994-- (see above)
(see above)
Randall E. Haase since 1994-- (see above)
(see above)
Timothy Rice since 1993-- (see above)
(see above)
Strategic Balanced Bruce W. Calvert since 1990-- Associated with
Fund Vice Chairman and the Chief Alliance
Investment Officer of ACMC
Balanced Shares Bruce W. Calvert since 1990-- Associated with
(see above) Alliance
Income Builder Fund Andrew M. Aran since 1994-- Associated with
Senior Vice President of ACMC Alliance since
March 1991; prior
thereto, a Vice
President of
PaineWebber, Inc.
Thomas M. Perkins since 1991-- Associated with
Senior Vice President of ACMC Alliance
Utility Income Fund Alan Levi since 1994-- Associated with
Senior Vice President and Alliance
Director of Research of ACMC
Gregory Allison since 1995-- Associated with
Portfolio Manager of Utility Alliance since
Income Fund 1994; prior
thereto associated
with
Gabelli & Co.
Growth & Income Paul Rissman since 1994-- Associated with
Fund Vice President of ACMC Alliance
</TABLE>
- --------------------------------------------------------------------------------
* The sole general partner of Alliance.
** Equitable Capital was, prior to Alliance's acquisition of it, a management
firm under common control with Alliance.
*** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1995 totaling more than $140 billion
(of which approximately $47 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 50 registered investment companies managed by Alliance
comprising 104 separate investment portfolios currently have over two million
shareholders. As of September 30, 1995, Alliance was retained as an investment
manager for 29 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of
43
<PAGE>
Equitable by AXA is set forth in each Fund's Statement of Additional Information
under "Management of the Fund."
ADMINISTRATOR AND CONSULTANT TO ALL-ASIA INVESTMENT FUND
Alliance has been retained by All-Asia Investment Fund under an administration
agreement (the "Administration Agreement") to perform administrative services
necessary for the operation of the Fund. For a description of such services, see
the Statement of Additional Information of the Fund.
In connection with its provision of advisory services to All-Asia Investment
Fund, Alliance has retained at its expense OCBC Asset Management Limited ("OAM")
as a consultant to provide to Alliance such statistical and other factual
information, research and assistance with respect to economic, financial,
political, technological and social conditions and trends in Asian countries,
including information on markets and industries, as Alliance shall from time to
time request. OAM will not furnish investment advice or make recommendations
regarding the purchase or sale of securities by the Fund nor will it be
responsible for making investment decisions involving Fund assets.
OAM is one of the largest Singapore-based investment management companies
specializing in investment in Asia-Pacific markets. OAM provides consulting and
advisory services to institutions and individuals, including mutual funds. As of
June 30, 1995, OAM had approximately $1.5 billion in assets under management.
OAM is a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited
("OCBC Bank"), which is based in Singapore. The OCBC Bank Group has an extensive
network of banking offices in the Asian Pacific region. The OCBC Bank Group
engages in a wide variety of activities including commercial banking, investment
banking, and property and hotel investment and management. OCBC Bank is the
third largest company listed on the Stock Exchange of Singapore with a market
capitalization as of June 30, 1995 of approximately $6.6 billion.
EXPENSES OF ALL-ASIA INVESTMENT FUND
In addition to the payments to Alliance under the Advisory Agreement and
Administration Agreement with All-Asia Investment Fund, all as described above,
the Fund pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses (iv) clerical, accounting and other
office costs, (v) costs of printing each Fund's prospectuses and shareholder
reports, (vi) costs of maintaining each Fund's existence, (vii) interest
charges, taxes, brokerage fees and commissions, (viii) costs of stationery and
supplies, (ix) expenses and fees related to registration and filings with the
Commission and with state regulatory authorities, (x) upon the approval of the
Board of Directors, costs of personnel of Alliance or its affiliates rendering
clerical, accounting and other office services, and (xi) such promotional
expenses as may be contemplated by the Distribution Services Agreement,
described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund pays
to AFD a Rule 12b-1 distribution services fee, which may not exceed an annual
rate of .30% (.50% with respect to Growth Fund, Premier Growth Fund and
Strategic Balanced Fund) of the Fund's aggregate average daily net assets
attributable to the Class A shares, 1.00% of the Fund's aggregate average daily
net assets attributable to the Class B shares and 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares, for distribution
expenses. The Directors of Growth Fund and Strategic Balanced Fund currently
limit payments with respect to Class A shares under the Plan to .30% of each
Fund's aggregate average daily net assets attributable to Class A shares. The
Directors of Premier Growth Fund currently limit payments under the Plan with
respect to sales of Class A shares made after November 1993 to, .30% of the
Fund's aggregate average daily net assets. The Plans provide that a portion of
the distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to .25%,
annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in a Fund
by their customers. Distribution services fees received from the Funds, except
Growth Fund and Strategic Balanced 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
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. Except as noted below for Growth Fund
and Strategic Balanced Fund, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
Except as noted below for Growth Fund and Strategic Balanced Fund, AFD's
compensation with
44
<PAGE>
respect to Class B and Class C shares under the Plans of the other Funds is
directly tied to its expenses incurred. Actual distribution expenses for such
Class B and Class C shares for any given year, however, will probably exceed the
distribution services fees payable under the applicable Plan with respect to the
class involved and, in the case of Class B shares, payments received from CDSCs.
The excess will be carried forward by AFD and reimbursed from distribution
services fees payable under the Plan with respect to the class involved and, in
the case of Class B shares, payments subsequently received through CDSCs, so
long as the Plan and the Agreement are in effect. Since AFD's compensation under
the Plans of Growth Fund and Strategic Balanced Fund is not directly tied to the
expenses incurred by AFD, the amount of compensation received by it under the
applicable Plan during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal period, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except Growth
Fund and Strategic Balanced Fund) were, as of that time, as follows:
<TABLE>
<CAPTION>
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
-----------------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Fund.................. $ 1,442,425 (7.95%) $ 399,204 (6.41%)
Growth Fund.................... $24,134,216 (3.21%) $ 529,804 (0.46%)
Premier Growth Fund............ $ 3,230,541 (2.31%) $ 165,741 (2.26%)
Counterpoint Fund.............. $ 119,047 (22.58%) $ 125,891 (30.08%)
Technology Fund................ $ 698,886 (3.80%) $ 221,888 (2.97%)
Quasar Fund.................... $ 557,782 (4.01%) $ 87,823 (7.20%)
International Fund............. $ 1,672,131 (3.41%) $ 455,492 (2.35%)
Worldwide Privatization Fund... $ 138,862 (.17%) $ 569 (.17%)
New Europe Fund................ $ 1,630,288 (4.72%) $ 298,375 (3.82%)
All-Asia Fund.................. $ 349,468 (11.58%) $ 3,881 (2.09%)
Global Small Cap Fund.......... $ 922,746 (17.87%) $ 327,084 (23.25%)
Income Builder Fund............ $ 224,734 (11.25%) $1,507,457 (2.35%)
Strategic Balanced Fund........ $ 759,314 (2.04%) $ 219,442 (5.34%)
Balanced Shares................ $ 965,505 (6.40%) $ 262,338 (5.14%)
Utility Income Fund............ $ 248,868 (10.58%) $ 236,172 (8.91%)
Growth and Income Fund......... $ 2,607,181 (2.54%) $ 355,256 (1.83%)
- ------------------------------------------------------------------------------------------------
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other services arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
Dividends, Distributions
- --------------------------------------------------------------------------------
And Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
If you receive an income dividend or capital gains distribution in cash you may,
within 30 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund.
Each 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 having an
aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such income dividend or distribution.
Election to receive dividends and distributions in cash or shares is made at the
time shares are initially purchased and may be changed at any time prior to the
record date for a particular dividend or distribution. Cash dividends can be
paid by check or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with the reinvestment
of dividends and capital gains distributions. Dividends paid by a Fund, if any,
with respect to Class A, Class B and Class C shares will be calculated in the
same manner at the same time on the same day and will be in the same amount,
except that the higher distribution services fees applicable to Class B and C
shares, and any incremental transfer agency costs relating to Class B shares,
will be borne exclusively by the class to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
45
<PAGE>
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid,
but there can be no assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and net
capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by the Fund.
A corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of a Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by each Fund to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution taxable to such shareholder as long-term
capital gain, any loss realized on the sale of such shares during such six-month
period would be a long-term capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. Alliance Fund,
Premier Growth Fund, Technology Fund, Income Builder Fund, Quasar Fund, New
Europe Fund, Balanced Shares and Growth and Income Fund are qualified to do
business in the Commonwealth of Pennsylvania and, therefore, are subject to the
Pennsylvania foreign franchise and corporate net income tax in respect of their
business activities in Pennsylvania. Accordingly, shares of such Funds are
exempt from Pennsylvania personal property taxes. These Funds anticipate
continuing such business activities but reserve the right to suspend them at any
time, resulting in the termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers to
enter into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: The Alliance Fund, Inc. (1938), Alliance Balanced Shares, Inc.
(1932), Alliance Premier Growth Fund, Inc. (1992), Alliance Technology Fund,
Inc. (1980), Alliance Quasar Fund, Inc. (1968), Alliance Worldwide Privatization
Fund, Inc. (1994), Alliance New Europe Fund, Inc. (1990), Alliance All-Asia
Investment Fund, Inc. (1994), Alliance Global Small Cap Fund, Inc. (1966),
Alliance Income Builder Fund, Inc. (1991), Alliance Utility Income Fund, Inc.
(1993), and Alliance Growth and Income Fund, Inc. (1932). Each of the following
Funds is either a Massachusetts business trust or a series of a Massachusetts
business trust
46
<PAGE>
organized in the year indicated: Alliance Growth Fund and Alliance Strategic
Balanced Fund (each a series of The Alliance Portfolios) (1987), Alliance
Counterpoint Fund (1984) and Alliance International Fund (1980). Prior to August
2, 1993, The Alliance Portfolios was known as The Equitable Funds, Growth Fund
was known as The Equitable Growth Fund and Strategic Balanced Fund was known as
The Equitable Balanced Fund. Prior to March 22, 1994, Income Builder Fund was
known as Alliance Multi-Market Income and Growth Trust, Inc.
It is anticipated that annual shareholder meetings will not be held; shareholder
meetings will be held only when required by federal, or in the case of the Funds
organized as Maryland corporations, state law. Shareholders have available
certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented by
the redeemed shares less any applicable CDSC. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of shares. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors, that affect each portfolio
and class in substantially the same manner. Class A, B and C shares have
identical voting, dividend, liquidation and other rights, except that each class
bears its own distribution and transfer agency expenses. Each class of shares
votes separately with respect to a Fund's Rule 12b-1 distribution plan and other
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Directors and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Since this Prospectus sets forth information about all the Funds,
it is theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another Fund.
Based on the advice of counsel, however, the Funds believe that the potential
liability of each Fund with respect to the disclosure in this Prospectus extends
only to the disclosure relating to that Fund. Certain additional matters
relating to a Fund's organization are discussed in its Statement of Additional
Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for Class A, Class B and Class C shares. Such advertisements disclose
a Fund's average annual compounded total return for the periods prescribed by
the Commission. A Fund's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the period.
For purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid.
Balanced Shares, Growth and Income Fund, Income Builder Fund, Strategic Balanced
Fund and Utility Income Fund may also advertise their "yield," which is also
computed separately for Class A, Class B and Class C shares. A Fund's yield for
any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis.
Strategic Balanced Fund, Balanced Shares, Income Builder Fund, Utility Income
Fund and Growth and Income 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.
A Fund will include performance data for each class of shares in any
advertisement or sales literature using performance data of that Fund. These
advertisements may quote performance rankings or ratings of a Fund by financial
publications or independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
47
<PAGE>
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
48
<PAGE>
- --------------------------------------------------------------------------------
Alliance Subscription Application
- --------------------------------------------------------------------------------
The Alliance Stock Funds
Alliance Fund
Growth Fund
Premier Growth Fund
Counterpoint Fund
Technology Fund
Quasar Fund
International Fund
Worldwide Privatization Fund
New Europe Fund
All-Asia Fund
Global Small Cap Fund
Strategic Balanced Fund
Balanced Shares
Income Builder Fund
Utility Income Fund
Growth & Income Fund
- --------------------------------------------------------------------------------
Information And Instructions
- --------------------------------------------------------------------------------
To Open Your New Alliance Account
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
Signatures - Please Be Sure To Sign the Application (Section 7)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
. a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).
Registration
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was
assigned.
Please Note:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.
. In the case of redemptions or repurchases of shares 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.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800) 221-5672.
<PAGE>
- --------------------------------------------------------------------------------
Subscription Application
- --------------------------------------------------------------------------------
Alliance Stock Funds
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. Your Account Registration (Please Print)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[_] INDIVIDUAL OR JOINT ACCOUNT
---------------------------------------------------------------------------------------------------
Owner's Name (First Name) (MI) (Last Name)
- -
-------------------------------------------
Social Security Number (Required to open account)
---------------------------------------------------------------------------------------------------
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated
[_] GIFT/TRANSFER TO A MINOR
---------------------------------------------------------------------------------------------------
Custodian - One Name Only (First Name) (MI) (Last Name)
---------------------------------------------------------------------------------------------------
Minor (First Name) (MI) (Last Name)
- -
-------------------------------------------
Minor's Social Security Number (Required to open account)
Under the State of __________ (Minor's Residence) Uniform Gifts/Transfer to Minor's Act
[_] TRUST ACCOUNT
---------------------------------------------------------------------------------------------------
Name of Trustee
---------------------------------------------------------------------------------------------------
Name of Trust
---------------------------------------------------------------------------------------------------
Name of Trust (cont'd)
---------------------------------------------------------------------------------------------------
Trust Dated Tax ID or Social Security Number (Required to open account)
[_] OTHER
---------------------------------------------------------------------------------------------------
Name of Corporation, Partnership or other Entity
-------------------------------
Tax ID Number
</TABLE>
- --------------------------------------------------------------------------------
2. Address
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------
Street
---------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------------------------------------------------------------------------
If Non-U.S., Specify Country
- - - -
--------------------------------- ---------------------------------
Daytime Phone Evening Phone
I am a: [_]U.S. Citizen [_]Non-Resident Alien [_]Resident Alien [_]Other
</TABLE>
+++ +++
+ +
For Alliance Use Only
+ +
+++ +++
<PAGE>
- --------------------------------------------------------------------------------
3. Initial Investment
- --------------------------------------------------------------------------------
Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000.
Make all checks payable to The Alliance Stock Fund in which you are
investing.
I hereby subscribe for shares of the following Alliance Stock Fund(s):
<TABLE>
<CAPTION>
Class A Class B Class C
(Initial Sales Dollar (Contingent Deferred Dollar (Asset-based Dollar
Charge) Amount Sales Charge) Amount Sales Charge) Amount
---------------- --------------- -------------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
[_]Alliance Fund [_](44) ___________ [_](43) ___________ [_](344) ___________
[_]Growth Fund [_](31) ___________ [_](01) ___________ [_](331) ___________
[_]Premier Growth Fund [_](78) ___________ [_](79) ___________ [_](378) ___________
[_]Counterpoint Fund [_](19) ___________ [_](219) ___________ [_](319) ___________
[_]Technology Fund [_](82) ___________ [_](282) ___________ [_](382) ___________
[_]Quasar Fund [_](26) ___________ [_](29) ___________ [_](326) ___________
[_]International Fund [_](40) ___________ [_](41) ___________ [_](340) ___________
[_]Worldwide Privatization Fund [_](112) ___________ [_](212) ___________ [_](312) ___________
[_]New Europe Fund [_](62) ___________ [_](58) ___________ [_](362) ___________
[_]All-Asia Fund [_](118) ___________ [_](218) ___________ [_](318) ___________
[_]Global Small Cap Fund [_](45) ___________ [_](48) ___________ [_](345) ___________
[_]Strategic Balanced Fund [_](32) ___________ [_](02) ___________ [_](332) ___________
[_]Balanced Shares [_](96) ___________ [_](75) ___________ [_](396) ___________
[_]Income Builder Fund [_](111) ___________ [_](211) ___________ [_](311) ___________
[_]Utility Income Fund [_](9) ___________ [_](209) ___________ [_](309) ___________
[_]Growth & Income Fund [_](94) [_](74) [_](394)
------------------------------------------------------
DEALER USE ONLY
to be purchased with the enclosed check or draft for $ __________ Wire Confirm No.:
-----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
4. Reduced Charges (Class A Only)
- --------------------------------------------------------------------------------
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or
the Statement of Intent section.
- ------------------------------------------ -----------------------------------
Fund Account Number
- ------------------------------------------ -----------------------------------
Fund Account Number
A. Right of Accumulation
[_]Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
B. Statement of Intent
[_]I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
an additional sales charge must be paid from my account.
- ------------------------------------------ ------------------------------------
Name on Account Account Number
- ------------------------------------------ ------------------------------------
Name on Account Account Number
- --------------------------------------------------------------------------------
5. Distribution Options
- --------------------------------------------------------------------------------
If no box is checked, all distributions will be reinvested in additional
shares of the Fund
Income Dividends: (elect one) [_] Reinvest dividends
[_] Pay dividends in cash
[_] Use Dividend Direction Plan
Capital Gains Distribution: (elect one) [_] Reinvest capital gains
[_] Pay capital gains in cash
[_] Use Dividend Direction Plan
If you elect to receive your income dividends or capital gains distributions
in cash, please enclose a preprinted voided check from the bank account you
wish to have your dividends deposited into.**
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
- --------------------------------------------------------------------------------
Fund Name Existing Account No.
Special Distribution Instructions: [_] Please pay my distributions via check
and send to the address indicated in
Section 2.
[_] Please mail my distributions to the
person and/or address designated below:
- -------------------------------------- ----------------------------------------
Name Address
- -------------------------------------- -------------------------- ------------
City State Zip
- --------------------------------------------------------------------------------
6. Shareholder Options
- --------------------------------------------------------------------------------
A. AUTOMATIC INVESTMENT PROGRAM (AIP) **
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account, on
or about the ______ day of each month for a monthly investment in my Fund
account in the amount of $____________ (minimum $25 per month). Please attach
a preprinted voided check from the bank account you wish to use. NOTE: If your
bank is not a member of the NACHA, your Alliance account will be credited on
or about the 20th of each month.
The Fund requires signatures of bank account owners exactly as they appear
on bank records.
--------------------------------------------- -------------------------------
Individual Account Date
--------------------------------------------- -------------------------------
Joint Account Date
**Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance
Fund Services, Inc. in a recorded conversation to purchase, redeem or
exchange shares for your account. Purchase and redemption requests will be
processed via electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. Check the box next to the telephone transaction service(s)
you desire.
. If you select the telephone purchase or redemption privilege,
you must write "VOID" across the face of a check from the
bank account you wish to use and attach it to this
application.
Purchases and Redemptions via EFT**
[_] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected.
The fund requires signatures of bank account owners exactly as they
appear on bank records.
--------------------------------------------- -----------------------------
Individual Account Owner Date
--------------------------------------------- -----------------------------
Joint Account Owner Date
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a redemption
or exchange on my behalf. (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the
address must have no change within the last 30 days. The maximum telephone
redemption amount is $50,000 per check. This service can be enacted once
every 30 days.
[_] I do not elect the telephone exchange service.
---
[_] I do not elect the telephone redemption by check service.
---
C. SYSTEMATIC WITHDRAWAL PLAN (SWP) **
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments; . $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
[_] I authorize this service to begin in _________, 19__, for the amount
Month
of $_______________($50.00 minimum)
Frequency: (Please select one) [_] Monthly [_] Bi-Monthly [_] Quarterly
[_] Annually [_] In the months circled: J F M A M J J A S O N D
Please send payments to: (please select one)
[_] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: _______________. Please enclose a
preprinted voided check to ensure accuracy. EFT not available to Class B
shareowners other than retirement plans.
[_] My address of record designated in Section 2.
[_] The payee and address specified below:
-----------------------------------------------------------------------------
Name of Payee Address
-----------------------------------------------------------------------------
City State Zip
D. AUTO EXCHANGE
[_] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange
for $____________ ($25.00 minimum) on the _________ day of the month,
into the Alliance Fund noted below:
Fund Name: ____________________________________
[_] Existing account number:___________________ [_] New account
Shares exchanged will be redeemed at net asset value computed on the date
of the month selected. (If the date selected is not a fund business day
the transaction will be processed on the next fund business day.)
Certificates must remain unissued.
- --------------------------------------------------------------------------------
7. Shareholder Authorization This section MUST be completed
- --------------------------------------------------------------------------------
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and
that I have not been notified that this account is subject to backup
withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the
best of my knowledge and belief, I qualify as a foreign person as indicated
in Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- ---------------------------------------- ----------------
Signature Date
- ---------------------------------------- -------------- ----------------------
Signature Date Acceptance Date:
- --------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm
-------------------------------------------------------------
Authorized Signature
----------------------------------------------------------
Representative First Name MI Last Name
---------------- ----- -----------------
Representative Number
---------------------------------------------------------
Branch Office Address
---------------------------------------------------------
City State Zip Code
---------------------- ---------------------- -------------
Branch Number Branch Phone ( )
--------------------- -------------------------------
** Your bank must be a member of the National
Automated Clearing House Association (NACHA). 50074GEN-EQTYApp
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-12988 and 811-05088.
<PAGE>
THE ALLIANCE BOND FUNDS
_______________________________________________________________________________
P.O. BOX 1520, SECAUCUS, NEW JERSEY 07096-1520
TOLL FREE (800) 221-5672
FOR LITERATURE: TOLL FREE (800) 227-4618
PROSPECTUS AND APPLICATION
NOVEMBER 1, 1995
U.S. GOVERNMENT FUNDS GLOBAL BOND FUNDS
- -ALLIANCE SHORT-TERM U.S. -ALLIANCE NORTH AMERICAN
GOVERNMENT FUND GOVERNMENT INCOME TRUST
- -U.S. GOVERNMENT -ALLIANCE GLOBAL DOLLAR
PORTFOLIO GOVERNMENT FUND
MORTGAGE FUNDS CORPORATE BOND FUND
- -ALLIANCE MORTGAGE -CORPORATE BOND PORTFOLIO
STRATEGY TRUST
- -ALLIANCE MORTGAGE SECURITIES
INCOME FUND
MULTI-MARKET FUNDS
- -ALLIANCE WORLD INCOME TRUST
- -ALLIANCE SHORT-TERM
MULTI-MARKET TRUST
- -ALLIANCE MULTI-MARKET
STRATEGY TRUST
TABLE OF CONTENTS PAGE
- -------------------------------------------------------
The Funds at a Glance 2
Expense Information 4
Financial Highlights 7
Glossary 13
Description of the Funds 14
Investment Objectives and Policies 14
Additional Investment Practices 20
Certain Fundamental Investment Policies 31
Risk Considerations 32
Purchase and Sale of Shares 37
Management of the Funds 39
Dividends, Distributions and Taxes 41
General Information. 42
Appendix A: Bond Ratings A-1
Appendix B: General Information About Canada,
Mexico and Argentina B-1
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Bond Funds provide a broad selection of investment alternatives to
investors seeking high current income. The U.S. Government Funds invest mainly
in U.S. Government securities and the Mortgage Funds invest in mortgage-related
securities, while the Multi-Market Funds diversify their investments among debt
markets around the world and the Global Bond Funds invest primarily in foreign
government securities. The Corporate Bond Fund invests primarily in corporate
debt securities.
Each fund or portfolio (each a 'Fund') is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A 'Statement of Additional Information' for each Fund that provides
further information regarding certain matters discussed in this Prospectus and
other matters that may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated
address or 'Literature' telephone number.
Each Fund offers three classes of shares that may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the 'Class A shares'), (ii) with
a contingent deferred sales charge imposed on most redemptions made within
three years of purchase (the 'Class B shares'), or (iii) without any initial or
contingent deferred sales charge (the 'Class C shares'), except that Alliance
World Income Trust offers only one class of shares which may be purchased at a
price equal to its net asset value without any initial or contingent deferred
sales charge. See 'Purchase and Sale of Shares.'
AN INVESTMENT IN THESE SECURITIES IS NOT A DEPOSIT OR OBLIGATION OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK AND IS NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
INVESTORS ARE ADVISED TO READ THIS PROSPECTUS CAREFULLY AND TO RETAIN IT FOR
FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
ALLIANCE
MUTUAL FUNDS WITHOUT THE MYSTERY
R/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
1
THE FUNDS AT A GLANCE
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
THE FUNDS' INVESTMENT ADVISER IS . . .
Alliance Capital Management L.P. ('Alliance'), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 104 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $140 billion in
assets under management as of September 30, 1995. Alliance provides investment
management services to 29 of the FORTUNE 100 companies.
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND
SEEKS . . . High current income consistent with preservation of capital.
INVESTS PRIMARILY IN . . . A diversified portfolio of U.S. Government
securities.
U.S. GOVERNMENT PORTFOLIO
SEEKS . . . As high a level of current income as is consistent with safety of
principal.
INVESTS SOLELY IN . . . A diversified portfolio of U.S. Government securities
backed by the full faith and credit of the United States.
MORTGAGE FUNDS
MORTGAGE STRATEGY TRUST
SEEKS . . . The highest level of current income, consistent with low volatility
of net asset value, that is available from a portfolio of mortgage-related
securities of the highest quality.
INVESTS PRIMARILY IN . . . A diversified portfolio of adjustable and fixed-rate
mortgage-related securities that are U.S. Government securities or rated AAA by
S&P or Aaa by Moody's or, if not rated, are of equivalent investment quality.
The Fund's portfolio is structured to achieve low volatility of net asset value
approximating that of a portfolio investing exclusively in two-year U.S.
Treasury securities.
MORTGAGE SECURITIES INCOME FUND
SEEKS . . . A high level of current income consistent with prudent investment
risk.
INVESTS PRIMARILY IN . . . A diversified portfolio of mortgage-related
securities.
MULTI-MARKET FUNDS
WORLD INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than one year.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
maintains at least 35% of its net assets in U.S. Dollar-denominated securities.
SHORT-TERM MULTI-MARKET TRUST
SEEKS . . . The highest level of current income through investment in a
portfolio of high-quality debt securities having remaining maturities of not
more than three years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. While the Fund
normally will maintain a substantial portion of its assets in debt securities
denominated in foreign currencies, the Fund will invest at least 25% of its net
assets in U.S. Dollar-denominated securities.
MULTI-MARKET STRATEGY TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of high-quality debt securities having remaining maturities of not
more than five years.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of debt securities
denominated in the U.S. Dollar and selected foreign currencies. The Fund
expects to maintain at least 70% of its assets in debt securities denominated
in foreign currencies, but not more than 25% of the Fund's total assets may be
invested in debt securities denominated in a single currency other than the
U.S. Dollar.
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST
SEEKS . . . The highest level of current income that is available from a
portfolio of investment grade debt securities issued or guaranteed by the
governments of the United States, Canada and Mexico.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of government securities
denominated in the U.S. Dollar, the Canadian Dollar and the Mexican Peso, and
expects to maintain at least 25% of its assets in securities denominated in the
U.S. Dollar. In addition, the Fund may invest up to 25% of its total assets in
debt securities issued by governmental entities in Argentina.
2
GLOBAL DOLLAR GOVERNMENT FUND
SEEKS . . . Primarily a high level of current income and, secondarily, capital
appreciation.
INVESTS PRIMARILY IN . . . A non-diversified portfolio of sovereign debt
obligations and in U.S. and non-U.S. corporate fixed-income securities.
Substantially all of the Fund's assets are invested in lower-rated securities.
CORPORATE BOND FUND
CORPORATE BOND PORTFOLIO
SEEKS . . . Primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment;
secondarily, the Fund will attempt to increase its capital through appreciation
of its investments in order to preserve and, if possible, increase the
purchasing power of each shareholder's investment.
INVESTS PRIMARILY IN . . . A diversified portfolio of corporate bonds issued by
domestic and foreign issuers that give promise of relatively attractive yields.
A WORD ABOUT RISK . . .
The prices of the shares of the Alliance Bond Funds will fluctuate as the daily
prices of the individual bonds in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost.
Price fluctuations may be caused by changes in the general level of interest
rates or changes in bond credit quality ratings. Changes in interest rates have
a greater effect on bonds with longer maturities than those with shorter
maturities. The prices of non-U.S. Dollar denominated bonds also fluctuate with
changes in foreign exchange rates. Investment in the Global Bond Funds, the
Multi-Market Funds and any other Fund that may invest a significant amount of
its assets in non-U.S. securities involves risks not associated with Funds that
invest primarily in securities of U.S. issuers. While the Funds invest
principally in bonds and fixed-income securities, in order to achieve their
investment objectives, the Funds may at times use certain types of derivative
instruments, such as options, futures, forwards and swaps. These instruments
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. These risks are fully discussed in
this Prospectus. See 'Description of the Funds-Additional Investment Practices'
and '-Risk Considerations.'
GETTING STARTED . . .
Shares of the Funds are available through your financial representative and
most banks, insurance companies and brokerage firms nationwide. Shares of each
Fund (except WORLD INCOME) can be purchased for a minimum initial investment
of $250, and subsequent investments can be made for as little as $50. For
detailed information about purchasing and selling shares, see 'Purchase and
Sale of Shares.' In addition, the Funds offer several time and money saving
services to investors. Be sure to ask your financial representative about:
AUTOMATIC REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
CHECK-WRITING
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24 HOUR INFORMATION
ALLIANCE
MUTUAL FUNDS WITHOUT THE MYSTERY
R/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
EXPENSE INFORMATION
_______________________________________________________________________________
SHAREHOLDER TRANSACTION EXPENSES are one of several factors to consider when
you invest in a Fund. The following tables summarize your maximum transaction
costs from investing in a Fund, other than WORLD INCOME, and annual operating
expenses for each class of shares of each Fund. WORLD INCOME, which has only
one class of shares, has no sales charge on purchases or reinvested dividends,
deferred sales charge, redemption fee or exchange fee. For each Fund, the
'Examples' below show the cumulative expenses attributable to a hypothetical
$1,000 investment, assuming a 5% annual return, in each class for the periods
specified.
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------- -------------- --------------
Maximum sales charge imposed
on purchases (as a percentage
of offering price) 4.25%(a) None None
Sales charge imposed on dividend
reinvestments None None None
Deferred sales charge(as a
percentage of original purchase
price or redemption proceeds,
whichever is lower) None 3.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
third year (b)
Exchange fee None None None
_______________________________________________________________________________
(A) REDUCED FOR LARGER PURCHASES. SEE 'PURCHASE AND SALE OF SHARES-HOW TO BUY
SHARES' -PAGE 37.
(B) CLASS B SHARES OF EACH FUND AUTOMATICALLY CONVERT TO CLASS A SHARES AFTER
SIX YEARS. SEE 'PURCHASE AND SALE OF SHARES-HOW TO BUY SHARES' -PAGE 37.
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- -------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(b)(after
waiver) None None None After 1 year $ 56 $ 51 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 76 $ 66 $ 66
Other expenses(a)(b)(after After 5 years $116 $113 $113 $113
reimbursement) 1.10% 1.10% 1.10% After 10 years $203 $209 $209 $243
Total fund operating
expenses(b) 1.40% 2.10% 2.10%
U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .53% .53% .53% After 1 year $ 52 $ 47 $ 17 $ 17
12b-1 fees .30% 1.00% 1.00% After 3 years $ 73 $ 64 $ 54 $ 54
Other expenses(a) .18% .19% .18% After 5 years $ 96 $ 93 $ 93 $ 93
Total fund operating After 10 years $161 $167 $167 $202
expenses 1.01% 1.72% 1.71%
MORTGAGE STRATEGY CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .65% .65% .65% After 1 year $ 61 $ 57 $ 27 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $ 93 $ 83 $ 83
Other expenses After 5 years $143 $141 $141 $142
Interest expense .65% .66% .69% After 10 years $259 $266 $266 $301
Other operating expenses(a) .34% .35% .34%
Total other expenses .99% 1.01% 1.03%
Total fund operating expenses(h) 1.94% 2.66% 2.68%
MORTGAGE SECURITIES INCOME CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .51% .51% .51% After 1 year $ 57 $ 52 $ 22 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 87 $ 78 $ 68 $ 68
Other expenses After 5 years $119 $117 $117 $116
Interest expense .43% .43% .43% After 10 years $211 $217 $217 $250
Other operating expenses(a) .23% .24% .23%
Total other expenses .66% .67% .66%
Total fund operating expenses(i) 1.47% 2.18% 2.17%
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 5.
4
<TABLE>
<CAPTION>
ANNUAL OPERATING EXPENSES EXAMPLES
- -------------------------------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WORLD INCOME
Management fees(c)(after waiver) .49% After 1 year $19
12b-1 fees(c)(after waiver) .68% After 3 years $60
Other expenses(a) .73% After 5 years $103
Total fund operating expenses(c) 1.90% After 10 years $222
SHORT-TERM MULTI-MARKET CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .55% .55% .55% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 82 $ 73 $ 63 $ 62
Other expenses(a) .44% .45% .43% After 5 years $110 $108 $108 $107
Total fund operating expenses 1.29% 2.00% 1.98% After 10 years $192 $198 $198 $231
MULTI-MARKET STRATEGY CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees .60% .60% .60% After 1 year $ 58 $ 53 $ 23 $ 23
12b-1 fees .30% 1.00% 1.00% After 3 years $ 91 $ 82 $ 72 $ 72
Other expenses After 5 years $125 $123 $123 $123
Interest expense .07% .07% .07% After 10 years $223 $230 $230 $264
Other operating expenses(a) .62% .63% .63%
Total other expenses .69% .70% .70%
Total fund operating expenses(d) 1.59% 2.30% 2.30%
NORTH AMERICAN
GOVERNMENT INCOME CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(e) .65% .65% .65% After 1 year $ 69 $ 64 $ 34 $ 34
12b-1 fees .30% 1.00% 1.00% After 3 years $123 $114 $104 $104
Other expenses After 5 years $179 $177 $177 $177
Interest expense 1.16% 1.15% 1.15% After 10 years $333 $338 $338 $368
Other operating expenses(a) .59% .60% .60%
Total other expenses 1.75% 1.75% 1.75%
Total fund operating expenses(f) 2.70% 3.40% 3.40%
GLOBAL DOLLAR GOVERNMENT CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(g) .75% .75% .75% After 1 year $ 61 $ 57 $ 27 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $ 92 $ 82 $ 82
Other expenses(a) After 5 years $142 $140 $140 $140
.88% .89% .88 After 10 years $258 $264 $264 $296
Total fund operating expenses 1.93% 2.64% 2.63%
CORPORATE BOND CLASS A CLASS B CLASS C CLASS A CLASS B+ CLASS B++ CLASS C
------- ------- ------- ------- -------- --------- -------
Management fees(h) .63% .63% .63% After 1 year $ 55 $ 50 $ 20 $ 20
12b-1 fees .30% 1.00% 1.00% After 3 years $ 80 $ 72 $ 62 $ 61
Other expenses(a) .32% .36% .32% After 5 years $108 $107 $107 $105
Total fund operating expenses 1.25% 1.99% 1.95% After 10 years $187 $195 $195 $227
</TABLE>
+ ASSUMES REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD TEN
YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS.
++ ASSUMES NO REDEMPTION AT END OF PERIOD AND, WITH RESPECT TO SHARES HELD
TEN YEARS, CONVERSION OF CLASS B SHARES TO CLASS A SHARES AFTER SIX YEARS.
(A) THESE EXPENSES INCLUDE A TRANSFER AGENCY FEE PAYABLE TO ALLIANCE FUND
SERVICES, INC., AN AFFILIATE OF ALLIANCE, BASED ON A FIXED DOLLAR AMOUNT
CHARGED TO THE FUND FOR EACH SHAREHOLDER'S ACCOUNT. NET OF VOLUNTARY
(B) FEE WAIVERS AND EXPENSE REIMBURSEMENTS. ABSENT SUCH WAIVERS AND
REIMBURSEMENTS, MANAGEMENT FEES WOULD HAVE BEEN .55%, OTHER EXPENSES
WOULD HAVE BEEN 2.86% FOR CLASS A, 2.78% FOR CLASS B AND 2.68% FOR CLASS
C AND TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 3.71% FOR CLASS A,
4.33% FOR CLASS B AND 4.23% FOR CLASS C.
(C) NET OF VOLUNTARY FEE WAIVERS. ABSENT SUCH WAIVERS, ANNUALIZED MANAGEMENT
FEES WOULD HAVE BEEN .65%, ANNUALIZED RULE 12B-1 FEES WOULD HAVE BEEN
.90% AND ANNUALIZED TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN 2.28%.
(D) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.52%, FOR CLASS B, 2.23% AND FOR CLASS C, 2.23%.
(E) REPRESENTS .65 OF 1% OF THE AVERAGE DAILY VALUE OF THE FUND'S ADJUSTED
TOTAL NET ASSETS.
(F) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.54%, FOR CLASS B, 2.25% AND FOR CLASS C, 2.25%.
(G) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.29%, FOR CLASS B, 2.00%, FOR CLASS C, 1.99%.
(H) EXCLUDING INTEREST EXPENSE, TOTAL FUND OPERATING EXPENSES WOULD HAVE BEEN
FOR CLASS A, 1.04%, FOR CLASS B, 1.75%, FOR CLASS C, 1.74%.
5
The purpose of the tables on pages 4 and 5 is to assist the investor in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. Long-term shareholders of a Fund may pay aggregate
sales charges totaling more than the economic equivalent of the maximum initial
sales charges permitted by the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. See 'Management of the
Funds-Distribution Services Agreements.' The Rule 12b-1 fee for each class
comprises a service fee not exceeding .25% of the aggregate average daily net
assets of the Fund attributable to the class and an asset-based sales charge
equal to the remaining portion of the Rule 12b-1 fee. With respect to each of
MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME, 'interest expense'
represents interest paid by the Fund on borrowings for the purpose of making
additional portfolio investments. Such borrowings are intended to enable each
of those Funds to produce higher net yields to shareholders than the Funds
could pay without such borrowings. See 'Risk Considerations-Effects of
Borrowing.' Excluding interest expense, total fund operating expenses of each
of MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT INCOME would be lower
(see notes (e) and (g) above) and the cumulative expenses shown in the
Examples above with respect to those Funds would be lower. The management fee
rate of GLOBAL DOLLAR GOVERNMENT is higher than that paid by most other
investment companies, but Alliance believes the fee is comparable to those paid
by investment companies of similar investment orientation. The expense ratios
for Class B and Class C shares of MULTI-MARKET STRATEGY and NORTH AMERICAN
GOVERNMENT INCOME are higher than the expense ratios of most other mutual
funds, but are comparable to the expense ratios of mutual funds whose shares
are similarly priced. The Examples set forth above assume reinvestment of all
dividends and distributions and utilize a 5% annual rate of return as mandated
by Commission regulations. THE EXAMPLES SHOULD NOT BE CONSIDERED
REPRESENTATIVE OF PAST OR FUTURE EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR
LESS THAN THOSE SHOWN.
6
FINANCIAL HIGHLIGHTS
_______________________________________________________________________________
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for SHORT-TERM U.S. GOVERNMENT has been audited by
Price Waterhouse LLP, the independent accountants for the Fund, and for U.S.
GOVERNMENT, MORTGAGE STRATEGY, MORTGAGE SECURITIES INCOME, WORLD INCOME,
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME, GLOBAL DOLLAR GOVERNMENT and CORPORATE BOND has been audited by Ernst &
Young LLP, the independent auditors for each Fund. A report of Price Waterhouse
LLP or Ernst & Young LLP, as the case may be, on the information with respect
to each Fund appears in the Fund's Statement of Additional Information. The
following information for each Fund should be read in conjunction with the
financial statements and related notes which are included in the Fund's
Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's
annual report to shareholders, which may be obtained without charge by
contacting Alliance Fund Services, Inc. at the address or the 'Literature'
telephone number shown on the cover of this Prospectus.
7
<TABLE>
<CAPTION>
NET NET
NET REALIZED AND INCREASE
ASSET NET UNREALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE INVESTMENT GAIN IN NET ASSET FROM NET FROM NET
BEGINNING INCOME (LOSS) ON VALUE FROM INVESTMENT REALIZED
FISCAL YEAR OR PERIOD OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME GAINS
- --------------------- --------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM U.S. GOVERNMENT
CLASS A
Year Ended 8/31/95 $9.67 $.42 $.05 $.47 $(.41) $0.00
Period Ended 8/31/94** 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 10.22 .35 (.29) .06 (.42) 0.00
5/4/92+ to 4/30/93 10.00 .46 .34 .80 (.46) (.12)
CLASS B
Year Ended 8/31/95 $9.78 $.36 $.04 $.40 $(.34) $0.00
Period Ended 8/31/94** 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 10.31 .40 (.39) .01 (.35) 0.00
5/4/92+ to 4/30/93 10.00 .38 .33 .71 (.38) (.02)
CLASS C
Year Ended 8/31/95 $9.77 $.34 $.06 $.40 $(.34) $0.00
Period Ended 8/31/94** 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 10.34 .26 (.42) (.16) (.25) 0.00
U.S. GOVERNMENT
CLASS A
Year Ended 6/30/95 $7.84 $.64 $.13) $.77 $(.65) $0.00
Year Ended 6/30/94 8.64 .65 (.80) (.15) (.65) 0.00
Year Ended 6/30/93 8.34 .69 .29 .98 (.68) 0.00
Year Ended 6/30/92 8.01 .70 .35 1.05 (.72) 0.00
Year Ended 6/30/91 8.14 .81 (.11) .70 (.83) 0.00
Year Ended 6/30/90 8.49 .86 (.38) .48 (.83) 0.00
Year Ended 6/30/89 8.51 .89 (.03) .86 (.88) 0.00
Year Ended 6/30/88 8.90 .93 (.39) .54 (.93) 0.00
Year Ended 6/30/87 9.24 .98 (.34) .64 (.98) 0.00
12/1/85+ to 6/30/86 9.45 .63 (.21) .42 (.63) 0.00
CLASS B
Year Ended 6/30/95 $7.84 $.58 $.13 $.71 $(.59) $0.00
Year Ended 6/30/94 8.64 .59 (.80) (.21) (.59) 0.00
Year Ended 6/30/93 8.34 .62 .30 .92 (.62) 0.00
9/30/91++ to 6/30/92 8.25 .49 .09 .58 (.49) 0.00
CLASS C
Year Ended 6/30/95 $7.83 $.58 $.14 $.72 $(.59) $0.00
Year Ended 6/30/94 8.64 .59 (.81) (.22) (.59) 0.00
4/30/93++ to 6/30/93 8.56 .10 .08 .18 (.10) 0.00
MORTGAGE SECURITIES INCOME
CLASS A
Six Months Ended 6/30/95
(unaudited) $8.13 $.28 $.49 $.77 $(.30) $0.00
Year Ended 12/31/94 9.29 .57 (1.13) (.56) (.58) 0.00
Year Ended 12/31/93 9.08 .67 .23 .90 (.67) 0.00
Year Ended 12/31/92 9.21 .77 (.09) .68 (.81) 0.00
Year Ended 12/31/91 8.79 .88 .41 1.29 (.87) 0.00
Year Ended 12/31/90 8.76 .87 .03 .90 (.87) 0.00
Year Ended 12/31/89 8.81 .97 (.05) .92 (.97) 0.00
Year Ended 12/31/88 9.03 .99 (.23) .76 (.98) 0.00
Year Ended 12/31/87 9.74 1.00 (.68) .32 (1.00) (.03)
Year Ended 12/31/86 9.97 1.06 (.02) 1.04 (1.06) (.21)
Year Ended 12/31/85 9.54 1.22 .43 1.65 (1.22) 0.00
CLASS B
Six Months Ended 6/30/95
(unaudited) $8.13 $.28 $.46 $.74 $(.26) $0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
Year Ended 12/31/93 9.08 .61 .22 .83 (.60) 0.00
1/30/92++ to 12/31/92 9.16 .68 (.08) .60 (.68) 0.00
CLASS C
Six Months Ended 6/30/95
(unaudited) $8.13 $.29 $.45 $.74 $(.26) $0.00
Year Ended 12/31/94 9.29 .51 (1.14) (.63) (.51) 0.00
5/3/93++ to 12/31/93 9.30 .40 0.00 .40 (.40) 0.00
MORTGAGE STRATEGY
CLASS A
Six Months Ended 5/31/95
(unaudited) $9.51 $.28 $(.03) $.25 $(.27) $(.00)
Year Ended 11/30/94 9.94 .42 (.32) .10 (.48) (.01)
Year Ended 11/30/93 9.84 .57 .11 .68 (.58) 0.00
6/1/92+ to 11/30/92 10.00 .35 (.17) .18 (.34) 0.00
CLASS B
Six Months Ended 5/31/95
(unaudited) $9.52 $.24 $(.03) $(.21) $(.23) $0.00
Year Ended 11/30/94 9.94 .39 (.35) .04 (.42) (.01)
Year Ended 11/30/93 9.84 .49 .12 .61 (.51) 0.00
6/1/92+ to 11/30/92 10.00 .31 (.17) .14 (.30) 0.00
CLASS C
Six Months Ended 5/31/95
(unaudited) $9.52 $.25 $(.04) $.21 $(.23) $0.00
Year Ended 11/30/94 9.94 .37 (.33) .04 (.42) (.01)
5/3/93++ to 11/30/93 9.98 .27 (.03) .24 (.28) 0.00
WORLD INCOME
Six Months Ended 4/30/95
(unaudited) $1.88 $.06 $(.22) $(.16) $(.05) $0.00
Year Ended 10/31/94 1.90 .18 (.12) .06 (.05) 0.00
Year Ended 10/31/93 1.91 .22 (.16) .06 (.07) 0.00
Year Ended 10/31/92 1.98 .19 (.17) .02 (.09) 0.00
12/3/90+ to 10/31/91 2.00 .14 (.03) .11 (.13) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
8
<TABLE>
<CAPTION>
TOTAL RATIO OF NET
DISTRIBUTIONS INVESTMENT NET ASSETS INVESTMENT
IN EXCESS TOTAL RETURN AT END OF RATIO INCOME
OF NET RETURN DIVIDENDS NET ASSET BASED ON PERIOD OF EXPENSES (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END NET ASSET (000'S TO AVERAGE TO AVERAGE TURNOVER
NCOME CAPITAL DISTRIBUTIONS OF PERIOD VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
- -------------- -------- ------------- --------- ---------- ----------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(.03) $0.00 $(.44) $ 9.70 5.14% $ 2,997 1.40%(d) 4.56% 15%
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40(d) 3.98 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
0.00 0.00 (.58)(c) 10.22 8.20 6,081 1.00*(d) 4.38* 294
$(.03) $0.00 $(.37) $ 9.81 4.32% $ 6,380 2.10%(d) 3.80% 15%
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10(d) 3.22 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
0.00 0.00 (.40)(c) 10.31 7.22 1,292 1.75*(d) 3.36* 294
$(.03) $0.00 $(.37) $ 9.80 4.33% $ 5,180 2.10%(d) 3.80% 15%
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10(d) 3.26 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$0.00 $0.00 $(.65) $ 7.96 10.37% $ 463,660 1.01% 8.27% 190%
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
0.00 0.00 (.68) 8.64 12.23 527,968 1.10 8.04 386
0.00 0.00 (.72) 8.34 13.52 492,448 1.12 8.43 418
0.00 0.00 (.83) 8.01 8.97 491,910 1.07 10.02 402
0.00 0.00 (.83) 8.14 5.99 510,675 1.09 10.35 455
0.00 0.00 (.88) 8.49 10.87 532,525 1.11 10.70 148
0.00 0.00 (.93) 8.51 6.41 529,909 1.14 10.70 149
0.00 0.00 (.98) 8.90 7.00 496,600 1.07(d) 10.36 255
0.00 0.00 (.63) 9.24 4.53 128,870 1.01*(d) 9.30* 193
$0.00 $0.00 $(.59) $ 7.96 9.52% $ 774,097 1.72% 7.57% 190%
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
0.00 .00 (.62) 8.64 11.45 552,471 1.81 7.25 386
0.00 .00 (.49) 8.34 6.95 32,227 1.80* 7.40* 418
$0.00 $0.00 $(.59) $ 7.96 9.67% $ 181,948 1.71% 7.59% 190%
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
0.00 .00 (.10) 8.64 2.12 67,757 1.80* 6.00* 386
$0.00 $0.00 $(.30) $ 8.60 9.54% $ 535,191 1.47%* 6.86%* 158%
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29 6.77 438
(.02) 0.00 (.69) 9.29 10.14 848,069 1.00 7.20 622
0.00 0.00 (.81) 9.08 7.73 789,898 1.18 8.56 555
0.00 0.00 (.87) 9.21 15.44 544,171 1.16 9.92 439
0.00 0.00 (.87) 8.79 11.01 495,353 1.12 10.09 393
0.00 0.00 (.97) 8.76 10.98 556,077 1.13 11.03 328
0.00 0.00 (.98) 8.81 8.64 619,572 1.11 10.80 239
0.00 0.00 (1.03) 9.03 3.49 682,650 1.15 10.79 211
0.00 0.00 (1.27) 9.74 11.18 756,730 1.00 10.86 190
0.00 0.00 (1.22) 9.97 18.35 609,566 .87 12.30 164
$0.00 $0.00 $(.26) $ 8.61 9.26% $ 850,246 2.18%* 6.15%* 158%
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00 6.05 438
(.02) 0.00 (.62) 9.29 9.38 1,454,303 1.70 6.47 622
0.00 0.00 (.68) 9.08 7.81 1,153,957 1.67* 5.92* 555
$0.00 $0.00 $(.26) $ 8.61 9.26% $ 51,991 2.17%* 6.16%* 158%
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97 6.06 438
(.01) 0.00 (.41) 9.29 4.34 91,724 1.67* 5.92* 622
$0.00 $0.00 $(.27) $ 9.49 2.64% $ 34,094 1.94%*(e) 5.53%* 197%
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
0.00 0.00 (.58) 9.94 7.02 59,215 1.54(e) 5.66 499
0.00 0.00 (.34) 9.84 1.84 24,186 1.44*(d)(e) 6.58*(d) 101
$0.00 $0.00 $(.23) $ 9.50 2.28% $ 109,749 2.66%*(e) 4.83%* 197%
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
0.00 0.00 (.51) 9.94 6.27 168,157 2.26(e) 4.98 499
0.00 0.00 (.30) 9.84 1.50 149,188 2.13*(d)(e) 6.01*(d) 101
$0.00 $0.00 $(.23) $ 9.50 2.28% $92,940 2.68%*(e) 4.84%* 197%
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
0.00 0.00 (.28) 9.94 2.40 228,703 1.58*(e) 3.70* 499
$0.00 $0.00 $(.05) $ 1.67 (8.60)% $ 66,180 1.90%(d) 6.39%(d) N/A
0.00 (.03) (.08) 1.88 3.27 103,310 1.70(d) 3.96(d) N/A
0.00 0.00 (.07) 1.90 3.51 149,623 1.54 (d) 5.14(d) N/A
0.00 0.00 (.09) 1.91 1.26 318,716 1.59(d) 7.21(d) N/A
0.00 0.00 (.13) 1.98 6.08 1,059,222 1.85*(d) 7.29*(d) N/A
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
9
<TABLE>
<CAPTION>
NET NET
NET REALIZED AND INCREASE
ASSET NET UNREALIZED (DECREASE) DIVIDENDS DISTRIBUTIONS
VALUE INVESTMENT GAIN IN NET ASSET FROM NET FROM NET
BEGINNING INCOME (LOSS) ON VALUE FROM INVESTMENT REALIZED
FISCAL YEAR OR PERIOD OF PERIOD (LOSS) INVESTMENTS OPERATIONS INCOME GAINS
- --------------------- --------- ---------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
SHORT-TERM MULTI-MARKET
CLASS A
Six Months Ended 4/30/95
(unaudited) $8.71 $.27 $(1.18) $(.91) $(.36) $0.00
Year Ended 10/31/94 9.25 .93 (.86) .07 0.00 0.00
Year Ended 10/31/93 9.25 .92 (.32) .60 (.60) 0.00
Year Ended 10/31/92 9.94 .91 (.86) .05 (.72) (.02)
Year Ended 10/31/91 9.89 .97 .06 1.03 (.97) (.01)
Year Ended 10/31/90 9.69 1.09 .19 1.28 (1.08) 0.00
5/5/89+ to 10/31/89 9.70 .53 (.01) .52 (.53) 0.00
CLASS B
Six Months Ended 4/30/95
(unaudited) $8.71 $.25 $(1.18) $(.93) $(.33) $0.00
Year Ended 10/31/94 9.25 .94 (.93) .01 0.00 0.00
Year Ended 10/31/93 9.25 .87 (.34) .53 (.53) 0.00
Year Ended 10/31/92 9.94 .84 (.86) (.02) (.65) (.02)
Year Ended 10/31/91 9.89 .89 .07 .96 (.90) (.01)
2/5/90++ to 10/31/90 9.77 .74 .12 .86 (.74) 0.00
CLASS C
Six Months Ended 4/30/95
(unaudited) $8.71 $.23 $(1.16) $(.93) $(.33) $0.00
Year Ended 10/31/94 9.25 .58 (.57) .01 0.00 0.00
5/3/93++ to 10/31/93 9.18 .28 .05 .33 (.26) 0.00
MULTI-MARKET STRATEGY
CLASS A
Six Months Ended 4/30/95
(unaudited) $8.04 $.27 $(1.22) $(.95) $(.33) $0.00
Year Ended 10/31/94 8.94 .85 (1.08) (.23) (.09) 0.00
Year Ended 10/31/93 8.85 1.02 (.26) .76 (.67) 0.00
Year Ended 10/31/92 9.91 1.00 (1.23) (.23) (.81) (.02)
5/29/91+ to 10/28/91 10.00 .42 (.09) .33 (.42) 0.00
CLASS B
Six Months Ended 4/30/95
(unaudited) $8.04 $.24 $(1.21) $(.97) $(.30) $0.00
Year Ended 10/31/94 8.94 .88 (1.18) (.30) (.08) 0.00
Year Ended 10/31/93 8.85 .92 (.22) .70 (.61) 0.00
Year Ended 10/31/92 9.91 1.04 (1.34) (.30) (.74) (.02)
5/29/91+ to 10/28/91 10.00 .39 (.09) .30 (.39) 0.00
CLASS C
Six Months Ended 4/30/95
(unaudited) $8.04 $.25 $(1.23) $(.98) $(.30) $0.00
Year Ended 10/31/94 8.94 .46 (.75) (.29) (.09) 0.00
5/3/93++ to 10/31/93 8.76 .32 .16 .48 (.30) 0.00
NORTH AMERICAN GOVERNMENT INCOME
CLASS A
Six Months Ended 5/31/95
(unaudited) $ 8.13 $ .54 $(1.21) $(.67) $(.48) $0.00
Year Ended 11/30/94 10.35 1.02 (2.12) (1.10) (.91) 0.00
Year Ended 11/30/93 9.70 1.09 .66 1.75 (1.09) (.01)
3/27/92+ to 11/30/92 10.00 .69 (.31) .38 (.68) 0.00
CLASS B
Six Months Ended 5/31/95
(unaudited) $ 8.13 $ .51 $(1.21) $(.70) $(.45) $0.00
Year Ended 11/30/94 10.35 .96 (2.13) (1.17) (.84) 0.00
Year Ended 11/30/93 9.70 1.01 .67 1.68 (1.02) (.01)
3/27/92+ to 11/30/92 10.00 .64 (.31) .33 (.63) 0.00
CLASS C
Six Months Ended 5/31/95
(unaudited) $ 8.13 $ .51 $(1.21) $(.70) $(.45) $0.00
Year Ended 11/30/94 10.34 .96 (2.12) (1.16) (.84) 0.00
5/3/93++ to 11/30/93 10.04 .58 .30 .88 (.58) 0.00
GLOBAL DOLLAR GOVERNMENT
CLASS A
Year Ended 8/31/95 $ 9.14 $ .86 $(1.10) $(.24) $(.88) $0.00
2/25/94+ to 8/31/94 10.00 .45 (.86) (.41) (.45) 0.00
CLASS B
Year Ended 8/31/95 $ 9.14 $ .80 $(1.11) $(.31) $(.81) $0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CLASS C
Year Ended 8/31/95 $ 9.14 $ .79 $(1.10) $(.31) $(.81) $0.00
2/25/94+ to 8/31/94 10.00 .42 (.86) (.44) (.42) 0.00
CORPORATE BOND
CLASS A
Year Ended 6/30/95 $12.51 $1.19 $ .36 $1.55 $(1.14) $0.00
Year Ended 6/30/94 14.15 1.11 (1.36) (.25) (1.11) (.25)
Year Ended 6/30/93 12.01 1.25 2.13 3.38 (1.24) 0.00
Year Ended 6/30/92 11.21 1.06 .82 1.88 (1.08) 0.00
Year Ended 6/30/91 11.39 1.11 (.06) 1.05 (1.23) 0.00
Year Ended 6/30/90 12.15 1.24 (.86) .38 (1.14) 0.00
Year Ended 6/30/89 11.82 1.12 .32 1.44 (1.11) 0.00
Year Ended 6/30/88 12.24 1.10 (.38) .72 (1.14) 0.00
Nine Months Ended 6/30/87 12.25 .86 (.06) .80 (.81) 0.00
Year Ended 9/30/86 11.52 1.20 .73 1.93 (1.20) 0.00
Year Ended 9/30/85 10.50 1.24 1.04 2.28 (1.26) 0.00
CLASS B
Year Ended 6/30/95 $12.50 $1.11 $ .36 $1.47 $(1.05) $0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.04) (.25)
1/8/93++ to 6/30/93 12.47 .49 1.69 2.18 (.50) 0.00
CLASS C
Year Ended 6/30/95 $12.50 $1.10 $ .38 $1.48 $(1.05) $0.00
Year Ended 6/30/94 14.15 1.02 (1.37) (.35) (1.05) (.25)
5/30/93++ to 6/30/93 13.63 .16 .53 .69 (.17) 0.00
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
10
<TABLE>
<CAPTION>
TOTAL RATIO OF NET
DISTRIBUTIONS INVESTMENT NET ASSETS INVESTMENT
IN EXCESS TOTAL RETURN AT END OF RATIO INCOME
OF NET RETURN DIVIDENDS NET ASSET BASED ON PERIOD OF EXPENSES (LOSS) PORTFOLIO
INVESTMENT OF AND VALUE END NET ASSET (000'S TO AVERAGE TO AVERAGE TURNOVER
NCOME CAPITAL DISTRIBUTIONS OF PERIOD VALUE (B) OMITTED) NET ASSETS NET ASSETS RATE
- -------------- -------- ------------- ---------- ---------- ------------ ------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$0.00 $0.00 $(.36) $ 7.44 (10.52)% $ 377,025 1.29%* 7.32%* 119%
0.00 (.61) (.61) 8.71 .84 593,677 1.13 7.28 109
0.00 0.00 (.60) 9.25 6.67 953,571 1.16 8.26 182
0.00 0.00 (.74) 9.25 .49 1,596,903 1.10 9.00 133
0.00 0.00 (.98) 9.94 10.91 2,199,393 1.09 9.64 146
0.00 0.00 (1.08) 9.89 13.86 1,346,035 1.18 10.81 152
0.00 0.00 (.53) 9.69 5.57 210,294 1.14* 10.83* 10
$0.00 $0.00 $(.33) $ 7.45 (10.76)% $633,287 2.00%* 6.62%* 119%
0.00 (.55) (.55) 8.71 .12 1,003,633 1.85 6.58 109
0.00 0.00 (.53) 9.25 5.91 1,742,703 1.87 7.57 182
0.00 0.00 (.67) 9.25 (.24) 2,966,071 1.81 8.28 133
0.00 0.00 (.91) 9.94 10.11 3,754,003 1.81 8.87 146
0.00 0.00 (.74) 9.89 9.07 1,950,330 1.86* 9.90* 152
$0.00 $0.00 $(.33) $ 7.45 (10.76)% $4,168 1.98%* 6.59%* 119%
0.00 (.55) (.55) 8.71 .12 8,136 1.83 6.50 109
0.00 0.00 (.26) 9.25 3.66 5,538 1.82* 7.19* 182
$0.00 $0.00 $(.33) $ 6.76 (11.83)% $ 33,998 1.59%*(f) 7.80%* 156%
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
0.00 0.00 (.67) 8.94 9.01 82,977 1.94(f) 9.17(g) 200
0.00 0.00 (.83) 8.85 (2.80) 141,526 2.53(f) 10.58(g) 239
0.00 0.00 (.42) 9.91 3.68 143,594 2.81*(f) 10.17*(g) 121
$0.00 $0.00 $(.30) $ 6.77 (12.09)% $ 141,783 2.30%*(f) 7.10%* 156%
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
0.00 0.00 (.61) 8.94 8.25 431,186 2.64(f) 8.46(g) 200
0.00 0.00 (.76) 8.85 (3.51) 701,465 3.24(f) 9.83(g) 239
0.00 0.00 (.39) 9.91 3.36 662,981 3.53*(f) 9.40*(g) 121
$0.00 $0.00 $(.30) $ 6.76 (12.22)% $856 2.30%*(f) 7.15%* 156%
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10% 605%
0.00 0.00 (.30) 8.94 5.54 718 2.44*(f) 7.17*(g) 200
$0.00 $0.00 $(.48) $ 6.98 (7.18)% $ 236,421 2.70%*(f) 17.21%* 60%
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
0.00 0.00 (1.10) 10.35 18.99 268,233 1.61(f) 10.77 254
0.00 0.00 (.68) 9.70 3.49 61,702 2.45*(d)(f) 10.93*(d) 86
$0.00 $0.00 $(.45) $ 6.98 (7.81)% $1,157,639 3.40%*(f) 16.44%* 60%
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
0.00 0.00 (1.03) 10.35 18.15 1,313,591 2.31(f) 10.01 254
0.00 0.00 (.63) 9.70 3.30 216,317 3.13*(d)(f) 10.16*(d) 86
$0.00 $0.00 $(.45) $ 6.98 (7.69)% $ 232,577 3.40%*(f) 16.44%* 60%
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
0.00 0.00 (.58) 10.34 9.00 310,230 2.21*(f) 9.74* 254
$0.00 $0.00 $(.88) $ 8.02 (1.48)% $ 12,020 1.93% 11.25% 301%
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$0.00 $0.00 $(.81) $ 8.02 (2.40)% $ 62,406 2.64%* 10.52% 301%
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$0.00 $0.00 $(.81) $ 8.02 (2.36)% $ 9,330 2.63%* 10.46% 301%
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$0.00 $0.00 $(1.14) $12.92 13.26% $ 230,750 1.24% 9.70% 387%
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
0.00 0.00 (1.24) 14.15 29.62 216,171 1.39 9.29 579
0.00 0.00 (1.08) 12.01 17.43 60,356 1.48 8.98 610
0.00 0.00 (1.23) 11.21 9.71 62,268 1.44 9.84 357
0.00 0.00 (1.14) 11.39 3.27 68,049 1.51 10.70 480
0.00 0.00 (1.11) 12.15 12.99 52,381 1.84 9.53 104
0.00 0.00 (1.14) 11.82 6.24 37,587 1.81 9.24 98
0.00 0.00 (.81) 12.24 7.32 41,072 1.27 9.17 95
0.00 0.00 (1.20) 12.25 17.19 45,178 1.08 9.80 240
0.00 0.00 (1.26) 11.52 22.66 40,631 1.15 11.00 142
0.00 0.00 (1.26) 10.50 6.44 36,435 1.18 11.88 10
$0.00 $0.00 $(1.05) $12.92 12.54% $ 241,393 1.99% 9.07% 387%
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
0.00 0.00 (50) 14.15 17.75 55,508 2.10* 7.18* 579
$0.00 $0.00 $(1.05) $12.93 12.62% $ 51,028 1.84% 8.95% 387%
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
0.00 0.00 (.17) 14.15 5.08 5,115 2.05* 5.51* 579
</TABLE>
PLEASE REFER TO THE FOOTNOTES ON PAGE 12.
11
+ PRIOR TO JULY 22, 1993, EQUITABLE CAPITAL MANAGEMENT CORPORATION
('EQUITABLE') SERVED AS THE INVESTMENT ADVISER TO THE ALLIANCE PORTFOLIOS (THE
'TRUST'), OF WHICH SHORT-TERM U.S. GOVERNMENT IS A SERIES. ON JULY 22, 1993,
ALLIANCE ACQUIRED THE BUSINESS AND SUBSTANTIALLY ALL OF THE ASSETS OF EQUITABLE
AND BECAME INVESTMENT ADVISER OF THE TRUST.
+ COMMENCEMENT OF OPERATIONS.
++ COMMENCEMENT OF DISTRIBUTION.
* ANNUALIZED.
** REFLECTS NEWLY ADOPTED FISCAL YEAR END.
(A) INCLUDES WITH RESPECT TO SHORT-TERM U.S. GOVERNMENT A RETURN OF CAPITAL
FOR THE YEAR ENDED APRIL 30, 1994 OF $(0.08) FOR CLASS A, $(0.08) FOR CLASS B
AND $(0.05) FOR CLASS C AND FOR THE PERIOD ENDED AUGUST 31, 1994 OF $(0.03) FOR
CLASS A AND $(0.02) FOR CLASS B AND CLASS C.
(B) TOTAL INVESTMENT RETURN IS CALCULATED ASSUMING AN INITIAL INVESTMENT MADE
AT THE NET ASSET VALUE AT THE BEGINNING OF THE PERIOD, REINVESTMENT OF ALL
DIVIDENDS AND DISTRIBUTIONS AT THE NET ASSET VALUE DURING THE PERIOD, AND A
REDEMPTION ON THE LAST DAY OF THE PERIOD. INITIAL SALES CHARGE OR CONTINGENT
DEFERRED SALES CHARGE IS NOT REFLECTED IN THE CALCULATION OF TOTAL INVESTMENT
RETURN. TOTAL INVESTMENT RETURNS CALCULATED FOR PERIODS OF LESS THAN ONE YEAR
ARE NOT ANNUALIZED.
(C) 'TOTAL DIVIDENDS AND DISTRIBUTIONS' INCLUDES DIVIDENDS IN EXCESS OF NET
INVESTMENT INCOME AND RETURN OF CAPITAL. SHORT-TERM U.S. GOVERNMENT HAD
DIVIDENDS IN EXCESS OF NET INVESTMENT INCOME WITH RESPECT TO CLASS A SHARES,
FOR THE YEAR ENDED APRIL 30, 1994, OF $(.01); WITH RESPECT TO CLASS B SHARES,
$(.01); AND WITH RESPECT TO CLASS C SHARES, $(.01).
(D) NET OF EXPENSES ASSUMED AND/OR WAIVED/REIMBURSED. IF SHORT-TERM U.S.
GOVERNMENT HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 2.20% (ANNUALIZED) FOR 1993, 2.17% FOR THE YEAR
ENDED APRIL 30, 1994, 2.95% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31,
1994, 3.71% FOR THE YEAR ENDED AUGUST 31, 1995; WITH
RESPECT TO CLASS B SHARES, 4.81% (ANNUALIZED) FOR 1993, 3.21% FOR THE YEAR
ENDED APRIL 30, 1994, 3.60% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31,
1994, 4.33% FOR THE YEAR ENDED AUGUST 31, 1995; AND WITH
RESPECT TO CLASS C SHARES, 3.10% (ANNUALIZED) FOR THE YEAR ENDED APRIL 30,
1994, 3.64% (ANNUALIZED) FOR THE PERIOD ENDED AUGUST 31, 1994, 4.23% FOR THE
YEAR ENDED AUGUST 31, 1995. IF U.S. GOVERNMENT HAD BORNE ALL
EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN 1.22% FOR 1986 AND 1.09% FOR 1987.
IF MORTGAGE STRATEGY HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN
WITH RESPECT TO CLASS A SHARES, 1.55% (ANNUALIZED) FOR 1992; AND WITH RESPECT
TO CLASS B SHARES, 2.28% (ANNUALIZED) FOR 1992. THE RATIO OF NET INVESTMENT
INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES,
6.47% (ANNUALIZED) FOR 1992; AND WITH RESPECT TO CLASS B SHARES, 5.86%
(ANNUALIZED) FOR 1992. IF WORLD INCOME HAD BORNE ALL EXPENSES, THE EXPENSE
RATIOS WOULD HAVE BEEN 1.87% FOR 1992, 1.92% FOR 1993, 2.08% FOR 1994, AND
3.36% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995. IF NORTH AMERICAN
GOVERNMENT INCOME HAD BORNE ALL EXPENSES, THE EXPENSE RATIOS WOULD HAVE BEEN
WITH RESPECT TO CLASS A SHARES, 2.49% (ANNUALIZED) FOR 1992; AND WITH RESPECT
TO CLASS B SHARES, 3.16% (ANNUALIZED) FOR 1992. IF GLOBAL DOLLAR GOVERNMENT HAD
BORNE ALL EXPENSES FOR THE PERIOD FEBRUARY 25, 1994 TO AUGUST 31, 1994, THE
EXPENSE RATIOS WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.91%
(ANNUALIZED); WITH RESPECT TO CLASS B SHARES, 2.63% (ANNUALIZED); AND WITH
RESPECT TO CLASS C SHARES, 2.59% (ANNUALIZED).
(E) INCLUDES INTEREST EXPENSES. IF MORTGAGE STRATEGY HAD NOT BORNE INTEREST
EXPENSES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 1.42% (ANNUALIZED) FOR 1992, 1.33% FOR 1993, 1.20%
FOR 1994, AND 1.29% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; WITH
RESPECT TO CLASS B SHARES, 2.10% (ANNUALIZED) FOR 1992, 2.07% FOR 1993, 1.91%
FOR 1994, AND 2.00% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; AND
WITH RESPECT TO CLASS C SHARES, 1.74% (ANNUALIZED) FOR 1993 AND 1.89% FOR 1994,
1.99% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995.
(F) INCLUDES INTEREST EXPENSES. IF MULTI-MARKET STRATEGY HAD NOT BORNE
INTEREST EXPENSES OR LOAN FEES, THE RATIO OF EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN WITH RESPECT TO CLASS A SHARES, 1.33% (ANNUALIZED) FOR 1991,
1.33% FOR 1992, 1.40% FOR 1993 AND 1.30% FOR 1994, 1.52% (ANNUALIZED) FOR THE
SIX MONTHS ENDED APRIL 30, 1995; WITH RESPECT TO CLASS B SHARES, 2.05%
(ANNUALIZED) FOR 1991, 2.05% FOR 1992, 2.11% FOR 1993 AND 2.01% FOR 1994, 2.23%
(ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; AND WITH RESPECT TO CLASS
C SHARES, 2.11% (ANNUALIZED) FOR 1993 AND 1.99% FOR 1994, 2.23% (ANNUALIZED)
FOR THE SIX MONTHS ENDED APRIL 30, 1995. IF NORTH AMERICAN GOVERNMENT INCOME
HAD NOT BORNE INTEREST EXPENSES, THE RATIO OF EXPENSES (NET OF INTEREST
EXPENSES) TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH RESPECT TO CLASS A
SHARES, 1.66% (ANNUALIZED) FOR 1992, 1.33% FOR 1993 AND 1.37% FOR 1994,
1.54% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; WITH RESPECT TO
CLASS B SHARES, 2.35% (ANNUALIZED) FOR 1992, 2.04% FOR 1993 AND 2.07% FOR
1994, 2.25% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995; AND WITH
RESPECT TO CLASS C SHARES, 2.04% (ANNUALIZED) FOR 1993 AND 2.06% FOR 1994,
2.25% (ANNUALIZED) FOR THE SIX MONTHS ENDED APRIL 30, 1995.
(G) INCLUDES LOAN FEES. IF MULTI-MARKET STRATEGY HAD NOT INCURRED LOAN FEES,
THE RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS WOULD HAVE BEEN WITH
RESPECT TO CLASS A SHARES, 11.65% (ANNUALIZED) FOR 1991, 11.78% FOR 1992 AND
9.73% FOR 1993; WITH RESPECT TO CLASS B SHARES, 10.88% (ANNUALIZED) FOR 1991,
11.02% FOR 1992 AND 8.99% FOR 1993; AND WITH RESPECT TO CLASS C SHARES, 7.50%
(ANNUALIZED) FOR 1993.
12
GLOSSARY
_______________________________________________________________________________
The following terms are frequently used in this Prospectus. Many of these terms
are explained in greater detail under 'Description of the Funds-Additional
Investment Practices' and in Appendix A.
BONDS are fixed, floating and variable rate debt obligations.
DEBT SECURITIES are bonds, debentures, notes, bills and repurchase agreements.
FIXED-INCOME SECURITIES are debt securities, convertible securities and
preferred stocks and include floating rate and variable rate instruments.
Fixed-income securities may be rated (or if unrated, for purposes of the
Funds' investment policies may be determined by Alliance to be of equivalent
quality to those rated) TRIPLE-A (Aaa or AAA), HIGH QUALITY (Aa or AA or
above), HIGH GRADE (A or above) or INVESTMENT GRADE (Baa or BBB or above) by,
as the case may be, Moody's, S&P, Duff & Phelps or Fitch, or may be lower-rated
securities, as defined below. In the case of 'split-rated' fixed-income
securities (i.e., securities assigned non-equivalent credit quality ratings,
such as Baa by Moody's but BB by S&P, or, to take another example, Ba by
Moody's and BB by S&P but B by Fitch), a Fund will use the rating deemed by
Alliance to be the most appropriate under the circumstances.
LOWER-RATED SECURITIES are fixed-income securities rated Ba and BB or below, or
determined by Alliance to be of equivalent quality and are commonly referred to
as 'junk bonds.'
EQUITY SECURITIES are common and preferred stocks, securities convertible into
common and preferred stocks and rights and warrants to subscribe for the
purchase of common and preferred stocks.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes and preferred
stocks that are convertible into common and preferred stock.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These securities include
securities backed by the full faith and credit of the United States, those
supported by the right of the issuer to borrow from the U.S. Treasury and those
backed only by the credit of the issuing agency itself. The first category
includes U.S. TREASURY SECURITIES (which are U.S. Treasury bills, notes and
bonds) and certificates issued by GNMA (see below). U.S. Government securities
not backed by the full faith and credit of the United States include
certificates issued by FNMA and FHLMC (see below).
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are assembled
for sale to investors (such as mutual funds) by various governmental,
government-related and private organizations. These securities include:
ARMS, which are adjustable-rate mortgage securities,
SMRS, which are stripped mortgage-related securities,
CMOS, which are collateralized mortgage obligations,
GNMA CERTIFICATES, which are securities issued by the Government National
Mortgage Association,
FNMA CERTIFICATES, which are securities issued by the Federal National
Mortgage Association, and
FHLMC CERTIFICATES, which are securities issued by the Federal Home Loan
Mortgage Corporation.
INTEREST-ONLY or IO securities are debt securities that receive only the
interest payments on an underlying debt that has been structured to have two
classes, one of which is the IO class and another of which is the
PRINCIPAL-ONLY or PO class, which class receives only the principal payments on
the underlying debt obligation. POs are similar to, and are sometimes referred
to as, ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
FOREIGN GOVERNMENT SECURITIES are securities issued or guaranteed, as to
payment of principal and interest, by a foreign government or any of its
political subdivisions, authorities, agencies or instrumentalities.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt securities, loan
participations between foreign governments and financial institutions and
interests in entities organized and operated for the purpose of restructuring
the investment characteristics of foreign government securities.
WORLD BANK is the commonly used name for the International Bank for
Reconstruction and Development.
LIBOR is the London Interbank Offered Rate.
MOODY'S is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
DUFF & PHELPS is Duff & Phelps Credit Rating Co.
FITCH is Fitch Investors Service, Inc.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or higher by Moody's,
A-1 or higher by S&P, Fitch-1 by Fitch or Duff 1 by Duff & Phelps.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
RULE 144A SECURITIES are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the 'SECURITIES ACT').
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
13
DESCRIPTION OF THE FUNDS
_______________________________________________________________________________
Except as noted, (i) the Funds' investment objectives are 'fundamental' and
cannot be changed without a shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder
vote. No Fund will change a non-fundamental objective or policy without
notifying its shareholders. There is no guarantee that any Fund will achieve
its investment objective.
INVESTMENT OBJECTIVES AND POLICIES U.S. GOVERNMENT FUNDS
The U.S. Government Funds are diversified investment companies that have been
designed to offer investors high current income consistent with preservation of
capital by investing primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund ('Short-Term U.S. Government') seeks
high current income consistent with preservation of capital by investing
primarily in a portfolio of U.S. Government securities. Under normal
circumstances, the Fund maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its total assets in
U.S. Government securities and repurchase agreements and forward commitments
relating to U.S. Government securities. The Fund's investment objective is not
fundamental.
In addition to investing in U.S. Government securities, the Fund may invest a
portion of its assets in securities of non-governmental issuers. Although these
investments will be of high quality at the time of purchase, they generally
involve higher levels of credit risk than do U.S. Government securities, as
well as the risk (present with all fixed-income securities) of fluctuations in
value as interest rates change. The Fund will not be obligated to dispose of
any security whose credit quality falls below high quality.
The Fund may also (i) invest in certain SMRS, (ii) invest in variable, floating
and inverse floating rate instruments, (iii) make short sales 'against the
box,' (iv) enter into various hedging transactions, such as interest rate
swaps, caps and floors, (v) enter into reverse repurchase agreements, (vi)
purchase and sell futures contracts for hedging purposes, (vii) purchase and
sell call and put options on futures contracts or on securities, for hedging
purposes or to earn additional income, (viii) make secured loans of portfolio
securities, (ix) enter into repurchase agreements, and (x) purchase securities
for future delivery. The Fund may not invest more than 5% of its total assets
in securities the disposition of which is restricted under Federal securities
laws (excluding, to the extent permitted by applicable law, Rule 144A
securities). For additional information on the use, risks and costs of these
practices, see 'Additional Investment Practices.'
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio ('U.S. Government') seeks as high a level of current
income as is consistent with safety of principal. As a matter of fundamental
policy, the Fund pursues its objective by investing solely in U.S. Government
securities that are backed by the full faith and credit of the U.S. Government.
These include U.S. Treasury securities, including zero coupon Treasury
securities, and GNMA certificates, including certain SMRS and variable and
floating rate instruments. The average weighted maturity of the Fund's
portfolio of U.S. Government securities is expected to vary between one year or
less and 30 years. For additional information on the use, risks and cost of
these practices, see 'Additional Investment Practices.' The Fund's investment
objective is not fundamental.
Counsel to the Fund has advised the Fund that, in their view, shares of the
Fund are a legal investment for, among other investors, (i) savings and loan
associations and commercial banks chartered under the laws of the United
States, (ii) savings and loan associations chartered under the laws of Arizona,
Arkansas, California, Colorado, Delaware, Florida, Illinois, Indiana, Kansas,
Louisiana, Maine, Mississippi, Nebraska, Nevada, New Hampshire, New Jersey,
New Mexico, North Carolina, Ohio, Oklahoma, Pennsylvania, South Dakota,
Tennessee, Texas, Utah and Washington, (iii) credit unions chartered under the
laws of California, Florida*, Kentucky, Maine, Maryland*, Minnesota, Nevada,
New York, Ohio*, Pennsylvania*, Rhode Island, Tennessee, Utah and West Virginia,
and (iv) commercial banks chartered under the laws of Alabama, Alaska, Arizona,
California, Colorado, Delaware, Florida, Hawaii*, Illinois, Indiana, Kansas,
Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota,
Mississippi, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York,
North Carolina*, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island,
Tennessee, Texas, Vermont, Washington, West Virginia and Wyoming. Institutions
in the asterisked(*) states should obtain prior state regulatory approval
before investing in shares of the Fund. In addition, the Fund believes that it
is currently a legal investment for savings and loan associations, credit
unions and commercial banks chartered under the laws of certain other states.
MORTGAGE FUNDS
The Mortgage Funds are diversified investment companies that have been designed
to offer investors high current income from investment in mortgage-related
securities.
ALLIANCE MORTGAGE STRATEGY TRUST
Alliance Mortgage Strategy Trust, Inc. ('Mortgage Strategy') seeks the highest
level of current income, consistent with low volatility of net asset value,
that is available from a portfolio of mortgage-related securities of the
highest quality. As a matter of fundamental policy the Fund normally has at
least 65% of the value of its total assets invested in mortgage-related
securities. The Fund will purchase only those mortgage-related securities that
are triple-A securities or U.S. Government securities. The Fund's portfolio is
structured to achieve low volatility of net asset value approximating that of a
portfolio investing exclusively in two-year U.S. Treasury securities. The Fund
invests primarily in ARMS and fixed-rate
14
mortgage securities and is designed to provide a more consistent and less
volatile net asset value than that characteristic of a mutual fund investing
primarily in fixed-rate mortgage securities and a higher yield than that of a
mutual fund investing in ARMS.
The Fund believes that because of the nature of its assets, it is not exposed
to any material risk of loss as a result of default on its portfolio
securities. The Fund is, however, exposed to the risk that the prices of such
securities will fluctuate, in some cases significantly, as interest rates
change.
Mortgage-related securities in which the Fund may invest include (i)
pass-through mortgage-related securities, including pass-through securities
backed by ARMS and issued by GNMA, FNMA, FHLMC and by private organizations,
(ii) CMOs and multi-class pass-through securities, including floating rate CMOs
that are ARMS, (iii) SMRS, (iv) high coupon fixed-rate mortgage securities, and
(v) foreign mortgage-related securities. For a description of these
mortgage-related securities, see 'Additional Investment Practices-Mortgage-
Related Securities.' The Fund expects that new types of ARMS, other mortgage-
related securities, asset-backed securities and other securities in which the
Fund may invest will be developed from time to time and will consider investing
in such new types of securities.
The Fund may invest up to 35% of its total assets in (i) triple-A asset-backed
securities, (ii) non-mortgage-related U.S. Government securities, including
certain zero coupon Treasury securities, (iii) Treasury securities issued by
private corporate issuers, (iv) qualifying bank deposits, (v) prime commercial
paper or, if not rated, issued by companies which have outstanding triple-A
debt issues and (vi) triple-A debt securities secured by mortgages on
commercial real estate or residential rental properties.
The Fund may also (i) enter into futures contracts and purchase and write
options on futures contracts, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) enter into interest rate swaps, caps and
floors, (iv) invest in Eurodollar instruments, (v) purchase and write put and
call options on foreign currencies, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) enter into repurchase agreements
pertaining to the types of securities in which it invests, (viii) use reverse
repurchase agreements and dollar rolls and (ix) make secured loans of its
portfolio securities. For additional information on the use, risks and costs of
these practices, see 'Additional Investment Practices.'
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund, Inc. ('Mortgage Securities Income')
seeks a high level of current income to the extent consistent with prudent
investment risk. The Fund invests primarily in a diversified portfolio of
mortgage-related securities, including CMOs, and, as a matter of fundamental
policy, maintains at least 65% of its total assets in mortgage-related
securities.
The Fund expects that governmental, government-related or private entities may
create mortgage loan pools offering pass-through investments in addition to
those described in this Prospectus. The mortgages underlying these securities
may be instruments whose principal or interest payments may vary or whose terms
to maturity may differ from customary long-term fixed-rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
the Fund will consider making investments in such new types of securities. The
Fund may invest up to 20% of its total assets in lower-rated mortgage-related
securities. See 'Risk Considerations-Securities Ratings' and '-Investment in
Lower-Rated Fixed-Income Securities.' The average weighted maturity of the
Fund's portfolio of fixed-income securities is expected to vary between two and
ten years.
The Fund may invest up to 35% of the value of its total assets in (i) U.S.
Government securities, (ii) qualifying bank deposits, (iii) prime commercial
paper or, if not rated, issued by companies which have an outstanding high
quality debt issue, (iv) high grade debt securities secured by mortgages on
commercial real estate or residential rental properties, and (v) high grade
asset-backed securities.
The Fund may also (i) invest in repurchase agreements pertaining to the types
of securities in which it invests, (ii) enter into forward commitments for the
purchase or sale of securities, (iii) purchase put and call options written by
others and write covered put and call options on the types of securities in
which the Fund may invest for hedging purposes, (iv) enter into interest rate
swaps, caps and floors, (v) enter into interest rate futures contracts, (vi)
invest in variable floating and inverse floating rate instruments, and (vii)
lend portfolio securities. The Fund will not invest in illiquid securities if,
as a result, more than 10% of its total assets would be illiquid. For
additional information on the use, risk and costs of these practices, see
'Additional Investment Practices.'
MULTI-MARKET FUNDS
The Multi-Market Funds are non-diversified investment companies that have been
designed to offer investors a higher yield than a money market fund and less
fluctuation in net asset value than a longer-term bond fund.
ALLIANCE WORLD INCOME TRUST
ALLIANCE SHORT-TERM MULTI-MARKET TRUST
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance World Income Trust, Inc. ('World Income'), Alliance Short-Term Multi-
Market Trust, Inc. ('Short-Term Multi-Market') and Alliance Multi-Market
Strategy Trust, Inc. ('Multi-Market Strategy') each seek the highest level of
current income, consistent with what Alliance considers to be prudent
investment risk, that is available from a portfolio of high quality debt
securities having remaining maturities of not more than, with respect to WORLD
INCOME, one year, with respect to SHORT-TERM MULTI-MARKET, three years, and
with respect to MULTI-MARKET STRATEGY, five years. Each Fund seeks high current
yields by investing in a portfolio of debt securities denominated in the U.S.
Dollar and selected foreign currencies. The Multi-
15
Market Funds seek investment opportunities in foreign, as well as domestic,
securities markets. WORLD INCOME, which is not a money market fund, will
maintain at least 35% of its net assets in U.S. Dollar-denominated securities.
SHORT-TERM MULTI-MARKET will normally maintain a substantial portion of its
assets in debt securities denominated in foreign currencies but will invest at
least 25% of its net assets in U.S. Dollar-denominated securities. MULTI-MARKET
STRATEGY normally expects to maintain at least 70% of its assets in debt
securities denominated in foreign currencies.
In pursuing their investment objectives, the Multi-Market Funds seek to
minimize credit risk and fluctuations in net asset value by investing only in
short-term debt securities. Normally, a high proportion of these Funds'
portfolios consists of money market instruments. Alliance actively manages the
Multi-Market Funds' portfolios in accordance with a multi-market investment
strategy, allocating a Fund's investments among securities denominated in the
U.S. Dollar and the currencies of a number of foreign countries and, within
each such country, among different types of debt securities. Alliance adjusts
each Multi-Market Fund's exposure to each currency such that the percentage of
assets invested in securities of a particular country or denominated in a
particular currency varies in accordance with Alliance's assessment of the
relative yield and appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength, credit quality
and interest rate trends are the principal factors considered by Alliance in
determining whether to increase or decrease the emphasis placed upon a
particular type of security or industry sector within the Fund's investment
portfolio. None of the Multi-Market Funds invests more than 25% of its net
assets in debt securities denominated in a single currency other than the U.S.
Dollar.
The returns available from short-term foreign currency-denominated debt
instruments can be adversely affected by changes in exchange rates. Alliance
believes that the use of foreign currency hedging techniques, including
'cross-hedges' (see 'Additional Investment Practices-Forward Foreign Currency
Exchange Contracts'), can help protect against declines in the U.S. Dollar
value of income available for distribution to shareholders and declines in the
net asset value of a Fund's shares resulting from adverse changes in currency
exchange rates. For example, the return available from securities denominated
in a particular foreign currency would diminish in the event the value of the
U.S. Dollar increased against such currency. Such a decline could be partially
or completely offset by an increase in value of a cross-hedge involving a
forward exchange contract to sell a different foreign currency, where such
contract is available on terms more advantageous to a Fund than a contract to
sell the currency in which the position being hedged is denominated. It is
Alliance's belief that cross-hedges can therefore provide significant
protection of net asset value in the event of a general rise in the U.S. Dollar
against foreign currencies. However, a cross-hedge cannot protect against
exchange rate risks perfectly, and if Alliance is incorrect in its judgment of
future exchange rate relationships, a Fund could be in a less advantageous
position than if such a hedge had not been established.
Each Multi-Market Fund invests in debt securities denominated in the currencies
of countries whose governments are considered stable by Alliance. In addition
to the U.S. Dollar, such currencies include, among others, the Australian
Dollar, Austrian Schilling, British Pound Sterling, Canadian Dollar, Danish
Krone, Dutch Guilder, European Currency Unit ('ECU'), French Franc, Irish
Pound, Italian Lira, Japanese Yen, Mexican Peso, New Zealand Dollar, Norwegian
Krone, Spanish Peseta, Swedish Krona, Swiss Franc and German Mark.
An issuer of debt securities purchased by a Multi-Market Fund may be domiciled
in a country other than the country in whose currency the instrument is
denominated. In addition, the Funds may purchase debt securities (sometimes
referred to as 'linked' securities) that are denominated in one
currency while the principal amounts of, and value of interest payments on,
such securities are determined with reference to another currency. In this
regard, as of the date of this Prospectus each Fund has invested in U.S. Dollar
denominated securities issued by Mexican issuers and/or Peso-linked securities.
The value of these investments may fluctuate inversely in correlation with
changes in the Peso-Dollar exchange rate and with the general level of interest
rates in Mexico. For a general description of Mexico, see Appendix B and each
Multi-Market Fund's Statement of Additional Information.
Each Multi-Market Fund may invest in debt securities denominated in the ECU,
which is a 'basket' consisting of specified amounts of the currencies of
certain of the member states of the European Union, a twelve-nation
organization engaged in cooperative economic activities. The specific amounts
of currencies comprising the ECU may be adjusted by the Council of Ministers of
the European Union to reflect changes in relative values of the underlying
currencies.
Each Multi-Market Fund may invest in debt securities issued by supranational
organizations including the World Bank, which was chartered to finance
development projects in developing member countries; the European Union; the
European Coal and Steel Community, which is an economic union of various
European nations' steel and coal industries; and the Asian Development Bank,
which is an international development bank established to lend funds, promote
investment and provide technical assistance to member nations in the Asian and
Pacific regions.
Each Multi-Market Fund seeks to minimize investment risk by limiting its
portfolio investments to debt securities of high quality, and WORLD INCOME will
invest 65% (and normally substantially all) of its total assets in high quality
income-producing debt securities. Accordingly, the Multi-Market Funds'
portfolio securities will consist of (i) U.S. Government securities, (ii) high
quality foreign government securities, (iii) obligations issued by
supranational entities and corporate debt securities having a triple-A rating,
with respect to WORLD INCOME, or a high quality rating, with respect to
SHORT-TERM
16
MULTI-MARKET and MULTI-MARKET STRATEGY, (iv) certificates of deposit and
bankers' acceptances issued or guaranteed by, or time deposits maintained at,
banks (including foreign branches of foreign banks) having total assets of more
than $1 billion, with respect to WORLD INCOME, or $500 million, with respect to
SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, and determined by Alliance
to be of high quality, and (v) prime commercial paper or, if not rated,
determined by Alliance to be of equivalent quality and issued by U.S. or
foreign companies having outstanding: in the case of WORLD INCOME, triple-A
rated debt securities; in the case of MULTI-MARKET STRATEGY, high quality debt
securities; and in the case of SHORT-TERM MULTI-MARKET, high grade debt
securities.
As a matter of fundamental policy, each Multi-Market Fund concentrates at least
25% of its total assets in debt instruments issued by domestic and foreign
companies engaged in the banking industry, including bank holding companies.
Such investments may include certificates of deposit, time deposits, bankers'
acceptances, and obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks (as distinct from non-banks) in
accordance with the policies set forth with respect to the Funds in 'Additional
Investment Practices-Repurchase Agreements.' See 'Risk
Considerations-Investment in the Banking Industry.'
Each Multi-Market Fund may also (i) invest in indexed commercial paper, (ii)
enter into futures contracts and purchase and write options on futures
contracts, (iii) purchase and write put and call options on foreign currencies,
(iv) purchase or sell forward foreign currency exchange contracts, (v) with
respect to SHORT-TERM MULTI-MARKET and MULTI-MARKET STRATEGY, enter into
interest rate swaps, caps and floors, (vi) invest in variable, floating and
inverse floating rate instruments, (vii) make secured loans of its portfolio
securities, and (viii) enter into repurchase agreements. A Multi-Market Fund
will not invest in illiquid securities if as a result more than 10% of its
assets would be so invested. For additional information on the use, risks and
costs of these practices, see 'Additional Investment Practices.' MULTI-MARKET
STRATEGY maintains borrowings of approximately 25% of its total assets less
liabilities (other than the amount borrowed). See 'Risk Considerations-Effects
of Borrowing.'
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies that have been
designed to offer investors a high level of current income through investments
primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust, Inc. ('North American
Government Income') seeks the highest level of current income, consistent with
what Alliance considers to be prudent investment risk, that is available from a
portfolio of debt securities issued or guaranteed by the United States, Canada
and Mexico, their political subdivisions (including Canadian provinces but
excluding states of the United States), agencies, instrumentalities or
authorities ('Government securities'). The Fund invests in investment grade
securities denominated in the U.S. Dollar, the Canadian Dollar and the Mexican
Peso and expects to maintain at least 25% of its assets in securities
denominated in the U.S. Dollar. In addition, the Fund may invest up to 25% of
its total assets in debt securities issued by governmental entities of
Argentina ('Argentine Government securities'). The Fund expects that it will
not retain a debt security which is down-graded below BBB or Baa, or, if
unrated, determined by Alliance to have undergone similar credit quality
deterioration, subsequent to purchase by the Fund. There may be circumstances,
however, such as the downgrading to below investment grade of all of the
securities of a governmental issuer in one of the countries in which the Fund
has substantial investments, under which the Fund, after considering all the
circumstances, would conclude that it is in the best interests of the
shareholders to retain its holdings in securities of that issuer. The average
weighted maturity of the Fund's portfolio of fixed-income securities is
expected to vary between one year or less and 30 years.
Alliance believes that the increasingly integrated economic relationship among
the United States, Canada and Mexico, characterized by the reduction and
projected elimination of most barriers to free trade among the three nations
and the growing coordination of their fiscal and monetary policies, will over
the long term benefit the economic performance of all three countries and
promote greater correlation of currency fluctuation among the U.S. and Canadian
Dollars and the Mexican Peso. See, however, Appendix B and the Fund's Statement
of Additional Information with respect to the current economic crisis and Peso
devaluation in Mexico.
Alliance will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar. The Fund
invests at least, and normally substantially more than, 65% of its total assets
in Government securities. To the extent that its assets are not invested in
Government securities, however, the Fund may invest the balance of its total
assets in investment grade debt securities issued by the governments of
countries located in Central and South America or any of their political
subdivisions, agencies, instrumentalities or authorities, provided that such
securities are denominated in their local currencies. The Fund will not invest
more than 10% of its total assets in debt securities issued by the governmental
entities of any one such country, except that the Fund may invest up to 25% of
its total assets in Argentine Government securities. The Fund will normally
invest at least 65% of its total assets in income-producing securities. For a
general description of Canada, Mexico and Argentina, see Appendix B and the
Fund's Statement of Additional Information.
Canadian Government securities include the sovereign debt of
17
Canada or any of its provinces and Government of Canada bonds and Government of
Canada Treasury bills. Canada Treasury bills are debt obligations with
maturities of less than one year. A new issue of Government of Canada bonds
frequently consists of several different bonds with maturities ranging from one
to 25 years.
All Canadian provinces have outstanding bond issues and several provinces also
guarantee bond issues of provincial authorities, agents and Crown corporations.
Each new issue yield is based upon a spread from an outstanding Government of
Canada issue of comparable term and coupon. Many Canadian municipalities,
municipal financial authorities and Crown corporations raise funds through the
bond market in order to finance capital expenditures. Unlike U.S. municipal
securities, which have special tax status, Canadian municipal securities have
the same tax status as other Canadian Government securities and trade similarly
to such securities. The Canadian municipal market may be less liquid than the
provincial bond market.
Canadian Government securities in which the Fund may invest include a modified
pass-through vehicle issued pursuant to the program established under the
National Housing Act of Canada. Certificates issued pursuant to this program
benefit from the guarantee of the Canada Mortgage and Housing Corporation, a
federal Crown corporation that is (except for certain limited purposes) an
agency of the Government of Canada whose guarantee is an unconditional
obligation of the Government of Canada in most circumstances (similar to that
of GNMA in the United States).
Mexican Government securities denominated and payable in the Mexican Peso
include (i) Cetes, which are book-entry securities sold directly by the Mexican
Government on a discount basis and with maturities that range from seven to 364
days, (ii) Bonds, which are long-term development bonds issued directly by the
Mexican Government with a minimum term of 364 days, and (iii) Ajustabonos,
which are adjustable-rate bonds with a minimum three-year term issued directly
by the Mexican Government with the face amount adjusted each quarter by the
quarterly inflation rate.
The Fund may invest up to 25% of its total assets in Argentine Government
securities that are denominated and payable in the Argentine Peso. Argentine
Government securities include (i) Bono de Inversion y Crecimiento ('BIC'),
which are investment and growth bonds issued directly by the Argentine
Government with maturities of up to ten years, (ii) Bono de ConsolidaciOn
EconOmica ('BOCON'), which are economic consolidation bonds issued directly by
the Argentine Government with maturities of up to ten years and (iii) Bono de
Credito a la Exportacion ('BOCREX'), which are export credit bonds issued
directly by the Argentine government with maturities of up to four years. To
date, Argentine Government securities are not rated by either S&P, Moody's,
Duff & Phelps or Fitch. Alliance, however, believes, that there are Argentine
Government securities that are of investment grade quality.
The fund may also (i) enter into futures contracts and purchase and write
options on futures contracts for hedging purposes, (ii) purchase and write put
and call options on foreign currencies, (iii) purchase or sell forward foreign
currency exchange contracts, (iv) write covered put and call options and
purchase put and call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities exchanges, and write put and
call options for cross-hedging purposes, (v) enter into interest rate swaps,
caps and floors, (vi) enter into forward commitments for the purchase or sale
of securities, (vii) invest in variable, floating and inverse floating rate
instruments, (viii) make secured loans of its portfolio securities, and (ix)
enter into repurchase agreements. The Fund will not invest in illiquid
securities if as a result 10% of its net assets would be so invested. For
additional information on the use, risks and costs of these practice, see
'Additional Investment Practices.' The Fund also maintains borrowings of
approximately one-third of the Fund's total assets less liabilities (other than
the amount borrowed). See 'Risk Considerations-Effects of Borrowing.'
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund, Inc. ('Global Dollar Government') seeks
primarily a high level of current income, and secondarily capital appreciation.
In seeking to achieve these objectives, the Fund invests at least 65% of its
total assets in sovereign debt obligations. The Fund's investments in sovereign
debt obligations will emphasize obligations of a type customarily referred to
as 'Brady Bonds' that are issued as part of debt restructurings and that are
collateralized in full as to principal due at maturity by zero coupon U.S.
Government securities ('collateralized Brady Bonds'). See 'Additional
Investment Practices-Brady Bonds.' The Fund may also invest up to 35% of its
total assets in U.S. and non-U.S. corporate fixed-income securities. See 'Risk
Considerations-U.S. Corporate Fixed-Income Securities.' The Fund will limit its
investments in sovereign debt obligations and U.S. and non-U.S. corporate
fixed-income securities to U.S. Dollar-denominated securities. Alliance expects
that, based upon current market conditions, the Fund's portfolio of U.S.
fixed-income securities will have an average maturity range of approximately
nine to 15 years and the Fund's portfolio of non-U.S. fixed-income securities
will have an average maturity range of approximately 15 to 25 years. Alliance
anticipates that the Fund's portfolio of sovereign debt obligations will have a
longer average maturity.
Substantially all of the Fund's assets will be invested in lower-rated
securities, which may include securities having the lowest rating for
non-subordinated debt instruments (i.e., rated C by Moody's or CCC or lower by
S&P, Duff & Phelps and Fitch) and unrated securities of comparable investment
quality. These securities are considered to have extremely poor prospects of
ever attaining any real investment standing, to have a current identifiable
vulnerability to default, to be unlikely to have the capacity to pay interest
and repay principal when due in the event of adverse business, financial or
economic conditions, and/or to be in default or not current in the payment of
interest or principal. For a description of bond ratings, see Appendix A.
18
The Fund may also invest in investment grade securities. Unrated securities
will be considered for investment by the Fund when Alliance believes that the
financial condition of the issuers of such obligations and the protection
afforded by the terms of the obligations themselves limit the risk to the Fund
to a degree comparable to that of rated securities which are consistent with
the Fund's investment objectives and policies. As of August 31, 1995, the
percentages of the Fund's assets invested in securities rated (or considered by
Alliance to be of equivalent quality to securities rated) in particular rating
categories were 3% in A and above 57% in Ba or BB, 34% in B, 4% in Caa or CCC,
and 2% in non-rated. See 'Risk Considerations-Securities Ratings,' '-Investment
in Fixed-Income Securities Rated Baa and BBB,' '-Investment in Lower-Rated
Fixed-Income Securities' and Appendix A.
With respect to its investments in sovereign debt obligations and non-U.S.
corporate fixed-income securities, the Fund will emphasize investments in
countries that are considered at the time of purchase to be emerging or
developing countries by the World Bank. A substantial part of the Fund's
initial investment focus is expected to be in securities or obligations of
Argentina, Brazil, Mexico, Morocco, the Philippines and Venezuela because these
countries are now, or are expected by Alliance at a future date to be, the
principal participants in debt restructuring programs (including, in the case
of Argentina, Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will provide the most
attractive investment opportunities for the Fund. See Appendix A to the Fund's
Statement of Additional Information for information about those six countries.
Alliance anticipates that other countries that will provide initial investment
opportunities for the Fund include, among others, Bolivia, Costa Rica, the
Dominican Republic, Ecuador, Jordan, Nigeria, Panama, Peru, Poland, Thailand,
Turkey and Uruguay. See 'Additional Investment Practices-Brady Bonds.'
The Fund may invest up to 30% of its total assets in the sovereign debt
obligations and corporate fixed-income securities of issuers in any one of
Argentina, Brazil, Mexico, Morocco, the Philippines or Venezuela, each of which
is an emerging market country, and the Fund will limit investments in the
sovereign debt obligations of each such country (or of any other single foreign
country) to less than 25% of its total assets. The Fund expects that it will
not invest more than 10% of its total assets in the sovereign debt obligations
and corporate fixed-income securities of issuers in any other single foreign
country and is not required to invest any minimum amount of its assets in the
securities or obligations of issuers located in any particular country.
A substantial portion of the Fund's investments will be in (i) securities which
were initially issued at discounts from their face values ('Discount
Obligations') and (ii) securities purchased by the Fund at a price less than
their stated face amount or, in the case of Discount Obligations, at a price
less than their issue price plus the portion of 'original issue discount'
previously accrued thereon, i.e., purchased at a 'market discount.'
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these types of loans, (iii) invest in
other investment companies, (iv) invest in warrants, (v) enter into interest
rate swaps, caps and floors, (vi) enter into forward commitments for the
purchase or sale of securities, (vii) make secured loans of its portfolio
securities, (viii) enter into repurchase agreements pertaining to the types of
securities in which it invests, (ix) use reverse repurchase agreements and
dollar rolls, (x) enter into standby commitment agreements, (xi) make short
sales of securities or maintain a short position, (xii) write put and call
options on securities of the types in which it is permitted to invest and write
call options for cross-hedging purposes, (xiii) purchase and sell
exchange-traded options on any securities index composed of the types of
securities in which it may invest, and (xiv) invest in variable, floating and
inverse floating rate instruments. The Fund may also at any time, with respect
to up to 35% of its total assets, temporarily invest funds awaiting
reinvestment or held for reserves for dividends and other distributions to
shareholders in U.S. Dollar-denominated money market instruments. For
additional information on the use, risks and costs of these practices, see
'Additional Investment Practices.' While the Fund does not currently intend to
do so, it reserves the right to borrow an amount not to exceed one-third of the
Fund's assets less liabilities (other than the amount borrowed). See 'Risk
Considerations-Effects of Borrowing.'
CORPORATE BOND FUND
CORPORATE BOND PORTFOLIO
Corporate Bond Portfolio ('Corporate Bond') is a diversified investment company
that seeks primarily to maximize income over the long term consistent with
providing reasonable safety in the value of each shareholder's investment, and
secondarily to increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power of each
shareholder's investment. In pursuing these objectives, the Fund's policy is to
invest in readily marketable securities which give promise of relatively
attractive yields, but which do not involve substantial risk of loss of
capital. The Fund follows a policy of maintaining at least 65% of its net
assets invested in debt securities. Such objectives and policies cannot be
changed without the approval of the shareholders. Although the Fund also
follows a policy of maintaining at least 65% of its total assets invested in
corporate bonds, it is permitted to invest in securities of non-corporate
issuers.
There is no minimum rating requirement applicable to the Fund's investments in
fixed-income securities, except the Fund expects that it will not retain a
security that is downgraded below B, or if unrated, determined by Alliance to
have undergone similar credit quality deterioration subsequent to purchase.
Currently, the Fund believes its objectives and policies may best be
implemented by investing at least 65% of its total assets in fixed-income
securities considered
19
investment grade or higher. The remainder of the Fund's assets may be invested
in lower-rated fixed-income securities. See 'Risk Considerations-Securities
Ratings,' '-Investment in Fixed-Income Securities Rated Baa and BBB,'
'-Investment in Lower-Rated Fixed-Income Securities' and Appendix A. During the
fiscal year ended June 30, 1995, on a weighted average basis, the percentages
of the Fund's assets invested in securities rated (or considered by Alliance to
be of equivalent quality to securities rated) in particular rating categories
were 23% in A and above, 44% in Baa or BBB, 25% in Ba or BB, and 8% in B. The
Fund did not invest in securities rated below B by each of Moody's, S&P, Duff
& Phelps and Fitch or, if not rated, considered by Alliance to be of equivalent
quality to securities so rated.
The Fund has complete flexibility as to the types of securities in which it
will invest and the relative proportions thereof, and the Fund plans to vary
the proportions of its holdings of long-and short-term fixed-income securities
and of equity securities in order to reflect its assessment of prospective
cyclical changes even if such action may adversely affect current income.
However, substantially all of the Fund's investments will be income producing.
The average weighted maturity of the Fund's portfolio of fixed-income
securities is expected to vary between one year or less and 30 years.
The Fund may invest up to 50% of the value of its total assets in foreign debt
securities which will consist primarily of corporate fixed-income securities
and sovereign debt obligations. Not more than 15% of the Fund's total assets
may be invested in these other sovereign debt obligations, which may be lower
rated and considered to be predominantly speculative as regards the issuer's
capacity to pay interest and repay principal.
The Fund may also (i) invest in structured securities, (ii) invest in fixed and
floating rate loans that are arranged through private negotiations between an
issuer of sovereign debt obligations and one or more financial institutions and
in participations in and assignments of these type of loans, (iii) for hedging
purposes, purchase put and call options written by others and write covered put
and call options on the types of securities in which the Fund may invest, (iv)
for hedging purposes, enter into various hedging transactions, such as interest
rate swaps, caps and floors, (v) invest in variable, floating and inverse
floating rate instruments, (vi) invest in zero coupon and pay-in-kind
securities, and (vii) invest in CMOs and multi-class pass-through. As a matter
of fundamental policy, the Fund will not purchase illiquid securities. For
additional information on the use, risks and costs of these practices, see
'Additional Investment Practices.'
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described in this Prospectus. See the Statement of Additional
Information of each Fund for a further discussion of the uses, risks and costs
of engaging in these practices.
DERIVATIVES. The Funds may use derivatives in furtherance of their investment
objectives. Derivatives are financial contracts whose value depends on, or is
derived from, the value of an underlying asset, reference rate or index. These
assets, rates, and indices may include bonds, stocks, mortgages, commodities,
interest rates, currency exchange rates, bond indices and stock indices.
Derivatives can be used to earn income or protect against risk, or both. For
example, one party with unwanted risk may agree to pass that risk to another
party who is willing to accept the risk, the second party being motivated, for
example, by the desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by attempting to pass
all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio, and either
in place of more traditional direct investments or to obtain exposure to
otherwise inaccessible markets. Each of the Funds is permitted to use
derivatives for one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in order to enhance
yields and broaden portfolio diversification. Each of these uses entails
greater risk than if derivatives were used solely for hedging purposes.
Derivatives are a valuable tool which, when used properly, can provide
significant benefit to Fund shareholders. Alliance is not an aggressive user of
derivatives with respect to any of the Funds. However, a Fund may take a
significant position in those derivatives that are within its investment
policies if, in Alliance's judgement, this represents the most effective
response to current or anticipated market conditions. The MULTI-MARKET FUNDS in
particular generally make extensive use of carefully selected forwards and
other derivatives to achieve the currency hedging that is an integral part of
their investment strategy. Alliance's use of derivatives is subject to
continuous risk assessment and control from the standpoint of each Fund's
investment objectives and policies.
Derivatives may be (i) standardized, exchange-traded contracts or (ii)
customized, privately negotiated contracts. Exchange-traded derivatives tend to
be more liquid and subject to less credit risk than those that are privately
negotiated.
There are four principal types of derivative instruments-options, futures,
forwards and swaps-from which virtually any type of derivative transaction can
be created.
. OPTIONS-An option, which may be standardized and exchange-traded, or
customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy or sell the underlying asset (or settle for cash an amount
based on an underlying asset, rate or index) at a specified price (the exercise
price) during a period of time or on a specified date. A call option entitles
the holder to purchase, while a put option entitles the holder to sell, the
underlying asset (or settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised the writer of the option
would be obligated to sell (in the case of a call option) or to purchase (in
the case of a put option)
20
the underlying asset (or settle for cash an amount based on an underlying
asset, rate or index).
. FUTURES-A futures contract is an agreement that obligates the buyer to buy
and the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or index)
at a specific price on the contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or cancelled through the acquisition of equal
but opposite positions, which is the primary method in which futures contracts
are liquidated. A cash-settled futures contract does not require physical
delivery of the underlying asset but instead is settled for cash equal to the
difference between the values of the contract on the date it is entered into
and its maturity date.
. FORWARDS-A forward contract is an obligation by one party to buy, and the
other party to sell, a specific quantity of an underlying commodity or other
tangible asset for an agreed upon price at a future date. Forward contracts are
customized, privately negotiated agreements designed to satisfy the objectives
of each party. A forward contract usually results in the delivery of the
underlying asset upon maturity of the contract in return for the agreed upon
payment.
. SWAPS-A swap is a customized, privately negotiated agreement that obligates
two parties to exchange a series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes in specified prices or
rates (interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the 'notional' principal amount). The payment flows are netted against
each other, with the difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is used solely to calculate
the payment streams but is not exchanged. With respect to currency swaps,
actual principal amounts of currencies may be exchanged by the counterparties
at the initiation, and again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as 'structured securities.' An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. See 'Indexed Commercial Paper'
and 'Structured Securities' below. The term 'derivative' is also sometimes used
to describe securities involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments are passed
through to the owner of, or that collateralize, the securities. These
securities are described below under 'Mortgage-Related Securities' and 'Other
Asset-Backed Securities.'
While the judicious use of derivatives by highly experienced investment
managers such as Alliance can be quite beneficial, derivatives also involve
risks different from, and, in certain cases, greater than, the risks presented
by more traditional investments. Following is a general discussion of important
risk factors and issues concerning the use of derivatives that investors should
understand before investing in a Fund.
. MARKET RISK-This is the general risk attendant to all investments that the
value of a particular investment will change in a way detrimental to the Fund's
interest.
. MANAGEMENT RISK-Derivative products are highly specialized instruments that
require investment techniques and risk analyses different from those associated
with stocks and bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative itself, without
the benefit of observing the performance of the derivative under all possible
market conditions. In particular, the use and complexity of derivatives require
the maintenance of adequate controls to monitor the transactions entered into,
the ability to assess the risk that a derivative adds to a Fund's portfolio and
the ability to forecast price, interest rate or currency exchange rate
movements correctly.
. CREDIT RISK-This is the risk that a loss may be sustained by a Fund as a
result of the failure of another party to a derivative (usually referred to as
a 'counterparty') to comply with the terms of the derivative contract. The
credit risk for exchange-traded derivatives is generally less than for
privately negotiated derivatives, since the clearing house, which is the issuer
or counterparty to each exchange-traded derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in order to reduce overall
credit risk. For privately negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the creditworthiness of each
counterparty to a privately negotiated derivative in evaluating potential
credit risk.
. LIQUIDITY RISK-Liquidity risk exists when a particular instrument is
difficult to purchase or sell. If a derivative transaction is particularly
large or if the relevant market is illiquid (as is the case with many privately
negotiated derivatives), it may not be possible to initiate a transaction or
liquidate a position at an advantageous price.
. LEVERAGE RISK-Since many derivatives have a leverage component, adverse
changes in the value or level of the underlying asset, rate or index can result
in a loss substantially greater than the amount invested in the derivative
itself. In the case of swaps, the risk of loss generally is related to a
notional principal amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for unlimited loss,
regardless of the size of the initial investment.
. OTHER RISKS-Other risks in using derivatives include the risk
21
of mispricing or improper valuation of derivatives and the inability of
derivatives to correlate perfectly with underlying assets, rates and indices.
Many derivatives, in particular privately negotiated derivatives, are complex
and often valued subjectively. Improper valuations can result in increased cash
payment requirements to counterparties or a loss of value to a Fund.
Derivatives do not always perfectly or even highly correlate or track the value
of the assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an effective means
of, and sometimes could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. Following is a description of specific
derivatives currently used by one or more of the Funds.
OPTIONS ON SECURITIES. In purchasing an option on securities, a Fund would be
in a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which is
retained by the Fund whether or not the option is exercised. Except with
respect to uncovered call options written for cross-hedging purposes, none of
the Funds will write uncovered call or put options on securities. A call option
written by a Fund is 'covered' if the Fund owns the underlying security, has an
absolute and immediate right to acquire that security upon conversion or
exchange of another security it holds, or holds a call option on the underlying
security with an exercise price equal to or less than that of the call option
it has written. A put option written by a Fund is covered if the Fund holds a
put option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
The risk involved in writing an uncovered put option is that there could be a
decrease in the market value of the underlying securities. If this occurred, a
Fund could be obligated to purchase the underlying security at a higher price
than its current market value. Conversely, the risk involved in writing an
uncovered call option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire the
underlying security at its current price and sell it at a lower price. The risk
of loss from writing an uncovered put option is limited to the exercise price
of the option, whereas the risk of loss from writing an uncovered call option
is potentially unlimited.
A Fund may write a call option on a security that it does not own in order to
hedge against a decline in the value of a security that it owns or has the
right to acquire, a technique referred to as 'cross-hedging.' A Fund would
write a call option for cross-hedging purposes, instead of writing a covered
call option, when the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option, while at the
same time achieving the desired hedge. The correlation risk involved in
cross-hedging may be greater than the correlation risk involved from other
hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH AMERICAN
GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and CORPORATE BOND generally
purchase or write privately negotiated options on securities. A Fund that
purchases or writes privately negotiated options on securities will effect such
transactions only with investment dealers and other financial institutions
(such as commercial banks or savings and loan institutions) deemed creditworthy
by Alliance, and Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately negotiated options purchased
or written by a Fund may be illiquid, and it may not be possible for the Fund
to effect a closing transaction at an advantageous time. See 'Illiquid
Securities' below. Neither MORTGAGE SECURITIES INCOME nor CORPORATE BOND will
purchase an option on a security if, immediately thereafter, the aggregate cost
of all outstanding options purchased by such Fund would exceed 2% of the Fund's
total assets. Nor will either such Fund write an option if, immediately
thereafter, the aggregate value of the Fund's portfolio securities subject to
outstanding options would exceed 15% of the Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index is similar to an
option on a security except that, rather than taking or making delivery of a
security at a specified price, an option on a securities index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of a call) or
less than (in the case of a put) the exercise price of the option.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on foreign currencies
that are privately negotiated or traded on U.S. or foreign exchanges for the
purpose of protecting against declines in the U.S. Dollar value of foreign
currency denominated portfolio securities and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an option on a
foreign currency may constitute an effective hedge against fluctuations in
exchange rates, although if rates move adversely, a Fund may forfeit the entire
amount of the premium plus related transaction costs.
WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in warrants, which are option
securities permitting their holders to subscribe for other securities. GLOBAL
DOLLAR GOVERNMENT may invest in warrants for debt securities or for equity
securities that are acquired in connection with debt instruments. Warrants do
not carry with them dividend or voting rights with respect to the underlying
securities, or any rights in the assets
22
of the issuer. As a result, an investment in warrants may be considered more
speculative than certain other types of investments. In addition, the value of
a warrant does not necessarily change with the value of the underlying
securities, and a warrant ceases to have value if it is not exercised prior to
its expiration date.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. Futures contracts that a
Fund may buy and sell may include futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government securities, foreign
government securities or corporate debt securities.
Options on futures contracts are options that call for the delivery upon
exercise of futures contracts. Options on futures contracts written or
purchased by a Fund will be traded on U.S. or foreign exchanges and, except
with respect to SHORT-TERM U.S. GOVERNMENT, will be used only for hedging
purposes.
MORTGAGE STRATEGY, WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY
and NORTH AMERICAN GOVERNMENT INCOME will not enter into a futures contract or
option on a futures contract if immediately thereafter the market values of the
outstanding futures contracts of the Fund and the currencies and futures
contracts subject to outstanding options written by the Fund would exceed 50%
of its total assets. Nor will MORTGAGE STRATEGY, MORTGAGE SECURITIES INCOME,
WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY or NORTH AMERICAN
GOVERNMENT INCOME do so if immediately thereafter the aggregate of initial
margin deposits on all the outstanding futures contracts of the Fund and
premiums paid on outstanding options on futures contracts would exceed 5% of
the market value of the total assets of the Fund. In addition, MORTGAGE
SECURITIES INCOME will not enter into (i) any futures contract other than one
on fixed-income securities or based on interest rates, (ii) any futures
contract if immediately thereafter the sum of the then aggregate futures market
prices of financial instruments required to be delivered under open futures
contract sales and the aggregate futures market prices of instruments required
to be delivered under open futures contract purchases would exceed 30% of the
value of the Fund's total assets, or (iii) options on futures contracts.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options thereon that are linked to
LIBOR. Eurodollar futures contracts enable purchasers to obtain a fixed rate
for the lending of funds and sellers to obtain a fixed rate for borrowings.
MORTGAGE STRATEGY intends to use Eurodollar futures contracts and options
thereon to hedge against changes in LIBOR (to which many short-term borrowings
and floating rate securities in which the Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. Each Fund that purchases or sells
forward contracts on foreign currencies ('forward contracts') attempts to
minimize the risk to it from adverse changes in the relationship between the
U.S. Dollar and other currencies. A Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale of a security
denominated in a foreign currency in order to 'lock in' the U.S. Dollar price
of the security ('transaction hedge'). When a Fund believes that a foreign
currency may suffer a substantial decline against the U.S. Dollar, it may enter
into a forward sale contract to sell an amount of that foreign currency
approximating the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes that the U.S.
Dollar may suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign currency for a fixed
dollar amount ('position hedge'). Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to sell a different
foreign currency for a fixed U.S. Dollar amount where the Fund believes that
the U.S. Dollar value of the currency to be sold pursuant to the forward
contract will fall whenever there is a decline in the U.S. Dollar value of the
currency in which portfolio securities of the Fund are denominated
('cross-hedge').
FORWARD COMMITMENTS. Forward commitments are forward contracts for the purchase
or sale of securities, including purchases on a 'when-issued' basis or
purchases or sales on a 'delayed delivery' basis. In some cases, a forward
commitment may be conditioned upon the occurrence of a subsequent event, such
as approval and consummation of a merger, corporate reorganization or debt
restructuring or approval of a proposed financing by appropriate authorities
(i.e., a 'when, as and if issued' trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two months may be
negotiated. Securities purchased or sold under a forward commitment are subject
to market fluctuation, and no interest or dividends accrues to the purchaser
prior to the settlement date. At the time a Fund enters into a forward
commitment, it records the transaction and thereafter reflects the value of the
security purchased or, if a sale, the proceeds to be received, in determining
its net asset value. Any unrealized appreciation or depreciation reflected in
such valuation would be canceled if the required conditions did not occur and
the trade were canceled.
The use of forward commitments helps a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling bond
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. No forward commitments will be made by
MORTGAGE STRATEGY, NORTH AMERICAN GOVERNMENT INCOME or GLOBAL DOLLAR GOVERNMENT
if, as a result, the Fund's aggregate
23
forward commitments under such transactions would be more than 30% of its total
assets.
A Fund's right to receive or deliver a security under a forwaPrd commitment may
be sold prior to the settlement date. The Funds enter into forward commitments,
however, only with the intention of actually receiving securities or delivering
them, as the case may be. If a Fund, however, chooses to dispose of the right
to acquire a when-issued security prior to its acquisition or dispose of its
right to deliver or receive against a forward commitment, it may incur a gain
or loss.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS AND FLOORS). Each Fund that may enter
into interest rate swap, cap or floor transactions expects to do so primarily
for hedging purposes, which may include preserving a return or spread on a
particular investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates purchasing at a later
date. The Funds do not intend to use these transactions in a speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments) computed based on a
contractually-based principal (or 'notional') amount. Interest rate swaps are
entered into on a net basis (i.e., the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments). Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging its
assets or liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT
INCOME may enter into interest rate swaps involving payments to the same
currency or in different currencies. SHORT-TERM U.S. GOVERNMENT, MORTGAGE
STRATEGY, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT and CORPORATE
BOND will not enter into an interest rate swap, cap or floor transaction unless
the unsecured senior debt or the claims-paying ability of the other party
thereto is then rated in the highest rating category of at least one nationally
recognized rating organization. Each of SHORT-TERM MULTI-MARKET, MULTI-MARKET
STRATEGY and NORTH AMERICAN GOVERNMENT INCOME will enter into interest rate
swap, cap or floor transactions with its respective custodian, and with other
counterparties, but only if: (i) for transactions with maturities under one
year, such other counterparty has outstanding prime commercial paper; or (ii)
for transactions with maturities greater than one year, the counterparty has
outstanding high quality debt securities.
The swap market has grown substantially in recent years, with a large number of
banks and investment banking firms acting both as principals and as agents
utilizing standardized swap documentation. As a result, the swap market has
become well established and relatively liquid. Caps and floors are less liquid
than swaps. These transactions do not involve the delivery of securities or
other underlying assets or principal. Accordingly, unless there is a
counterparty default, the risk of loss to a Fund from interest rate
transactions is limited to the net amount of interest payments that the Fund is
contractually obligated to make.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are similar to put
options that commit a Fund, for a stated period of time, to purchase a stated
amount of a security that may be issued and sold to the Fund at the option of
the issuer. The price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund is paid a
commitment fee regardless of whether the security ultimately is issued. The
Funds will enter into such agreements only for the purpose of investing in the
security underlying the commitment at a yield and price considered advantageous
and unavailable on a firm commitment basis. The Funds will not enter into
standby commitments with a remaining term in excess of 45 days and will limit
their investments in such commitments so that the aggregate purchase price of
the securities subject to the commitments does not exceed 20% of their
respective assets.
There is no guarantee that the security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its principal
linked to changes in foreign currency exchange rates whereby its principal
amount is adjusted upwards or downwards (but not below zero) at maturity to
reflect changes in the referenced exchange rate. Each Fund that invests in such
commercial paper may do so without limitation. A Fund will receive interest
and principal payments on such commercial paper in the currency in which such
commercial paper is denominated, but the amount of principal payable by the
issuer at maturity will change in proportion to the change (if any) in the
exchange rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While such commercial
paper entails the risk of loss of principal, the potential for realizing gains
as a result of changes in foreign currency exchange rates enables a Fund to
hedge (or cross-hedge) against a decline in the U.S. Dollar value of
investments denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will
24
purchase such commercial paper for hedging purposes only, not for speculation.
MORTGAGE-RELATED SECURITIES. The mortgage-related securities in which a Fund
may invest typically are securities representing interests in pools of mortgage
loans made to home owners. The mortgage loan pools may be assembled for sale
to investors (such as a Fund) by governmental or private organizations.
Mortgage-related securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC are not so backed.
Mortgage-related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that consist of both
interest and principal, unlike more traditional debt securities, which normally
do not provide for periodic repayments of principal.
Securities representing interests in pools created by private issuers generally
offer a higher rate of interest than securities representing interests in pools
created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are
generally dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of such an
enhancer were downgraded. A Fund may buy mortgage-related securities without
credit enhancement if the securities meet the Fund's investment standards.
Although the market for mortgage-related securities is becoming increasingly
liquid, those of certain private organizations may not be readily marketable.
One type of mortgage-related security is of the 'pass-through' variety. The
holder of a pass-through security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and receives a pro rata share
of the monthly payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities. Prepayments of
mortgages resulting from the sale, refinancing or foreclosure of the underlying
properties are also paid to the holders of these securities, which, as
discussed below, frequently causes these securities to experience
significantly greater price and yield volatility than experienced by
traditional fixed-income securities. Some mortgage-related securities, such
as securities issued by GNMA, are referred to as 'modified pass-through'
securities. The holders of these securities are entitled to the full and
timely payment of principal and interest, net of certain fees, regardless of
whether payments are actually made on the underlying mortgages. Another form
of mortgage-related security is a 'pay-through' security, which is a debt
obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer regardless of
whether payments are actually made on the underlying mortgages.
Collateralized mortgage obligations (CMOs) are the predominant type of
'pay-through' mortgage-related security. In a CMO, a series of bonds or
certificates is issued in multiple classes. Each class of a CMO, often
referred to as a "tranche," is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on
collateral underlying a CMO may cause it to be retired substantially earlier
than the stated maturities or final distribution dates. The principal and
interest on the underlying mortgages may be allocated among several classes
of a series of a CMO in many ways. In a common structure, payments of
principal, including any principal prepayments, on the underlying mortgages
are applied to the classes of the series of a CMO in the order of their
respective stated maturities or final distribution dates, so that no payment
of principal will be made on any class of a CMO until all other classes
having an earlier stated maturity or final distribution date have been paid
in full. One or more tranches of a CMO may have coupon rates that reset
periodically, or "float", at a specified increment over an index such as
LIBOR. Floating-rate CMOs may be backed by fixed or adjustable rate
mortgages. To date, fixed-rate mortgages have been more commonly utilized
for this purpose. Floating-rate CMOs are typically issued with lifetime caps
on the coupon rate thereon. These caps, similar to the caps on
adjustable-rate mortgages described below, represent a ceiling beyond which
the coupon rate on a floating-rate CMO may not be increased regardless of
increases in the interest rate index to which the floating-rate CMO is tied.
The collateral securing the CMOs may consist of a pool of mortgages, but may
also consist of mortgage-backed bonds or pass-through securities. CMOs may
be issued by a U.S. Government instrumentality or agency or by a private
issuer. Although payment of the principal of, and interest on, the underlying
collateral securing privately issued CMOs may be guaranteed by GNMA, FNMA or
FHLMC, these CMOs represent obligations solely of the private issuer and are
not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
Another type of mortgage-related security, known as adjustable-rate mortgage
securities (ARMS), bears interest at a rate determined by reference to a
predetermined interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities and (ii)
indices derived from a calculated measure such as a cost of funds index or a
moving average of mortgage rates. Some rates and indices closely mirror changes
in market interest rate levels, while others tend to lag changes in market rate
levels and tend to be somewhat less volatile.
ARMS may be secured by adjustable-rate mortgages or fixed-rate mortgages. ARMS
secured by fixed-rate mortgages generally have lifetime caps on the coupon
rates of the securities. To the extent that general interest rates increase
faster than the interest rates on the ARMS, these ARMS will decline in value.
The adjustable-rate mortgages that secure ARMS will frequently have caps that
limit the maximum amount by which the interest rate or the monthly principal
and interest payments on the mortgages may increase. These payment caps can
result in negative amortization (i.e., an increase in the balance of the
mortgage loan). Furthermore, since many adjustable-rate mortgages only reset on
an annual basis, the values of ARMS tend to fluctuate to the extent that
changes in prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate mortgages.
Stripped mortgage-related securities (SMRS) are mortgage-related securities
that are usually structured with two classes of securities collateralized by a
pool of mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of the principal
and interest payments from the underlying assets. A common type of SMRS has one
class of interest-only securities (IOs) receiving all of the interest payments
from the underlying assets, while the other class of securities, principal-only
securities (POs), receives all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease, while POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the
25
decreasing principal balance of the assets. Changes in the values of IOs and
POs can be substantial and occur quickly, such as occurred in the first half of
1994 when the value of many POs dropped precipitously due to increases in
interest rates. For this reason, none of the Funds relies on IOs and POs as the
principal means of furthering its investment objective.
The value of mortgage-related securities is affected by a number of factors.
Unlike traditional debt securities, which have fixed maturity dates,
mortgage-related securities may be paid earlier than expected as a result of
prepayment of the underlying mortgages. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will result in the early
payment of the applicable mortgage-related securities. In that event a Fund may
be unable to invest the proceeds from the early payment of the mortgage-related
securities in an investment that provides as high a yield as the
mortgage-related securities. Consequently, early payment associated with
mortgage-related securities causes these securities to experience significantly
greater price and yield volatility than experienced by traditional fixed-income
securities. The occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions and other social and
demographic factors. During periods of falling interest rates, the rate of
mortgage prepayments tends to increase, thereby tending to decrease the life of
mortgage-related securities. During periods of rising interest rates, the rate
of mortgage prepayments usually decreases, thereby tending to increase the life
of mortgage-related securities. If the life of a mortgage-related security is
inaccurately predicted, a Fund may not be able to realize the rate of return it
expected.
As with fixed-income securities generally, the value of mortgage-related
securities can also be adversely affected by increases in general interest
rates relative to the yield provided by such securities. Such adverse effect is
especially possible with fixed-rate mortgage securities. If the yield available
on other investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate levels, the value
of the mortgage-related securities will decline. Although the negative effect
could be lessened if the mortgage-related securities were to be paid earlier
(thus permitting a Fund to reinvest the prepayment proceeds in investments
yielding the higher current interest rate), as described above the rate of
mortgage prepayments and early payment of mortgage-related securities generally
tends to decline during a period of rising interest rates.
Although the value of ARMS may not be affected by rising interest rates as much
as the value of fixed-rate mortgage securities is affected by rising interest
rates, ARMS may still decline in value as a result of rising interest rates.
Although, as described above, the yield on ARMS varies with changes in the
applicable interest rate or index, there is often a lag between increases in
general interest rates and increases in the yield on ARMS as a result of
relatively infrequent interest rate reset dates. In addition, adjustable-rate
mortgages and ARMS often have interest rate or payment caps that limit the
ability of the adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
MORTGAGE STRATEGY may invest up to 15% of the value of its total assets in
mortgage-related securities denominated in U.S. Dollars or in foreign
currencies and issued or guaranteed by foreign governments or issued by foreign
non-governmental issuers, provided that such foreign mortgage-related
securities are triple-A rated. The percentage of MORTGAGE STRATEGY'S assets
invested in foreign mortgage-related securities will vary and its portfolio of
foreign mortgage-related securities may include those of a number of foreign
countries or, depending upon market conditions, those of a single country. See
'Risk Considerations-Foreign Investment.'
OTHER ASSET-BACKED SECURITIES. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card
receivables, home equity loans, equipment leases and trade receivables, are
being securitized in structures similar to the structures used in mortgage
securitizations. These asset-backed securities are subject to risks associated
with changes in interest rates and prepayment of underlying obligations similar
to the risks of investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks depending on the
type of assets involved and the legal structure used. For example, credit card
receivables are generally unsecured obligations of the credit card holder and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due.
There have also been proposals to cap the interest rate that a credit card
issuer may charge. In some transactions, the value of the asset-backed security
is dependent on the performance of a third party acting as credit enhancer or
servicer. Furthermore, in some transactions (such as those involving the
securitization of vehicle loans or leases) it may be administratively
burdensome to perfect the interest of the security issuer in the underlying
collateral and the underlying collateral may become damaged or stolen.
U.S. GOVERNMENT SECURITIES. U.S. Government securities may be backed by the
full faith and credit of the United States, supported only by the right of the
issuer to borrow from the U.S. Treasury or backed only by the credit of the
issuing agency itself. These securities include:
(i) the following U.S. Treasury securities, which are backed by the full
faith and credit of the United States and differ only in their interest rates,
maturities and times of issuance: U.S. Treasury bills (maturities of one year
or less with no interest paid and hence issued at a discount and repaid at full
face value upon maturity), U.S. Treasury notes (maturities of one to ten years
with interest payable
26
every six months) and U.S. Treasury bonds (generally maturities of greater than
ten years with interest payable every six months);
(ii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are supported by the full faith and credit of the U.S.
Government, such as securities issued by GNMA, the Farmers Home Administration,
the Department of Housing and Urban Development, the Export-Import Bank, the
General Services Administration and the Small Business Administration; and
(iii) obligations issued or guaranteed by U.S. Government agencies and
instrumentalities that are not supported by the full faith and credit of the
U.S. Government, such as securities issued by FNMA and FHLMC, and governmental
CMOs.
The maturities of the U.S. Government securities listed in paragraphs (i) and
(ii) above usually range from three months to 30 years. Such securities, except
GNMA certificates, normally provide for periodic payments of interest in fixed
amounts with principal payments at maturity or specified call dates. For
information regarding GNMA, FNMA and FHLMC certificates and CMOs, see
'Mortgage-Related Securities' above.
U.S. Government securities also include zero coupon securities and
principal-only securities and certain SMRS. In addition, other U.S. Government
agencies and instrumentalities have issued stripped securities that are similar
to SMRS. Such securities include those that are issued with an IO class and a
PO class. See 'Mortgage-Related Securities' above and 'Zero Coupon and
Principal-Only Securities' below. Although these stripped securities are
purchased and sold by institutional investors through several investment
banking firms acting as brokers or dealers, these securities were only recently
developed. As a result, established trading markets have not yet developed and,
accordingly, these securities may be illiquid.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of a Fund that holds the securities.
U.S. Government securities are considered among the safest of fixed-income
investments. As a result, however, their yields are generally lower than the
yields available from other fixed-income securities.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon securities and
principal-only (PO) securities are debt securities that have been issued
without interest coupons or stripped of their unmatured interest coupons, and
include receipts or certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its holder during
its life. Its value to an investor consists of the difference between its face
value at the time of maturity and the price for which it was acquired, which is
generally an amount significantly less than its face value. Such securities
usually trade at a deep discount from their face or par value and are subject
to greater fluctuations in market value in response to changing interest rates
than debt obligations of comparable maturities and credit quality that make
current distributions of interest. On the other hand, because there are no
periodic interest payments to be reinvested prior to maturity, these securities
eliminate reinvestment risk and 'lock in' a rate of return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued without interest
coupons. Principal-only Treasury securities are U.S. Treasury notes and bonds
that have been stripped of their unmatured interest coupons, and receipts or
certificates representing interests in such stripped debt obligations and
coupons. Currently the only U.S. Treasury security issued without coupons is
the Treasury bill. Although the U.S. Treasury does not itself issue Treasury
notes and bonds without coupons, under the U.S. Treasury STRIPS program
interest and principal payments on certain long-term Treasury securities may be
maintained separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years a number of
banks and brokerage firms have separated ('stripped') the principal portions
from the coupon portions of U.S. Treasury bonds and notes and sold them
separately in the form of receipts or certificates representing undivided
interests in these instruments (which instruments are generally held by a bank
in a custodial or trust account). The staff of the Commission has indicated
that, in its view, these receipts or certificates should be considered as
securities issued by the bank or brokerage firm involved and, therefore, should
not be included in a Fund's categorization of U.S. Government securities. The
Funds disagree with the staff's position but will not treat such securities as
U.S. Government securities until final resolution of the issue.
Current federal tax law requires that a holder (such as a Fund) of a zero
coupon security accrue a portion of the discount at which the security was
purchased as income each year even though the holder receives no interest
payment in cash on the security during the year. As a result, in order to make
the distributions necessary for a Fund not to be subject to federal income or
excise taxes, the Fund might be required to pay out as an income distribution
each year an amount, obtained by liquidation of portfolio securities or
borrowings if necessary, greater than the total amount of cash that the Fund
has actually received as interest during the year. Each Fund believes, however,
that it is highly unlikely that it would be necessary to liquidate portfolio
securities or borrow money in order to make such required distributions or to
meet its investment objective. For a discussion of the tax treatment of zero
coupon Treasury securities, see 'Dividends, Distributions and Taxes-Zero Coupon
Treasury Securities' in the Statement of Additional Information of each Fund
that is permitted to invest in such securities.
CORPORATE BOND may also invest in 'pay-in-kind' debentures (i.e., debt
obligations the interest on which may be paid in the form of obligations of the
same type rather than cash), which have characteristics similar to zero coupon
securities.
27
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-income
securities may have fixed, variable or floating rates of interest. Variable and
floating rate securities pay interest at rates that are adjusted periodically,
according to a specified formula. A 'variable' interest rate adjusts at
predetermined intervals (e.g., daily, weekly or monthly), while a 'floating'
interest rate adjusts whenever a specified benchmark rate (such as the bank
prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at a coupon rate
equal to a base rate, plus additional interest for a certain period of time if
short-term interest rates rise above a predetermined level or 'cap.' The amount
of such an additional interest payment typically is calculated under a formula
based on a short-term interest rate index multiplied by a designated factor.
Leveraged inverse floating rate debt instruments are sometimes known as inverse
floaters. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent
that its interest rate varies by a magnitude that exceeds the magnitude of the
change in the index rate of interest. The higher degree of leverage inherent in
inverse floaters is associated with greater volatility in market value, such
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed rate securities.
STRUCTURED SECURITIES. Structured securities in which GLOBAL DOLLAR GOVERNMENT
and CORPORATE BOND may invest represent interests in entities organized and
operated solely for the purpose of restructuring the investment characteristics
of sovereign debt obligations, with respect to GLOBAL DOLLAR GOVERNMENT, or
foreign government securities, with respect to CORPORATE BOND. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans
or Brady Bonds) and the issuance by that entity of one or more classes of
structured securities backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned
among the newly issued structured securities to create securities with
different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow on the underlying instruments. Because structured securities typically
involve no credit enhancement, their credit risk generally will be equivalent
to that of the underlying instruments. Structured securities of a given class
may be either subordinated or unsubordinated to the right of payment of another
class. Subordinated structured securities typically have higher yields and
present greater risks than unsubordinated structured securities. GLOBAL DOLLAR
GOVERNMENT may invest up to 25% of its total assets, and CORPORATE BOND may
invest without limit, in these types of structured securities.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in loans are expected
in most instances to be in the form of participations in loans and assignments
of all or a portion of loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a contractual
relationship only with the lender and not with the borrower. A Fund will
acquire participations only if the lender interpositioned between the Fund and
the borrower is a lender having total assets of more than $25 billion and whose
senior unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct rights against
the borrower on the loan. Because loan assignments are arranged through private
negotiations between potential assignees and potential assignors, however, the
rights and obligations acquired by a Fund as the purchaser of an assignment may
differ from, and be more limited than, those held by the assigning lender. The
assignability of certain sovereign debt obligations, with respect to GLOBAL
DOLLAR GOVERNMENT, or foreign government securities, with respect to CORPORATE
BOND, is restricted by the governing documentation as to the nature of the
assignee such that the only way in which the Fund may acquire an interest in a
loan is through a participation and not an assignment. A Fund may have
difficulty disposing of assignments and participations because to do so it will
have to assign such securities to a third party. Because there is no liquid
market for such securities, such securities can probably be sold only to a
limited number of institutional investors. The lack of a liquid secondary
market may have an adverse effect on the value of such securities and a Fund's
ability to dispose of particular assignments or participations when necessary
to meet its liquidity needs in response to a specific economic event such as a
deterioration in the creditworthiness of the borrower. The lack of a liquid
secondary market for assignments and participations also may make it more
difficult for the Fund to assign a value to these securities for purposes of
valuing the Fund's portfolio and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT may invest up to 25%, and CORPORATE BOND may invest up
to 15%, of their total assets, in loan participations and assignments. The
government that is the borrower on the loan will be considered by a Fund to be
the issuer of a loan participation or assignment for purposes of its
fundamental investment policy that it may not invest 25% or more of its total
assets in securities of issuers conducting their principal business activities
in the same industry (i.e., foreign government).
BRADY BONDS. Brady Bonds are created through the exchange of existing
commercial bank loans to foreign entities for new obligations in connection
with debt restructurings under a plan introduced by former U.S. Secretary of
the Treasury, Nicholas F. Brady (the 'Brady Plan'). Brady Bonds have been
issued only recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are U.S. Dollar-denominated) and they are actively traded in the
over-the-counter secondary market.
28
U.S. Dollar-denominated, collateralized Brady Bonds, which may be fixed-rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations that
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments based on the applicable interest rate at that time and is adjusted at
regular intervals thereafter. Certain Brady Bonds are entitled to 'value
recovery payments' in certain circumstances, which in effect constitute
supplemental interest payments but generally are not collateralized. Brady
Bonds are often viewed as having up to four valuation components: (i)
collateralized repayment of principal at final maturity, (ii) collateralized
interest payments, (iii) uncollateralized interest payments, and (iv) any
uncollateralized repayment of principal at maturity (these uncollateralized
amounts constitute the 'residual risk'). In the event of a default with respect
to collateralized Brady Bonds as a result of which the payment obligations of
the issuer are accelerated, the U.S. Treasury zero coupon obligations held as
collateral for the payment of principal will not be distributed to investors,
nor will such obligations be sold and the proceeds distributed. The collateral
will be held by the collateral agent to the scheduled maturity of the defaulted
Brady Bonds, which will continue to be outstanding, at which time the face
amount of the collateral will equal the principal payments that would have then
been due on the Brady Bonds in the normal course. In addition, in light of the
residual risk of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private entities of
countries issuing Brady Bonds, investments in Brady Bonds are to be viewed as
speculative.
CONVERTIBLE SECURITIES. Convertible securities include bonds, debentures,
corporate notes and preferred stocks that are convertible into common stock.
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of equity securities
of the same or similar issuers. The price of a convertible security will
normally vary with changes in the price of the underlying stock, although the
higher yield tends to make the convertible security less volatile than the
underlying common stock. As with debt securities, the market value of
convertible securities tends to decline as interest rates increase and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they enable investors to benefit from increases in the market price of
the underlying common stock. Convertible debt securities that are rated Baa or
lower by Moody's or BBB or lower by S&P, Duff & Phelps or Fitch and comparable
unrated securities may share some or all of the risks of debt securities with
those ratings. For a description of these risks, see 'Risk
Considerations-Investment in Lower-Rated Fixed-Income Securities.'
SHORT SALES. A short sale is effected by selling a security that a Fund does
not own, or if the Fund owns the security, it is not to be delivered upon
consummation of the sale. A short sale is 'against the box' if a Fund owns or
has the right to obtain without payment securities identical to those sold
short. SHORT-TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of deferring
realization of gain or loss for U.S. federal income tax purposes. In addition,
each of these Funds may not make a short sale if, as a result, more than 10% of
net assets (taken at market value), with respect to GLOBAL DOLLAR GOVERNMENT,
and 10% of total assets, with respect to SHORT-TERM U.S. GOVERNMENT, would be
held as collateral for short sales. If the price of the security sold short
increases between the time of the short sale and the time a Fund replaces the
borrowed security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a capital gain. Certain special federal income
tax considerations may apply to short sales entered into by a Fund. See
'Dividends, Distributions and Taxes' in the relevant Fund's Statement of
Additional Information.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an agreed-upon
future date, normally a day or a few days later. The resale price is greater
than the purchase price, reflecting an agreed-upon interest rate for the period
the buyer's money is invested in the security. Such agreements permit a Fund to
keep all of its assets at work while retaining 'overnight' flexibility in
pursuit of investments of a longer-term nature. A Fund requires continual
maintenance of collateral in an amount equal to, or in excess of, the resale
price. If a vendor defaults on its repurchase obligation, a Fund would suffer a
loss to the extent that the proceeds from the sale of the collateral were less
than the repurchase price. If a vendor goes bankrupt, a Fund might be delayed
in, or prevented from, selling the collateral for its benefit. There is no
percentage restriction on any Fund's ability to enter into repurchase
agreements, except that SHORT-TERM U.S. GOVERNMENT may enter into repurchase
agreements on not more than 25% of its total assets. The Funds may enter into
repurchase agreements with member banks of the Federal Reserve System or
'primary dealers' (as designated by the Federal Reserve Bank of New York),
although MORTGAGE STRATEGY, WORLD INCOME, SHORT-TERM MULTI-MARKET, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT
currently enter into repurchase agreements only with their custodians and such
primary dealers.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS. Reverse repurchase agreements
involve sales by a Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price. During
the reverse repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally, the effect of
such a transaction is that a Fund can recover all or most of the cash invested
in the
29
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, MORTGAGE STRATEGY does not expect to
engage in reverse repurchase agreements and dollar rolls with respect to
greater than 50% of its total assets. Reverse repurchase agreements and dollar
rolls together with any borrowings by GLOBAL DOLLAR GOVERNMENT will not exceed
33% of its total assets less liabilities (other than amounts borrowed). See
'Risk Considerations-Effects of Borrowing.'
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of portfolio
securities to brokers, dealers and financial institutions, provided that cash,
liquid high-grade debt securities or bank letters of credit equal to at least
100% of the market value of the securities loaned is deposited and maintained
by the borrower with the Fund. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all relevant facts
and circumstances, including the creditworthiness of the borrower. While
securities are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio securities,
thereby earning additional income, or receive an agreed upon amount of income
from a borrower who has delivered equivalent collateral. Each Fund will have
the right to regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting rights,
subscription rights and rights to dividends, interest or distributions. A Fund
may pay reasonable finders', administrative and custodial fees in connection
with a loan. A Fund will not lend portfolio securities in excess of 25%, with
respect to SHORT-TERM U.S. GOVERNMENT, and 20%, with respect to each of
MORTGAGE STRATEGY, MORTGAGE SECURITIES INCOME, WORLD INCOME, SHORT-TERM
MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and
GLOBAL DOLLAR GOVERNMENT, of its total assets, nor will a Fund lend portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.
ILLIQUID SECURITIES. Subject to any more restrictive applicable investment
policies, none of the Funds will maintain more than 15% of its net assets in
illiquid securities. Illiquid securities generally include (i) direct
placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used to cover currency
swaps, (ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days. Rule
144A securities that have legal or contractual restrictions on resale but have
a readily available market are not deemed illiquid. Alliance will monitor the
liquidity of each Fund's Rule 144A portfolio securities under the supervision
of the Directors of that Fund. A Fund that invests in illiquid securities may
not be able to sell such securities and may not be able to realize their full
value upon sale.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR GOVERNMENT may invest
in other investment companies whose investment objectives and policies are
consistent with those of the Fund. Under the 1940 Act, the Fund may invest not
more than 10% of its total assets in securities of other investment companies.
In addition, under the 1940 Act the Fund may not own more than 3% of the total
outstanding voting stock of any investment company and not more than 5% of the
value of the Fund's total assets may be invested in the securities of any
investment company. If the Fund acquired shares in investment companies,
shareholders would bear both their proportionate share of expenses in the Fund
(including management and advisory fees) and, indirectly, the expenses of such
investment companies (including management and advisory fees).
FUTURE DEVELOPMENTS. A Fund may, following written notice to its shareholders,
take advantage of other investment practices that are not currently
contemplated for use by the Fund or are not available but may yet be developed,
to the extent such investment practices are consistent with the Fund's
investment objective and legally permissible for the Fund. Such investment
practices, if they arise, may involve risks that exceed those involved in the
practices described above.
DEFENSIVE POSITION. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high grade or high quality (depending on
the Fund) debt securities.
30
These securities may include U.S. Government securities, qualifying bank
deposits, money market instruments, prime commercial paper and other types of
short-term debt securities including notes and bonds. For Funds that may invest
in foreign countries, such securities may also include short-term,
foreign-currency denominated securities of the type mentioned above issued by
foreign governmental entities, companies and supranational organizations. For a
complete description of the types of securities in which a Fund may invest
while in a temporary defensive position, see the Fund's Statement of Additional
Information.
PORTFOLIO TURNOVER. Portfolio turnover rates are set forth under 'Financial
Highlights.' These rates of portfolio turnover are greater than those of most
other investment companies. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains. See
'Dividends, Distributions and Taxes' in each Fund's Statement of Additional
Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
SHORT-TERM U.S. GOVERNMENT may not (i) invest more than 5% of its total assets
in the securities of any one issuer (other than U.S. Government securities and
repurchase agreements relating thereto), although up to 25% of the Fund's total
assets may be invested without regard to this restriction, or (ii) invest 25%
or more of its total assets in the securities of any one industry.
U.S. GOVERNMENT may not (i) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 5% of the value of
its total assets at the time the borrowing is made, (ii) make loans to other
persons, (iii) effect a short sale of any security, (iv) purchase securities on
margin, but it may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities, or (v) write, purchase or sell
puts, calls or combinations thereof.
MORTGAGE STRATEGY may not (i) invest more than 5% of its total assets in the
securities of any one issuer or own more than 10% of the outstanding voting
securities of such issuer (other than U.S. Government securities), except that
up to 25% of the value of the Fund's total assets may be invested without
regard to the 5% and 10% limitations, (ii) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry,
except that this restriction does not apply to investments in the mortgage and
mortgage-financed industry (in which more than 25% of the value of the Fund's
total assets will, except for temporary defensive positions, be invested) or
U.S. Government securities, (iii) borrow money except from banks for emergency
or temporary purposes in an amount not exceeding 5% of the value of the total
assets of the Fund, except that the Fund may engage in reverse repurchase
agreements and dollar rolls in an amount up to 50% of the Fund's total assets,
and (iv) pledge, hypothecate, mortgage or otherwise encumber its assets, except
to secure permitted borrowings.
MORTGAGE SECURITIES INCOME may not (i) invest more than 5% of the value of its
total assets in the securities of any one issuer (other than U.S. Government
securities), except that up to 25% of the value of the Fund's total assets may
be invested without regard to this limitation, (ii) invest more than 25% of the
value of its total assets in the securities of issuers conducting their
principal business activities in a single industry, except that this limitation
shall not apply to investments in the mortgage and mortgage-financed industry
(in which more than 25% of the value of the Fund's total assets will, except
for temporary defensive positions, be invested) or U.S. Government securities,
(iii) borrow money except from banks for temporary or emergency purposes,
including the meeting of redemption requests which might require the untimely
disposition of securities, borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not exceed 5% of the
value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made, outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any subsequent investments are made, (iv) pledge,
hypothecate, mortgage or otherwise encumber its assets, except in an amount of
not more than 15% of the value of its total assets to secure borrowings for
temporary or emergency purposes and except as provided in (vi) below, provided,
however, that this limitation does not apply to deposits made in connection
with the entering into and holding of interest rate futures contracts, (v)
invest more than 10% of the value of its total assets in the aggregate in
illiquid securities or other illiquid investments and repurchase agreements
maturing in more than seven days, or (vi) lend its portfolio securities if
immediately after such a loan more than 20% of the value of the Fund's total
assets would be subject to such loans.
WORLD INCOME may not (i) invest 25% or more of its total assets in securities
of companies engaged principally in any one industry other than the banking
industry except that this restriction does not apply to U.S. Government
securities, (ii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which might require the
untimely disposition of securities; borrowing in the aggregate may not exceed
15%, and borrowing for purposes other than meeting redemptions may not exceed
5% of the value of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; securities will not be purchased while borrowings in excess of 5% of the
value of the Fund's total assets are outstanding, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
31
SHORT-TERM MULTI-MARKET may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests which might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5% of the value of the Fund's total assets (including the amount
borrowed) less liabilities (not including the amount borrowed) at the time the
borrowing is made; securities will not be purchased while borrowings in excess
of 5% of the value of the Fund's total assets are outstanding, or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings.
MULTI-MARKET STRATEGY may not (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry other than the
banking industry, except that this restriction does not apply to U.S.
Government securities, (ii) borrow money, except the Fund may, in accordance
with provisions of the 1940 Act, (a) borrow from a bank, if after such
borrowing, there is asset coverage of at least 300% as defined in the 1940 Act,
and (b) borrow for temporary or emergency purposes in an amount not exceeding
5% of the value of the total assets of the Fund, or (iii) pledge, hypothecate,
mortgage or otherwise encumber its assets, except to secure permitted
borrowings.
NORTH AMERICAN GOVERNMENT INCOME may not (i) invest 25% or more of its total
assets in securities of companies engaged principally in any one industry
except that this restriction does not apply to U.S. Government securities, (ii)
borrow money, except that the Fund may, in accordance with provisions of the
1940 Act, (a) borrow from a bank, if after such borrowing, there is asset
coverage of at least 300% as defined in the 1940 Act, and (b) borrow for
temporary or emergency purposes in an amount not exceeding 5% of the value of
the total assets of the Fund, or (iii) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings.
GLOBAL DOLLAR GOVERNMENT may not (i) invest 25% or more of its total assets in
the securities of issuers conducting their principal business activities in any
one industry, except that this restriction does not apply to U.S. Government
securities, (ii) purchase more than 10% of any class of the voting securities
of any one issuer, (iii) borrow money, except the Fund may, in accordance with
provisions of the 1940 Act, (a) borrow from a bank, if after such borrowing,
there is asset coverage of at least 300% as defined in the 1940 Act, and (b)
borrow for temporary or emergency purposes in an amount not exceeding 5% of the
value of the total assets of the Fund, (iv) pledge, hypothecate, mortgage or
otherwise encumber its assets, except to secure permitted borrowings, or (v)
purchase a security if, as a result (unless the security is acquired pursuant
to a plan of reorganization or an offer of exchange), the Fund would own more
than 3% of the total outstanding voting stock of any investment company or more
than 5% of the value of the Fund's net assets would be invested in securities
of any one or more investment companies.
CORPORATE BOND may not (i) invest more than 5% of its total assets in the
securities of any one issuer other than U.S. Government securities, or (ii) own
more than 10% of the outstanding voting securities of any issuer.
RISK CONSIDERATIONS
FIXED-INCOME SECURITIES. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments will change
as the general level of interest rates fluctuates. During periods of falling
interest rates, the values of a Fund's securities generally rise. Conversely,
during periods of rising interest rates, the values of a Fund's securities
generally decline.
In seeking to achieve a Fund's investment objective, there will be times, such
as during periods of rising interest rates, when depreciation and realization
of capital losses on securities in a Fund's portfolio will be unavoidable.
Moreover, medium-and lower-rated securities and non-rated securities of
comparable quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market conditions. Such
fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the net asset value of a Fund.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate fixed-income
securities in which GLOBAL DOLLAR GOVERNMENT invests may include securities
issued in connection with corporate restructurings such as takeovers or
leveraged buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks due to the
highly leveraged conditions of the issuer. In addition, such issuers may lose
experienced management as a result of the restructuring. Finally, the market
price of such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Fund may also invest in
U.S. corporate fixed-income securities that are not current in the payment of
interest or principal or are in default, so long as Alliance believes such
investment is consistent with the Fund's investment objectives. The Fund's
rights with respect to defaults on such securities will be subject to
applicable U.S. bankruptcy, moratorium and other similar laws.
FOREIGN INVESTMENT. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in securities of U.S. companies.
These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities
settlements may in some instances be subject to
32
delays and related administrative uncertainties. Furthermore, foreign
investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the cost
and expenses of a Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances. A Fund could be adversely affected
by delays in, or a refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other restrictions on
investment. Investing in local markets may require a Fund to adopt special
procedures or seek local governmental approvals or other actions, any of which
may involve additional costs to a Fund. The liquidity of a Fund's investments
in any country in which any of these factors exists could be affected and
Alliance will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage commissions for
transactions both on and off the securities exchanges in many foreign countries
are generally higher than in the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements and timely disclosure of information. The reporting, accounting
and auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects and less information
may be available to investors in foreign securities than to investors in U.S.
securities. Substantially less information is publicly available about certain
non-U.S. issuers than is available about U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability or diplomatic
developments could affect adversely the economy of a foreign country or the
Fund's investments in such country. In the event of expropriation,
nationalization or other confiscation, a Fund could lose its entire investment
in the country involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide less protection
to security holders such as the Fund than that provided by U.S. laws.
WORLD INCOME may invest a portion of its net assets in securities denominated
in the ECU. There are risks associated with concentration of investments in a
particular region of the world such as Western Europe since the economies and
markets of the countries in the region tend to be interrelated and may be
adversely affected by political, economic and other events in a similar manner.
Alliance believes that, except for currency fluctuations between the U.S.
Dollar and the Canadian Dollar, the matters described above are not likely to
have a material adverse effect on NORTH AMERICAN GOVERNMENT INCOME'S
investments in the securities of Canadian issuers or investments denominated in
Canadian issuers or investments denominated in Canadian Dollars. The factors
described above are more likely to have a material adverse effect on the Fund's
investments in the securities of Mexican and other non-Canadian foreign
issuers, including investments in securities denominated in Mexican Pesos or
other non-Canadian foreign currencies. If not hedged, however, currency
fluctuations could affect the unrealized appreciation and depreciation of
Canadian Government securities as expressed in U.S. Dollars.
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of their assets
in securities denominated in, and receive revenues in, foreign currencies will
be adversely affected by reductions in the value of those currencies relative
to the U.S. Dollar. These changes will affect a Fund's net assets,
distributions and income. If the value of the foreign currencies in which a
Fund receives income falls relative to the U.S. Dollar between receipt of the
income and the making of Fund distributions, a Fund may be required to
liquidate securities in order to make distributions if the Fund has
insufficient cash in U.S. Dollars to meet the distribution requirements that
the Fund must satisfy to qualify as a regulated investment company for federal
income tax purposes. Similarly, if an exchange rate declines between the time a
Fund incurs expenses in U.S. Dollars and the time cash expenses are paid, the
amount of the currency required to be converted into U.S. Dollars in order to
pay expenses in U.S. Dollars could be greater than the equivalent amount of
such expenses in the currency at the time they were incurred. In light of these
risks, a Fund may engage in certain currency hedging transactions, which
themselves, involve certain special risks. See 'Additional Investment
Practices' above.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may exist for many
of the sovereign debt obligations in which GLOBAL DOLLAR GOVERNMENT will
invest. Reduced secondary market liquidity may have an adverse effect on the
market price and the Fund's ability to dispose of particular instruments when
necessary to meet its liquidity requirements or in response to specific
economic events such as a deterioration in the creditworthiness of the issuer.
Reduced secondary market liquidity for certain sovereign debt obligations may
also make it more difficult for the Fund to obtain accurate market quotations
for the purpose of valuing its portfolio. Market quotations are generally
available on many sovereign debt obligations only from a limited number of
dealers and may not necessarily represent firm bids of those dealers or prices
for actual sales.
33
By investing in sovereign debt obligations, the Fund will be exposed to the
direct or indirect consequences of political, social and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected, among other things, in its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
The sovereign debt obligations in which the Fund will invest in many cases
pertain to countries that are among the world's largest debtors to commercial
banks, foreign governments, international financial organizations and other
financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting outstanding
principal and unpaid interest to Brady Bonds, and obtaining new credit to
finance interest payments. Certain governments have not been able to make
payments of interest on or principal of sovereign debt obligations as those
payments have come due. Obligations arising from past restructuring agreements
may affect the economic performance and political and social stability of those
issuers.
The ability of governments to make timely payments on their obligations is
likely to be influenced strongly by the issuer's balance of payments, including
export performance, and its access to international credits and investments. To
the extent that a country receives payment for its exports in currencies other
than dollars, its ability to make debt payments denominated in dollars could be
adversely affected. To the extent that a country develops a trade deficit, it
will need to depend on continuing loans from foreign governments, multi-lateral
organizations or private commercial banks, aid payments from foreign
governments and on inflows of foreign investment. The access of a country to
these forms of external funding may not be certain, and a withdrawal of
external funding could adversely affect the capacity of a government to make
payments on its obligations. In addition, the cost of servicing debt
obligations can be affected by a change in international interest rates since
the majority of these obligations carry interest rates that are adjusted
periodically based upon international rates.
The Fund is permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
Alliance believes it to be consistent with the Fund's investment objectives.
The Fund may have limited legal recourse in the event of a default with respect
to certain sovereign debt obligations it holds. For example, remedies from
defaults on certain sovereign debt obligations, unlike those on private debt,
must, in some cases, be pursued in the courts of the defaulting party itself.
Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
EFFECTS OF BORROWING. A Fund's loan agreements provide for additional
borrowings and for repayments and reborrowings from time to time, and each Fund
that may borrow expects to effect borrowings and repayments at such times and
in such amounts as will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a selection of
interest rates that are based on the bank's short-term funding costs in the
U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares of common stock.
Utilization of leverage, which is usually considered speculative, however,
involves certain risks to a Fund's shareholders. These include a higher
volatility of the net asset value of a Fund's shares of common stock and the
relatively greater effect on the net asset value of the shares. So long as a
Fund is able to realize a net return on its investment portfolio that is higher
than the interest expense paid on borrowings, the effect of leverage will be to
cause the Fund's shareholders to realize a higher current net investment income
than if the Fund were not leveraged. On the other hand, interest rates on U.S.
Dollar-denominated and foreign currency-denominated obligations change from
time to time as does their relationship to each other, depending upon such
factors as supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could cause the
relationship between such rates to change so that rates on U.S.
Dollar-denominated obligations may substantially increase relative to the
foreign currency-denominated obligations in which the Fund may be invested. To
the extent that the interest expense on borrowings approaches the net return on
a Fund's investment portfolio, the benefit of leverage to the Fund's
shareholders will be reduced, and if the interest expense on borrowings were to
exceed the net return to shareholders, a Fund's use of leverage would result in
a lower rate of return than if a Fund were not leveraged. Similarly, the effect
of leverage in a declining market could be a greater decrease in net asset
value per share than if the Fund were not leveraged. In an extreme case if a
Fund's current investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to liquidate certain
of its investments, thereby reducing the net asset value of a Fund's shares.
In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by either MULTI-MARKET
STRATEGY or NORTH
34
AMERICAN GOVERNMENT INCOME could adversely affect the Funds' shareholders, as
noted above, or in anticipation of such changes, either Fund may increase the
percentage of its investment portfolio invested in U.S. Government securities,
which would tend to offset the negative impact of leverage on Fund
shareholders. Either Fund may also reduce the degree to which it is leveraged
by repaying amounts borrowed.
Under the 1940 Act, a Fund is not permitted to borrow unless immediately after
such borrowing there is 'asset coverage,' as that term is defined and used in
the 1940 Act, of at least 300% for all borrowings of the Fund. In addition,
under the 1940 Act, in the event asset coverage falls below 300%, a Fund must
within three days reduce the amount of its borrowing to such an extent that the
asset coverage of its borrowings is at least 300%. Assuming, for example,
outstanding borrowings representing not more than one-third of a Fund's total
assets less liabilities (other than such borrowings), the asset coverage of the
Fund's portfolio would be 300%; while outstanding borrowings representing 25%
of the Fund's total assets less liabilities (other than such borrowings), the
asset coverage of the Fund's portfolio would be 400%. A Fund will maintain
asset coverage of outstanding borrowings of at least 300% and if necessary
will, to the extent possible, reduce the amounts borrowed by making repayments
from time to time in order to do so. Such repayments could require a Fund to
sell portfolio securities at times considered disadvantageous by Alliance. In
the event that a Fund is required to sell portfolio securities in order to make
repayments, such sales of portfolio securities could cause the Fund to incur
related transaction costs and might cause the Fund to realize gains on
securities held for less than three months. Because not more than 30% of a
Fund's gross income may be derived from the sale or disposition of stocks and
securities held for less than three months to maintain the Fund's tax status as
a regulated investment company, such gains would limit the ability of a Fund to
sell other securities held for less than three months that a Fund might wish to
sell in the ordinary course of its portfolio management and thus might
adversely affect the Fund's yield. See 'Dividends, Distributions and Taxes.'
Each of MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL
DOLLAR GOVERNMENT may also borrow to repurchase its shares or to meet
redemption requests. In addition, each Fund may borrow for temporary purposes
(including the purposes mentioned in the preceding sentence) in an amount not
exceeding 5% of the value of the assets of the Fund. Borrowings for temporary
purposes are not subject to the 300% asset average limit described above. See
'Certain Fundamental Investment Policies.' SHORT-TERM U.S. GOVERNMENT,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT may also borrow through the use of reverse repurchase agreements,
and GLOBAL DOLLAR GOVERNMENT also through the use of dollar rolls to the extent
permitted by the 1940 Act. See 'Investment Objectives and Policies-Reverse
Repurchase Agreements and Dollar Rolls.'
INVESTMENT IN THE BANKING INDUSTRY. Due to the investment policies of
MULTI-MARKET STRATEGY, WORLD INCOME and SHORT-TERM MULTI-MARKET with respect to
investments in the banking industry, those Funds will have greater exposure to
the risk factors which are characteristic of such investments. In particular,
the value of and investment return on each Fund's shares will be affected by
economic or regulatory developments in or related to the banking industry.
Sustained increases in interest rates can adversely affect the availability and
cost of funds for a bank's lending activities, and a deterioration in general
economic conditions could increase the exposure to credit losses. The banking
industry is also subject to the effects of: the concentration of loan
portfolios in particular business such as real estate, energy, agriculture or
high technology-related companies; national and local regulation; and
competition within those industries as well as with other types of financial
institutions. In addition, each Fund's investments in commercial banks located
in several foreign countries are subject to additional risks due to the
combination in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Funds will seek to minimize their
exposure to such risks by investing only in debt securities which are
determined to be of high quality.
SECURITIES RATINGS. The ratings of fixed-income securities by S&P, Moody's,
Duff & Phelps and Fitch are a generally accepted barometer of credit risk. They
are, however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB. Securities rated Baa
or BBB are considered to have speculative characteristics and share some of the
same characteristics as lower-rated securities, as described below. Sustained
periods of deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated securities are
subject to greater risk of loss of principal and interest than higher-rated
securities. They are also generally considered to be subject to greater market
risk than higher-rated securities, and the capacity of issuers of lower-rated
securities to pay interest and repay principal is more likely to weaken than is
that of issuers of higher-rated securities in times of deteriorating economic
conditions or rising interest rates. In addition, lower-rated securities may be
more susceptible to real or perceived adverse economic conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
35
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. Under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, federally-insured
savings and loan associations were required to have divested their investments
in non-investment grade corporate debt securities by July 1, 1994. Such
divestiture and continuing restrictions on the ability of such associations to
acquire lower-rated securities could have a material adverse effect on the
market and prices of such securities.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of its
program for managing a Fund's securities than would be the case if a Fund did
not invest in lower-rated securities. In considering investments for the Fund,
Alliance will attempt to identify those high-yielding securities whose
financial condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset coverage,
earnings prospects, and the experience and managerial strength of the issuer.
NON-RATED SECURITIES. Non-rated securities will also be considered for
investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT and
CORPORATE BOND when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the terms of the
securities themselves, limits the risk to the Fund to a degree comparable to
that of rated securities which are consistent with the Fund's objective and
policies.
NON-DIVERSIFIED STATUS. Each of WORLD INCOME, SHORT-TERM MULTI-MARKET,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR
GOVERNMENT is a 'non-diversified' investment company, which means the Fund is
not limited in the proportion of its assets that may be invested in the
securities of a single issuer. However, each Fund intends to conduct its
operations so as to qualify to be taxed as a 'regulated investment company' for
purposes of the Code, which will relieve the Fund of any liability for federal
income tax to the extent its earnings are distributed to shareholders. See
'Dividends, Distributions and Taxes' in each Fund's Statement of Additional
Information. To so qualify, among other requirements, each Fund will limit its
investments so that, at the close of each quarter of the taxable year, (i) not
more than 25% of the Fund's total assets will be invested in the securities of
a single issuer, and (ii) with respect to 50% of its total assets, not more
than 5% of its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding voting
securities of a single issuer. A Fund's investments in U.S. Government
securities are not subject to these limitations. Because each of WORLD INCOME,
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and GLOBAL DOLLAR GOVERNMENT is a non-diversified investment company, it
may invest in a smaller number of individual issuers than a diversified
investment company, and an investment in such Fund may, under certain
circumstances, present greater risk to an investor than an investment in a
diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers. In this regard sovereign debt obligations issued by
different issuers located in the same country are often treated as issued by a
single issuer for purposes of these diversification tests. Certain issuers of
structured securities and loan participations may be treated as separate
issuers for the purposes of these tests. Accordingly, in order to meet the
diversification tests and thereby maintain its status as a regulated investment
company, NORTH AMERICAN GOVERNMENT INCOME will be required to diversify its
portfolio of foreign government securities in a manner which would not be
necessary if the Fund had made similar investments in U.S. Government
securities.
PURCHASE AND SALE OF SHARES
_______________________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund Distributors,
Inc. ('AFD'), each Fund's principal underwriter. The minimum initial investment
in each Fund (except WORLD INCOME) is $250. The minimum for subsequent
investments in each Fund is $50. Investments of $25 or more are allowed under
the automatic investment program of each Fund. Share certificates are issued
only upon request. See the Subscription Application and Statements of
Additional Information for more information.
Each Fund offers three classes of shares, Class A, Class B and Class C, except
that WORLD INCOME offers only one class of
36
shares that you can purchase without any initial sales charge or contingent
deferred sales charge ('CDSC').
CLASS A SHARES-INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at net asset value plus an initial sales
charge, as follows:
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- -------------------------------- --------- -------------- -----------------
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to less than $250,000 3.36 3.25 3.00
$250,000 to less than $500,000 2.30 2.25 2.00
$500,000 to less than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a CDSC equal to 1% of the lesser of net asset value at the time of redemption
or original cost if you redeem within one year; Alliance may pay the dealer or
agent a fee of up to 1% of the dollar amount purchased. Certain purchases of
Class A shares may qualify for reduced or eliminated sales charges in
accordance with a Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain Retirement Plans,
Reinstatement Privilege and Sales at Net Asset Value programs. Consult the
Subscription Application and Statements of Additional Information.
CLASS B SHARES-DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within three years
after purchase. Shares obtained from dividend or distribution reinvestment are
not subject to the CDSC. The amount of the CDSC (expressed as a percentage of
the lesser of the current net asset value or original cost) will vary according
to the number of years from the purchase of Class B shares until the redemption
of those shares. The amount of the CDSC for each Fund is as set forth below.
Class B shares of a Fund purchased prior to the date of this Prospectus may be
subject to a different CDSC schedule, which was disclosed in the Fund's
prospectus in use at the time of purchase and is set forth in the Fund's
current Statement of Additional Information.
Year Since Purchase CDSC
-----------------------------
First 3.0%
Second 2.0%
Third 1.0%
Thereafter None
Class B shares are subject to higher distribution fees than Class A shares for
a period of six years (after which they convert to Class A shares). The higher
fees mean a higher expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A shares.
CLASS C SHARES-ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares incur
higher distribution fees than Class A shares and do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
APPLICATION OF THE CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans or pursuant to a
systematic withdrawal plan. See the Statements of
Additional Information.
HOW THE FUNDS VALUE THEIR SHARES
The net asset value of each class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that class by the outstanding
shares of that class. Shares are valued each day the New York Stock Exchange
(the 'Exchange') is open as of the close of regular trading (currently 4:00
p.m. Eastern time). The securities in a Fund are valued at their current market
value determined on the basis of market quotations or, if such quotations are
not readily available, such other methods as the Fund's Directors believe would
accurately reflect fair market value.
GENERAL
The decision as to which class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider
Class A shares. If you are making a smaller investment, you might consider
Class B shares because 100% of your purchase is invested immediately. If you
are unsure of the length of your investment, you might consider Class C shares
because there are no initial or contingent deferred sales charges. Consult your
financial agent. Dealers and agents may receive differing compensation for
selling Class A, Class B or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is $250,000. The
maximum purchase of Class C shares is $5,000,000. The Funds may refuse any
order to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be utilized, in whole
or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may
37
take the form of payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and entertainment incurred
in connection with travel by persons associated with a dealer or agent and
their immediate family members to urban or resort locations within or outside
the United States. Such dealer or agent may elect to receive cash incentives of
equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may 'redeem', i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class B shares) next calculated after the Fund receives your request in proper
form. Proceeds generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer, a Fund will
not send proceeds until it is reasonably satisfied that the check or electronic
funds transfer has been collected (which may take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
A Fund must receive your broker's request before 4:00 p.m. Eastern time for you
to receive that day's net asset value (less any applicable CDSC for Class B
shares). Your broker is responsible for furnishing all necessary documentation
to a Fund and may charge you for this service.
SELLING SHARES DIRECTLY TO A FUND
Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ('AFS'), each Fund's registrar, transfer agent and
dividend-disbursing agent, along with certificates, if any, that represent the
shares you want to sell. For your protection, signatures must be guaranteed by
a bank, a member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial intermediary,
AFS, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672 by
a shareholder who has completed the Subscription Application or an 'Autosell'
application obtained from AFS. Telephone redemption requests must be for at
least $500 and may not exceed $100,000, and must be made between 9 a.m. and 4
p.m. Eastern time on a Fund business day. Proceeds of telephone redemptions
will be sent by electronic funds transfer. Proceeds of telephone redemptions
also may be sent by check to a shareholder's address of record, but only once
in any 30-day period and in an amount not exceeding $50,000. Telephone
redemption by check is not available for shares purchased within 15 calendar
days prior to the redemption request, shares held in nominee or 'street name'
accounts or retirement plan accounts or shares held by a shareholder who has
changed his or her address of record within the previous 30 calendar days.
GENERAL
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained
below $200 for 90 days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of WORLD INCOME for Class A shares of other
Alliance Mutual Funds and shares of most Alliance money market funds. You may
exchange your shares of any other Fund for shares of the same class of other
Alliance Mutual Funds (including AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined, without sales or service charges. Exchanges may be made by
telephone or written request.
Class A and Class B shares will continue to age without regard to exchanges for
the purpose of determining the CDSC, if any, upon redemption and, in the case
of Class B shares, for the purpose of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ('original shares').
When redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
38
MANAGEMENT OF THE FUNDS
_______________________________________________________________________________
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at
1345 Avenue of the Americas, New York, New York 10105, has been retained under
an advisory agreement (the 'Advisory Agreement') to provide investment advice
and, in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors or Trustess of
the Fund.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1995 totaling more than $140 billion
(of which more than $47 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 50 registered investment companies managed by Alliance
comprising 104 separate investment portfolios currently have over two million
shareholders. As of September 30, 1995, Alliance was retained as an investment
manager for 29 of the Fortune 100 companies.
Alliance Capital Management Corporation ('ACMC'), the sole general partner of,
and the owner of a 1% general partnership interest in, Alliance, is an indirect
wholly-owned subsidiary of The Equitable Life Assurance Society of the United
States ('Equitable'), one of the largest life insurance companies in the United
States, which is a wholly-owned subsidiary of The Equitable Companies
Incorporated, a holding company controlled by AXA, a French insurance holding
company. Certain information concerning the ownership and control of Equitable
by AXA is set forth in each Fund's Statement of Additional Information under
'Management of the Fund.'
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years
- -------------------------------------------------------------------------------
Short-Term U.S. Patricia J. Young since 1995 Associated with
Government -Senior Vice President Alliance since
March 1992;
prior thereto, a
managing director
and portfolio
manager for
Hyperion Capital
since March
1991 and a
managing director
with Fischer, Francis,
Trees & Watts
Paul A. Ullman Associated with
since 1995-Vice President Alliance since
March 1992; prior
thereto, a director and
portfolio manager for
Hyperion Capital since
July 1990 and a
Vice President at
Salomon Brothers Inc.
U.S. Government Wayne D. Lyski since 1983 Associated with
-Executive Vice President Alliance
Paul J. DeNoon since Associated with Alliance
January 1992- since January 1992;
Vice President prior thereto, a
Vice President at
Manufacturers
Hanover Trust
Mortgage Strategy Patricia J. Young since (see above)
inception-(see above)
Paul A. Ullman (see ablve)
since inception-
(see above)
Mortgage Securities Patricia J. Young (see above)
March 1992-(see above)
World Income Douglas J. Peebles since Associated with
inception-Vice President Alliance
Short-Term Douglas J. Peebles since (see above)
Multi-Market 1995-(see above)
Multi-Market Strategy Douglas J. Peebles since (see above)
inception-(see above)
North American Wayne D. Lyski since (see above)
Government Income inception-(see above)
Global Dollar Wayne D. Lyski since (see above)
Government inception -(see above)
Corporate Bond Wayne D. Lyski since (see above)
1987-(see above)
Paul J. DeNoon since (see above)
January 1992-(see above)
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more 'Rule
12b-1 plans' (for each Fund, a 'Plan') and has entered into a Distribution
Services Agreement (the 'Agreement') with AFD. Pursuant to its Plan, a Fund
pays to AFD a Rule 12b-1 distribution services fee, which may not exceed for
each Fund other than WORLD INCOME an annual rate of .30% (.50% with respect to
SHORT-TERM U.S. GOVERNMENT) of the Fund's aggregate average daily net assets
attributable to the Class A shares, 1.00% of the Fund's aggregate average daily
net assets attributable to the Class B shares and 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares, and for WORLD
INCOME may not exceed an annual rate of .90% of the Fund's aggregate average
daily net
39
assets, for distribution expenses. The Trustees of SHORT-TERM U.S. GOVERNMENT
currently limit payments with respect to Class A shares under the Plan to .30%
of the Fund's aggregate average daily net assets attributable to Class A
shares. The Plans provide that a portion of the distribution services fee in an
amount not to exceed .25% of the aggregate average daily net assets of each
Fund attributable to each class of shares constitutes a service fee used for
personal service and/or the maintenance of shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to,
with respect to each Fund other than WORLD INCOME, .25%, annualized, with
respect to Class A shares and Class B shares, and 1.00%, annualized, with
respect to Class C shares, and, with respect to WORLD INCOME, .90%, annualized,
of the assets maintained in a Fund by their customers. Distribution services
fees received from WORLD INCOME and the other Funds, except SHORT-TERM U.S.
GOVERNMENT, with respect to Class A shares will not be used to pay any interest
expenses, carrying charges or other financing costs or allocation of overhead
of AFD. Distribution services fees received from the Funds, with respect to
Class B and Class C shares, may be used for these purposes. The Plans also
provide that Alliance may use its own resources to finance the distribution of
each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services
fee in excess of the amounts set forth above. Except as noted below for
SHORT-TERM U.S. GOVERNMENT, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
AFD's compensation with respect to Class B and Class C shares under the Plans
of the other Funds is directly tied to the expenses incurred by AFD. Actual
distribution expenses for Class B and Class C shares for any given year,
however, will probably exceed the distribution services fees payable under the
applicable Plan with respect to the class involved and, in the case of Class B
shares, payments received from CDSCs. The excess will be carried forward by AFD
and reimbursed from distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B shares, payments
subsequently received through CDSCs, so long as the Plan is in effect. Since
AFD's compensation under the Plan of SHORT-TERM U.S. GOVERNMENT is not directly
tied <br>
Created: 11/1/95 (USL)to its expenses incurred, the amount of compensation
received by it during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal year, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except
SHORT-TERM U.S. GOVERNMENT), were, as of that time, as follows:
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
------------------------------------------------------
Class B Class C
- --------------------------------------------------------------------------------
Short-Term U.S. Government $ 348,789 (5.47%) $ 500,617 (9.67%)
U.S. Government $13,511,108 (1.75%) $2,224,264 (1.22%)
Mortgage Strategy. $ 1,042,848 (.76%) $1,875,176 (1.32%)
Mortgage Securities Income $16,372,116 (1.78%) $1,459,018 (2.50%)
Short-Term Multi-Market $12,115,694 (1.21%) $ 798,673 (9.82%)
Multi-Market Strategy $ 7,254,301 (3.10%) $ 286,168 (22.85%)
North American Government Income $29,558,594 (1.80%) $2,355,558 (.64%)
Global Dollar Government $ 1,832,297 (2.94%) $ 174,111 (1.87%)
Corporate Bond $ 5,476,418 (2.27%) $ 607,167 (1.19%)
The Plans are in compliance with rules of the National Association of
Securities Dealers, Inc. which effectively limit the annual asset-based sales
charges and service fees that a mutual fund may pay on a class of shares to
.75% and .25%, respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end, deferred and
asset-based sales charges imposed with respect to a class of shares by a mutual
fund that also charges a service fee to 6.25% of cumulative gross sales of
shares of that class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a
bank or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that
a change in these laws prevented a bank from providing such services, it is
expected that other service arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________________________
DIVIDENDS AND DISTRIBUTIONS
Dividends on shares of a Fund will be declared on each Fund business day from
the Fund's net investment income. Dividends on shares for Saturdays, Sundays
and holidays will be declared on the previous business day. Each Fund pays
dividends on its shares after the close of business on the 20th
40
day of each month or, if such day is not a business day, the first business day
thereafter. At your election (which you may change at least 30 days prior to
the record date for a particular dividend or distribution), dividends and
distributions are paid in cash or reinvested in additional shares without
charge.
If you receive an income dividend or capital gains distribution in cash you
may, within 30 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing such dividend
or distribution. Thereafter, unless you otherwise specify, you will be deemed
to have elected to reinvest all subsequent dividends and distributions in
shares of that Fund.
Cash dividends can be paid by check or, if the shareholder so elects,
electronically via the ACH network. There is no sales or other charge in
connection with the reinvestment of dividends and capital gains distributions.
Dividends paid by a Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on the same day
and will be in the same amount, except that the higher distribution services
fees applicable to Class B and Class C shares, and any incremental transfer
agency costs relating to Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital
gains from investments. There is no fixed dividend rate, and there can be no
assurance that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
'pass through' to the Fund's shareholders credits for foreign income taxes
paid, but there can be no assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a 'regulated investment company'
under the Code. To the extent that a Fund distributes its taxable income and
net capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends from certain
Funds may be eligible for the dividends-received deduction, except that the
amount eligible for the deduction is limited to the amount of qualifying
dividends received by the Fund. A corporation's dividends-received deduction
will be disallowed unless the corporation holds shares in the Fund at least 46
days. Furthermore, the dividends-received deduction will be disallowed to the
extent a corporation's investment in shares of a Fund is financed with
indebtedness.
The excess of net long-term capital gains over the net short-term capital
losses realized and distributed by each Fund to its shareholders as capital
gains distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her
stock. Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect
a return of capital to that particular shareholder, would be taxable to him or
her as described above. If a shareholder held shares six months or less and
during that period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such shares during
such six-month period would be a long-term capital loss to the extent of such
distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. U.S.
GOVERNMENT, MORTGAGE STRATEGY, MORTGAGE SECURITIES INCOME, WORLD INCOME,
SHORT-TERM MULTI-MARKET, MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT
INCOME and CORPORATE BOND are qualified to do business in the Commonwealth of
Pennsylvania and, therefore, are subject to the Pennsylvania foreign franchise
and corporate net income tax in respect of their business activities in
Pennsylvania. Accordingly, shares of such Funds are exempt from Pennsylvania
personal property taxes. These Funds anticipate continuing such business
activities but reserve the right to
41
suspend them at any time, resulting in the termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder
if the shareholder has not provided a certified taxpayer identification number
to the Fund, or the Secretary of the Treasury notifies a Fund that a
shareholder has not reported all interest and dividend income required to be
shown on the shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.
GENERAL INFORMATION
_______________________________________________________________________________
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers
to enter into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: U.S. GOVERNMENT PORTFOLIO and CORPORATE BOND PORTFOLIO (each a
series of Alliance Bond Fund, Inc.) (1973), ALLIANCE MORTGAGE STRATEGY TRUST,
INC. (1992), ALLIANCE MORTGAGE SECURITIES INCOME FUND, INC. (1983), ALLIANCE
WORLD INCOME TRUST, INC. (1990), ALLIANCE SHORT-TERM MULTI-MARKET TRUST, INC.
(1989), ALLIANCE MULTI-MARKET STRATEGY TRUST, INC. (1991), ALLIANCE NORTH
AMERICAN GOVERNMENT INCOME TRUST, INC. (1992) and ALLIANCE GLOBAL DOLLAR
GOVERNMENT FUND, INC. (1993). Prior to January 4, 1993, CORPORATE BOND
PORTFOLIO was known as Monthly Income Portfolio. ALLIANCE SHORT-TERM U.S.
GOVERNMENT FUND is a series of The Alliance Portfolios, a Massachusetts
business trust that was organized in 1987. Prior to August 2, 1993, The
Alliance Portfolios was known as The Equitable Funds and SHORT-TERM U.S.
GOVERNMENT was known as The Equitable Short-Term U.S. Government Fund.
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal, or in the case
of the Funds organized as Maryland corporations, state law. Shareholders have
available certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented
by the redeemed shares less any applicable CDSC. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of shares. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors, that affect each portfolio
and class in substantially the same manner. Class A, Class B and Class C shares
have identical voting, dividend, liquidation and other rights, except that each
class bears its own distribution and transfer agency expenses. Each class of
shares votes separately with respect to a Fund's Rule 12b-1 distribution plan
and other matters for which separate class voting is appropriate under
applicable law. Shares are freely transferable, are entitled to dividends as
determined by the Directors and, in liquidation of a Fund, are entitled to
receive the net assets of the Fund. Since this Prospectus sets forth
information about all the Funds, it is theoretically possible that a Fund might
be liable for any materially inaccurate or incomplete disclosure in this
Prospectus concerning another Fund. Based on the advice of counsel, however,
the Funds believe that the potential liability of each Fund with respect to the
disclosure in this Prospectus extends only to the disclosure relating to that
Fund. Certain additional matters relating to a Fund's organization are
discussed in its Statement of Additional Information.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT INCOME
On July 25, 1995; a Consolidated and Supplemental Class Action Complaint
('Complaint') styled IN RE ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST,
INC. SECURITIES LITIGATION was filed in the United States District Court for
the Southern District of New York against the Fund, Alliance, ACMC, AFD, The
Equitable Companies Incorporated, a parent of Alliance, certain officers of the
Fund, certain current and former directors of the Fund, certain current and
former officers of ACMC and certain directors of ACMC; alleging violations of
federal securities laws, fraud and breach of fiduciary duty in connection with
the Fund's investments in Mexican and Argentine securities. The Complaint seeks
certification of a plaintiff class of all persons who purchased or owned Class
A, B or C shares of the Fund from March 27, 1992 through December 23, 1994. The
Complaint alleges that as of the date of the Complaint, the Fund's losses
exceeded $750,000,000. The Complaint seeks as relief unspecified damages,
costs and attorneys' fees.
The principal allegations of the Complaint are that upon the advice of Alliance
the Fund purchased debt securities issued by the Mexican and Argentine
governments in amounts that were not permitted by the Fund's investment
objective, and that there was no shareholder vote to change the investment
objective to permit purchases in such amounts. The Complaint further alleges
that the decline in the value of the Mexican and Argentine securities held by
the Fund caused the Fund's net asset value to decline to the detriment of the
Fund's shareholders.
On September 26, 1995, defendants jointly filed a motion to dismiss the
Complaint in its entirety. The Fund and Alliance believe that the allegations
in the Complaint are without merit and intend to vigorously defend against
these claims.
42
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer
agent and dividend-disbursing agent for a fee based upon the number of
shareholder accounts maintained for the Fund. The transfer agency fee with
respect to Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their 'yield' and 'total return,' which
are computed separately for Class A, Class B and Class C shares. A Fund's yield
for any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission
which provides for compounding on a semi-annual basis. A Fund may also state in
sales literature an 'actual distribution rate' for each class which is computed
in the same manner as yield except that actual income dividends declared per
share during the period in question are substituted for net investment income
per share. The actual distribution rate is computed separately for Class A,
Class B and Class C shares. Advertisements of a Fund's total return disclose
its average annual compounded total return for the periods prescribed by the
Commission. A Fund's total return for each such period is computed by finding,
through the use of a formula prescribed by the Commission, the average annual
compounded rate of return over the period that would equate an assumed initial
amount invested to the value of the investment at the end of the period. For
purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid. A Fund will include performance
data for each class of its shares in any advertisement or sales literature
using performance data of that Fund. These advertisements may quote performance
rankings or ratings of a Fund by financial publications or independent
organizations such as Lipper Analytical Services, Inc. and Morningstar, Inc. or
compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at
the offices of the Commission in Washington, D.C.
43
APPENDIX A:
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC.
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa-Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than the Aaa
securities.
A-Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
Baa-Bonds which are rated Baa are considered as medium-grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payment and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba-Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B-Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Absence of Rating-When no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published
in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer
available reasonable up-to-date data to permit a judgment to be formed; if a
bond is called for redemption; or for other reasons.
Note-Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
STANDARD & POOR'S RATINGS SERVICES
AAA-Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, CCC, CC, C-Debt rated BB, B, CCC, CC and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay
interest and repay principal. BB indicates the least degree of speculation A-1
and CCC the highest. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
A-1
CI-The rating CI is reserved for income bonds on which no interest is being
paid.
D-Debt rated D is in payment default. The D rating category is used when
interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also will be used
upon the filing of a bankruptcy petition if debt service payments are
jeopardized.
Plus (+) or Minus (-)-The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR-Not rated.
DUFF & PHELPS CREDIT RATING CO.
AAA-Highest claims paying ability. Risk factors are negligible.
AA+, AA, AA-Very high claims paying ability. Protection factors are strong.
Risk is modest, but may vary slightly over time due to economic and/or
underwriting conditions.
A+, A, A--High claims paying ability. Protection factors are average and there
is an expectation of variability in risk over time due to economic and/or
underwriting conditions.
BBB+, BBB, BBB--Adequate claims paying ability. Protection factors are
adequate. There is considerable variability in risk over time due to economic
and/or underwriting conditions.
BB+, BB, BB--Uncertain claims paying ability and less than investment-grade
quality. However, the company is deemed likely to meet these obligations when
due. Protection factors will vary widely with changes in economic and/or
underwriting conditions.
B+, B, B--Possessing risk that policy holder and contract-holder obligations
will not be paid when due. Protection factors will vary widely with changes in
economic and/or underwriting conditions or company fortunes.
CCC-There is substantial risk that policy holder and contract holder
obligations will not be paid when due. Company has been or is likely to be
placed under state insurance department supervision.
DD-Company is under an order of liquidation.
FITCH INVESTORS SERVICE, INC.
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however,
are more likely to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default.
The ability to meet obligations requires an advantageous business and economic
environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)-Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR-Indicates that Fitch does not rate the specific issue.
A-2
APPENDIX B:
GENERAL INFORMATION ABOUT CANADA, MEXICO AND ARGENTINA
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal territories
(which generally fall under federal authority) with a constitutional division
of powers between the federal and Provincial governments. The Parliament of
Canada has jurisdiction over all areas not assigned exclusively to the
Provincial legislatures, and has jurisdiction over such matters as the federal
public debt and property, the regulation of trade and commerce, currency and
coinage, banks and banking, national defense, the postal services, navigation
and shipping and unemployment insurance.
The Canadian economy is based on the free enterprise system with business
organizations ranging from small owner-operated businesses to large
multinational corporations. Manufacturing and resource industries are large
contributors to the country's economic output, but as in many other highly
developed countries, there has been a gradual shift from a largely
goods-producing economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the economy. Canada is
also an exporter of energy to the United States in the form of natural gas (of
which Canada has substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without foreign
exchange controls or other legal restriction. Since the major developed country
currencies were permitted to float freely against one another, the range of
fluctuation in the U.S. Dollar/Canadian Dollar exchange rate has been narrower
than the range of fluctuation between the U.S. Dollar and most other major
currencies. During the last several years, Canada has experienced a weakening
of its currency. In January 1995, the Canadian Dollar fell to a nine-year low
against the U.S. dollar, decreasing in value compared to the U.S. Dollar by
approximately 25% from October 1991. From January 31, 1995, through September
29, 1995, the Canadian Dollar increased in value by approximately 5%.
The range of fluctuation that occurred in the past is not necessarily
indicative of the range of fluctuation that will occur in the future. Future
rates of exchange cannot be predicted.
GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ('Mexico') is a nation formed by 31 states and a
Federal District (Mexico City). The Political Constitution of Mexico, which
took effect on May 1, 1917, established Mexico as a Federal Republic and
provides for the separation of executive, legislative and judicial branches.
The President and the members of the General Congress are elected by popular
vote.
While in recent years the Mexican economy has experienced improvement in a
number of areas, including five consecutive years of growth in gross domestic
product and a substantial reduction in the rate of inflation and in public
sector financial deficit, beginning in 1994, Mexico has experienced an economic
crisis that led to the devaluation of the Peso in December 1994. Much of the
past improvement in the Mexican economy has been attributable to a series of
economic policy initiatives initiated by the Mexican government over the past
decade, which seek to modernize and reform the Mexican economy, control
inflation, reduce the financial deficit, increase public revenues through the
reform of the tax system, establish a competitive and stable currency exchange
rate, liberalize trade restrictions and increase investment and productivity,
while reducing the government's role in the economy. In this regard, the
Mexican government has been proceeding with a program for privatizing certain
state owned enterprises, developing and modernizing the securities markets,
increasing investment in the private sector and permitting increased levels of
foreign investment. The recent adoption by Canada, the United States and Mexico
of the North American Free Trade Agreement could also contribute to the growth
of the Mexican economy.
In 1994 Mexico faced internal and external conditions that resulted in an
economic crisis that continues to affect the Mexican economy adversely.
Growing trade and current account deficits, which could no longer be financed
by inflows of foreign capital, were factors contributing to the crisis. A
weakening economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This resulted in a
large decline in foreign reserves followed by a sharp and rapid devaluation
of the Mexican Peso. The ensuing economic and financial crisis resulted in
higher inflation and domestic interest rates, a contraction in real gross
domestic product and a liquidity crisis.
In response to the adverse economic conditions that developed at the end of
1994, the Mexican government instituted a new economic programs; and a new
social accord among the government, business and labor sectors of the
country was entered into in an effort to stabilize the economy and the
financial markets. To help relieve Mexico's liquidity crisis and restore
financial assistance from the United States, other countries and certain
international agencies conditioned upon the implementation and continuation
of the economic reform program.
While the Mexican economy has stabilized, it is still in a recession and
suffers from high inflation and high interest rates. Mexico's economy may
also be influenced by international economic conditions, particularly those
in the United States, and by world prices for oil and other commodities.
The recovery of the economy will require continued economic and fiscal
discipline as well as stable political and social conditions.
There is no assurance that Mexico's economic policy
initiatives will be successful or that succeeding administrations will continue
these initiatives.
In August 1976, the Mexican government established a policy of allowing the
Mexican Peso to float against the U.S. Dollar and other currencies. Under this
policy, the value of the Mexican Peso consistently declined against the U.S.
Dollar. Under economic policy initiatives implemented since December
B-1
1987, the Mexican government introduced a series of schedules allowing for the
gradual devaluation of the Mexican Peso against the U.S. Dollar. These gradual
devaluations continued until December 1994. On December 20, 1994, the Mexican
government announced a new policy that would allow a more substantial yet still
controlled devaluation of the Mexican Peso. On December 22, 1994, the Mexican
government announced that it would not continue with the policy announced two
days earlier and would instead permit the Peso to float against other
currencies, resulting in a continued decline against the U.S. Dollar.
In 1982, Mexico imposed strict foreign exchange controls which shortly
thereafter were relaxed and were eliminated in 1991. There is no assurance that
future regulatory actions in Mexico would not affect the Fund's ability to
obtain U.S. Dollars in exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ('Argentina') consists of 23 provinces and the
federal capital of Buenos Aires. Its federal constitution provides for an
executive branch headed by a President, a legislative branch and a judicial
branch. Each province has its own constitution, and elects its own governor,
legislators and judges, without the intervention of the federal government.
The military has intervened in the political process on several occasions since
the 1930's and has ruled the country for 22 of the past 62 years. The most
recent military government ruled the country from 1976 to 1983. Four
unsuccessful military uprisings have occurred since 1983, the most recent in
December 1990.
Shortly after taking office in 1989, the country's current President adopted
market-oriented and reformist policies, including a large privatization
program, a reduction in the size of the public sector and an opening of the
economy to international competition.
In the decade prior to the current announcement of a new economic plan in March
1991, the Argentine economy was characterized by low and erratic growth,
declining investment rates and rapidly worsening inflation. Despite its
strengths, which include a well-balanced natural resource base and a high
literacy rate, the Argentine economy failed to respond to a series of economic
plans in the 1980's. The Economy Minister's plan represented a pronounced
departure from its predecessors in calling for raised revenues, reduced
expenditures and a reduced public deficit. The extensive privatization program
commenced in 1989 was accelerated, the domestic economy deregulated and opened
up to foreign trade and the frame-work for foreign investment reformed.
As a result of the economic stabilization reforms, gross domestic product has
increased and inflation has decreased.
Significant progress was also made in 1992 in rescheduling Argentina's debt
with both external and domestic creditors, which improved fiscal cash flows in
the medium terms and allowed a return to voluntary credit markets. Further
reforms are currently being implemented in order to sustain and continue the
progress to date. There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations will continue
these initiatives.
In 1991 the Argentine government enacted currency reforms, which required the
domestic currency to be fully backed by foreign exchange reserves, in an effort
to make the Argentine Peso fully convertible into the U.S. Dollar at a rate of
one to one.
The Argentine Peso has been the Argentine currency since January 1, 1992.
Since that date, the rate of exchange from the Argentine Peso to the U.S.
Dollar has remained approximately one to one. However, the historic range
is not necessarily indicative of fluctuations that may occur in the exchange
rate over time and there can be no assurance that future rates of exchange can
be accurately predicted. The Argentine foreign exchange market was highly
controlled until December 1989, when a free exchange rate was established for
all foreign currency transactions. Argentina has eliminated restrictions on
foreign direct investment and capital repatriation. On September 8, 1993,
legislation was adopted abolishing previous requirements of a three-year
waiting period for capital repatriation. Under the new legislation, foreign
investors will be permitted to remit profits at any time.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY STATE IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
THIS PROSPECTUS IS INTENDED TO CONSTITUTE AN OFFER BY EACH FUND ONLY OF THE
SECURITIES OF WHICH IT IS THE ISSUER AND IS NOT INTENDED TO CONSTITUTE AN OFFER
BY ANY FUND OF THE SECURITIES OF ANY OTHER FUND WHOSE SECURITIES ARE ALSO
OFFERED BY THIS PROSPECTUS. NO FUND INTENDS TO MAKE ANY REPRESENTATION AS TO
THE ACCURACY OR COMPLETENESS OF THE DISCLOSURE IN THIS PROSPECTUS RELATING TO
ANY OTHER FUND. SEE 'GENERAL INFORMATION-ORGANIZATION.'
B-2
ALLIANCE SUBSCRIPTION APPLICATION
_______________________________________________________________________________
ALLIANCE BOND FUNDS
SHORT-TERM U.S. GOVERNMENT FUND SHORT-TERM MULTI-MARKET TRUST
U.S. GOVERNMENT PORTFOLIO MULTI-MARKET STRATEGY TRUST
MORTGAGE STRATEGY TRUST NORTH AMERICAN GOVERNMENT INCOME TRUST
MORTGAGE SECURITIES INCOME FUND GLOBAL DOLLAR GOVERNMENT FUND
WORLD INCOME TRUST CORPORATE BOND PORTFOLIO
INFORMATION AND INSTRUCTIONS
_______________________________________________________________________________
TO OPEN YOUR NEW ALLIANCE ACCOUNT
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
SIGNATURES-PLEASE BE SURE TO SIGN THE APPLICATION (SECTION 7)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
. a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).
REGISTRATION
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was
assigned.
PLEASE NOTE:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.
. In the case of redemptions or repurchases of shares 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.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT:
1-(800) 221-5672.
2
SUBSCRIPTION APPLICATION
_______________________________________________________________________________
ALLIANCE BOND FUNDS
(SEE INSTRUCTIONS AT THE FRONT OF THE APPLICATION)
1. YOUR ACCOUNT REGISTRATION (PLEASE PRINT)
_______________________________________________________________________________
[ ] INDIVIDUAL OR JOINT ACCOUNT
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Owner's Name (First Name) (MI) (Last Name)
|___|___|___| - |___|___| - |___|___|___|___|
Social Security Number (Required to open account)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Joint Owner's Name* (First Name ) (MI) (Last Name)
*JOINT TENANTS WITH RIGHT OF SURVIVORSHIP UNLESS OTHERWISE INDICATED
[ ]GIFT/TRANSFER TO A MINOR
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Custodian-One Name Only(First Name) (MI) (Last Name)
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Minor's (First Name) (MI) (Last Name)
|___|___|___| - |___|___| - |___|___|___|___|
Minor's Social Security Number (Required to open account)
Under the State of_____(Minor's Residence)Uniform Gifts/Transfer to Minor's Act
[ ] TRUST ACCOUNT
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trustee
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Trust (cont'd)
|_|_|_|_|_|_|_|_|_|_|_|_|_|
Trust Dated
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Tax ID or Social Security Number (Required to open account)
[ ] OTHER
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Name of Corporation, Partnership or other Entity
|_|_|_|_|_|_|_|_|_|
Tax ID Number
2. ADDRESS
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
Street
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
City State Zip Code
|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|_|
If Non-U.S., Specify Country
|_|_|_| - |_|_|_| - |_|_|_|_| |_|_|_| - |_|_|_| - |_|_|_|_|
Daytime Phone Evening Phone
I am a: [ ] U.S. Citizen [ ] Non-Resident Alien
[ ] Resident Alien [ ] Other ________________________________________
For Alliance Use Only
3
3. INITIAL INVESTMENT
_______________________________________________________________________________
MINIMUM: $250; MAXIMUM: CLASS B ONLY - $250,000; CLASS C ONLY - $5,000,000.
MAKE ALL CHECKS PAYABLE TO THE ALLIANCE BOND FUND IN WHICH YOU ARE INVESTING.
I hereby subscribe for shares of the following Alliance Bond Fund(s):
Class B Class C
Class A (CONTINGENT (ASSET-
(INITIAL DEFERRED BASED
SALES DOLLAR SALES DOLLAR SALES DOLLAR
CHARGE) AMOUNT CHARGE) AMOUNT CHARGE) AMOUNT
-------- ------- -------- ------- -------- ------
[ ]Short-Term U.S. Government [ ] (37) [ ] (51) [ ] (337)
[ ]U.S. Government [ ] (46) [ ] (76) [ ] (346)
[ ]Mortgage Strategy [ ] (88) [ ] (89) [ ] (388)
[ ]Mortgage Securities Income [ ] (52) [ ] (63) [ ] (352)
[ ]World Income [ ] (54) not offered not offered
[ ]Short-Term Multi-Market [ ] (70) [ ] (68) [ ] (370)
[ ]Multi-Market Strategy [ ] (22) [ ] (23) [ ] (322)
[ ]North American Government [ ] (55) [ ] (56) [ ] (355)
[ ]Global Dollar Government [ ] (166) [ ] (266) [ ] (366)
[ ]Corporate Bond [ ] (95) [ ] (295) [ ] (395)
to be purchased with the enclosed check or draft for $ _______________
+ NO CHECKWRITING AVAILABLE ON THESE FUNDS.
4. REDUCED CHARGES (CLASS A ONLY)
_______________________________________________________________________________
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or the
Statement of Intent section.
____________________ _______________ _____________________ _________________
Fund Account Number Fund Account Number
A. RIGHT OF ACCUMULATION
[ ] Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
B. STATEMENT OF INTENT
[ ] I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[ ] $100,000 [ ] $250,000 [ ] $500,000 [ ] $1,000,000
If the full amount indicated is not purchased within 13 months, I understand an
additional sales charge must be paid from my account
___________________ ________________ ___________________ ____________________
Name on Account Account Number Name on Account Account Number
5. DISTRIBUTION OPTIONS
_______________________________________________________________________________
IF NO BOX IS CHECKED, ALL DISTRIBUTIONS WILL BE REINVESTED IN ADDITIONAL SHARES
OF THE FUND
INCOME DIVIDENDS:(elect one) [ ] Reinvest dividends
[ ] Pay dividends in cash
[ ] Use Dividend Direction Plan
CAPITAL GAINS DISTRIBUTION:(elect one) [ ] Reinvest capital gains
[ ] Pay capital gains in cash
[ ] Use Dividend Direction Plan
If you elect to receive your income dividends or capital gains distributions in
cash, please enclose a PREPRINTED VOIDED CHECK from the bank account you wish
to have your dividends deposited into.**
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
_____________________________________ ________________________________________
Name Existing Account No.
SPECIAL DISTRIBUTION INSTRUCTIONS:
[ ] Please pay my distributions via check and send to the address
indicated in Section 2.
[ ] Please mail my distributions to the person and/or address
designated below:
_____________________________________ ________________________________________
Name Address
_____________________________________ ____________________ __________________
City State Zip
6. SHAREHOLDER OPTIONS
_______________________________________________________________________________
A. AUTOMATIC INVESTMENT PROGRAM (AIP) **
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account, on
or about the ______ day of each month for a monthly investment in my Fund
account in the amount of $____________ (minimum $25 per month). Please attach a
PREPRINTED VOIDED CHECK from the bank account you wish to use. NOTE: If your
bank is not a member of the NACHA, your Alliance account will be credited on or
about the 20th of each month.
The Fund requires signatures of bank account owners exactly as they appear on
bank records.
______________________ _____________ _________________________ _____________
Individual Account Date Joint Account Date
**YOUR BANK MUST BE A MEMBER OF THE NATIONAL AUTOMATED CLEARING HOUSE
ASSOCIATION (NACHA).
4
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed via
electronic funds transfer (EFT) to and from your bank account.
Instructions: .Review the information in the Prospectus about telephone
transaction services.
.Check the box next to the telephone transaction service(s) you
desire.
.If you select the telephone purchase or redemption privilege,
you must write 'VOID' across the face of a check from the bank
account you wish to use and attach it to this application.
PURCHASES AND REDEMPTIONS VIA EFT**
[ ] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my telephone
instructions or telephone instructions from my Broker/Agent, and to withdraw
money or credit money for such shares via EFT from the bank account I have
selected.
The fund requires signatures of bank account owners exactly as they appear on
bank records.
_________________________ ______________ ____________________ ______________
Individual Account Owner Date Joint Account Owner Date
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between accounts
that have identical registrations.) Telephone redemption checks will only be
mailed to the name and address of record; and the address must have no change
within the last 30 days. The maximum telephone redemption amount is $50,000
per check. This service can be enacted once every 30 days.
[ ] I do NOT elect the telephone exchange service.
[ ] I do NOT elect the telephone redemption by check service.
C. SYSTEMATIC WITHDRAWAL PLAN (SWP) **
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments; . $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
[ ] I authorize this service to begin in ___________, 19____, for the amount of
Month
$_____________($50.00 MINIMUM)
Frequency: (Please select one) [ ] Monthly [ ] Bi-Monthly
[ ] Quarterly [ ] Annually
[ ] In the months circled: JFMAMJJASOND
Please send payments to: (please select one)
[ ] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: _______________. Please enclose a
preprinted voided check to ensure accuracy.
[ ] My address of record designated in Section 2.
[ ] The payee and address specified below:
______________________________________ _______________________________________
Name of Payee Address
______________________________________ ____________________ _________________
City State Zip
D. AUTO EXCHANGE
[ ] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange for
$__________ ($25.00 minimum) on the _______ day of the month, into the
Alliance Fund noted below:
Fund Name: _____________________________________
[ ] Existing account number:____________________ [ ] New account
Shares exchanged will be redeemed at net asset value computed on the date of
the month selected. (If the date selected is not a fund business day the
transaction will be processed on the next fund business day.) Certificates
must remain unissued.
7. SHAREHOLDER AUTHORIZATION THIS SECTION MUST BE COMPLETED
_______________________________________________________________________________
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and that
I have not been notified that this account is subject to backup withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor its Investment Adviser, Principal Underwriter, Transfer Agent or other
Fund Agent will be liable for any loss, injury, damage or expense as a result
of acting upon telephone instructions purporting to be on my behalf, that the
Fund reasonably believes to be genuine, and that neither the Fund nor any such
party will be responsible for the authenticity of such telephone instructions.
I understand that any or all of these privileges may be discontinued by me or
the Fund at any time. I understand and agree that the Fund reserves the right
to refuse any telephone instructions and that my investment dealer or agent
reserves the right to refuse to issue any telephone instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
____________________________________________ _________________________________
Signature Date
____________________________________________ _________________________________
Signature Date
DEALER/AGENT AUTHORIZATION FOR SELECTED DEALERS OR AGENTS ONLY.
- -------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm _____________________________________________________________
Authorized Signature __________________________________________________________
Representative First Name _________________MI ________ Last Name ______________
Representative NumberBranch Office Address
City ________________________________ State ________ Zip Code _________________
Branch Number _______________________ Branch Phone (_____)_____________________
** YOUR BANK MUST BE A MEMBER OF THE NATIONAL AUTOMATED CLEARING HOUSE
ASSOCIATION (NACHA). 50136GEN-BFApp
5
SIGNATURE CARD NAME OF FUND:
CLASS A OR CLASS C ACCOUNT #
(if known)
_______________________________________________________________________________
ACCOUNT NAME(S) AS REGISTERED
_______________________________________________________________________________
SOCIAL SECURITY NUMBER
_______________________________________________________________________________
AUTHORIZED SIGNATURE(S)-for joint accounts, all owners, or their legal
representatives, must sign this card.
1..............................................................................
2..............................................................................
3..............................................................................
_______________________________________________________________________________
Check One Box _ All the above signatures are required on checks written
against this account.
_ Any one signature is acceptable on checks written against
this account.
_ A combination of signatures is required (specify number).
SUBJECT TO CONDITIONS PRINTED ON REVERSE SIDE.
STATE STREET BANK AND TRUST COMPANY
The payment of funds is authorized by the signature(s) appearing on the
reverse side.
If this card is signed by more than one person, all checks will require all
signatures appearing on the reverse side unless a lesser number is indicated.
If no indication is given, all checks will require all signatures. Each
signatory guarantees the genuineness of the other signatures.
The Bank is hereby appointed agent by the person(s) signing this card (the
"Depositor[s]") and, as agent, is authorized and directed to present checks
drawn on this checking account to Alliance
_________________________________________ ("the Fund") or its transfer agent
as requests to redeem shares of "the Fund" registered in the name of the
Depositor(s) in the amounts of such checks and to deposit the proceeds of
such redemptions in this checking account. The Bank shall be liable only for
its own negligence. The Depositor(s) agrees to be subject to the rules and
regulations of the Bank pertaining to this checking account as amended from
time to time. The Bank and "the Fund" reserve the right to change, modify or
terminate this checking account and authorization at any time.
CHECKS MAY NOT BE FOR LESS THAN $500 or such other minimum amount as may from
time to time be established by "the Fund" upon prior written notice to its
shareholders. Shares purchases by check (including certified or cashier's
check) will not be redeemed within 15 calendar days of such purchase by
checkwriting or any other method of redemption.
No checkwriting available on Alliance World Income and Alliance Corporate
Bond.
ENCLOSE THIS CARD WITH THE APPLICATION FORM
50136GEN-BFSC
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-12988 and 811-05088.
<PAGE>
(LOGO)(R)
THE ALLIANCE PORTFOLIOS-
Alliance Strategic Balanced Fund
Alliance Growth Fund
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800) 227-4618
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1995
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Funds' current Prospectus.
A copy of the Funds' Prospectus may be obtained by contacting
Alliance Fund Services, Inc. at the address or telephone numbers
shown above.
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND RESTRICTIONS........................ 2
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS............... 10
MANAGEMENT OF THE FUNDS..................................... 38
PORTFOLIO TRANSACTIONS...................................... 44
EXPENSES OF THE FUNDS....................................... 46
PURCHASE OF SHARES.......................................... 51
REDEMPTION AND REPURCHASE OF SHARES......................... 67
SHAREHOLDER SERVICES........................................ 70
NET ASSET VALUE............................................. 77
DIVIDENDS, DISTRIBUTIONS AND TAXES.......................... 78
GENERAL INFORMATION......................................... 80
FINANCIAL STATEMENTS........................................ 87
REPORT OF INDEPENDENT ACCOUNTANTS........................... 125
APPENDIX.................................................... 127
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(R) This registered service mark used under license from the
owner, Alliance Capital Management L.P.
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INVESTMENT POLICIES AND RESTRICTIONS
The following investment policies and restrictions
supplement and should be read in conjunction with the information
set forth in the Prospectus of Alliance Strategic Balanced Fund
(the "Strategic Balanced Fund," formerly Alliance Balanced Fund)
and Alliance Growth Fund (the "Growth Fund"), each a series (each
a "Fund") of The Alliance Portfolios (the "Trust"), under the
heading "Investment Objective and Policies." In addition to the
investment techniques described in this section for each of the
Funds, the Funds also may engage in the investment techniques
described below under the sub-heading "Additional Investment
Techniques of the Funds."
INVESTMENT OBJECTIVE AND POLICIES OF THE STRATEGIC BALANCED FUND
GENERAL. The Fund's investment objective is to provide
a high long-term total return by investing in a combination of
equity and debt securities. The portion of the Fund's assets
invested in each type of security will vary in accordance with
economic conditions, the general level of common stock prices,
interest rates and other relevant considerations, including the
risks associated with each investment medium. Thus, although the
Fund seeks to reduce the risks associated with any one investment
medium by utilizing a variety of investments, performance will
depend upon the additional factors of timing and mix and the
ability of Alliance Capital Management L.P. (the "Adviser") to
judge and react to changing market conditions.
The Fund's equity securities will generally consist of
dividend-paying common stocks but may also include other equity-
type securities such as warrants, preferred stocks and
convertible debt instruments. The Fund's equity investments will
primarily be in companies with favorable outlooks for earnings
and whose rates of growth are expected by the Adviser to exceed
that of the United States' economy over time.
The Fund's debt securities will consist primarily of
securities such as bonds, notes, debentures and money market
instruments. The Fund's debt investments may include securities
issued or guaranteed by the U.S. Government or its agencies and
instrumentalities (including zero-coupon securities), as well as
securities issued by private corporations. The Fund may also
invest in mortgage-backed securities, adjustable rate securities
and asset-backed securities. The average dollar-weighted
maturity of debt securities held by the Fund will vary according
to market conditions and interest rate cycles and will range
between 1 year and 30 years under normal market conditions.
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It is a fundamental policy of the Fund that it will
invest at least 25% of its total assets in fixed-income
securities. For this purpose, fixed-income securities include
debt securities, preferred stocks and that portion of the value
of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is
attributable to the fixed-income characteristics of those
securities.
The Fund's debt securities will generally consist of
investment grade securities, that is securities rated at the time
of purchase at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Services ("S&P"),
Fitch Investors Service, Inc. ("Fitch") or Duff & Phelps Credit
Rating Co. ("Duff & Phelps") or will be unrated securities deemed
to be of comparable quality by the Adviser. (For a further
description of these bond ratings, see Appendix A to this
Statement of Additional Information.) Securities rated Baa by
Moody's or BBB by S&P, Fitch or Duff & Phelps have speculative
characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to
make principal and interest payments on such obligations than in
the case of higher-rated securities. In the event that the
rating of any debt securities held by the Fund falls below Baa by
Moody's and/or BBB by S&P, Fitch or Duff & Phelps (or in the case
of unrated securities, such securities are no longer determined
by the Adviser to be of investment grade), the Fund will not be
obligated to dispose of such obligations and may continue to hold
such obligations if, in the opinion of the Adviser, such
investment is considered appropriate under the circumstances. For
temporary defensive purposes, the Fund may invest in money market
instruments.
MORTGAGE-BACKED SECURITIES. Interest and principal
payments (including prepayments) on the mortgages underlying
mortgage-backed securities are passed through to the holders of
the mortgage-backed security. Prepayments occur when the
mortgagor on an individual mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. As a
result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated
maturity would indicate. Because the prepayment characteristics
of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular
issue of pass-through certificates. Prepayments are important
because of their effect on the yield and price of the mortgage-
backed securities. During periods of declining interest rates,
such prepayments can be expected to accelerate and the Fund would
be required to reinvest the proceeds at the lower interest rates
then available. In addition, prepayments of mortgages which
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underlie securities purchased at a premium could result in
capital losses.
ADJUSTABLE RATE SECURITIES. Adjustable rate securities
are securities that have interest rates that are reset at
periodic intervals, usually by reference to some interest rate
index or market interest rate. Some adjustable rate securities
are backed by pools of mortgage loans. Although the rate
adjustment feature may act as a buffer to reduce sharp changes in
the value of adjustable rate securities, these securities are
still subject to changes in value based on changes in market
interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in
the interest rate on adjustable rate securities may lag behind
changes in prevailing market interest rates. Also, some
adjustable rate securities (or the underlying mortgages) are
subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the
security.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS. The Fund may at
times invest in so-called "zero-coupon" bonds and "payment-in-
kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is generally subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate other investments in order to
satisfy its dividend requirements.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future currency exchange
rates. The Adviser expects to engage in foreign currency
exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
The Fund may engage in transaction hedging to protect
against a change in foreign currency exchange rates between the
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date on which the Fund contracted to purchase or sell a security
and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign
currency. The Fund may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities
denominated in that foreign currency.
If conditions warrant, the Fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts"), and may purchase and sell foreign currency
futures contracts, as a hedge against changes in foreign currency
exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign
currency forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be higher
or lower than the spot rate. Foreign currency futures contracts
are standardized exchange-traded contracts and have margin
requirements.
For transactions hedging purposes, the Fund may also
purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
The Fund may engage in position hedging to protect
against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in value of a currency in which securities
the Fund intends to buy are denominated, when the Fund holds cash
or short-term investments). For position hedging purposes, the
Fund may purchase or sell foreign currency futures contracts,
foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In
connection with position hedging, the Fund may also purchase or
sell foreign currency on a spot basis.
The Fund's currency hedging transactions may call for
the delivery of one foreign currency in exchange for another
foreign currency and may at times not involve currencies in which
its portfolio securities are then denominated. The Adviser will
engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for
the Fund.
CONVERTIBLE SECURITIES. The Fund may invest in
convertible securities. These securities normally provide a
higher yield than the underlying stock but lower than a fixed-
income security without the convertible feature. Also, the price
of the convertible security will normally vary to some degree
with changes in the price of the underlying stock although in
some market conditions the higher yield tends to make the
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convertible security less volatile than the underlying common
stock. In addition, the price of the convertible security will
also vary to some degree inversely with interest rates. For a
description of these risks, see "Investment Objective and
Policies of the Growth Fund -- High-Yield Securities" below.
INVESTMENT OBJECTIVE AND POLICIES OF THE GROWTH FUND
GENERAL. The Fund's investment objective is to provide
long-term growth of capital. Current income is only an incidental
consideration. The Fund attempts to achieve its objective by
investing primarily in equity securities of companies with a
favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
The Fund invests primarily in common stocks and
securities convertible into common stocks such as convertible
bonds, convertible preferred stocks and warrants convertible into
common stocks. Because the values of fixed-income securities are
expected to vary inversely with changes in interest rates
generally, when the Adviser expects a general decline in interest
rates, the Fund may also invest for capital growth in fixed-
income securities. The Fund may invest up to 25% of its total
assets in fixed-income securities rated at the time of purchase
below investment grade, that is, securities rated Ba or lower by
Moody's or BB or lower by S&P, Fitch or Duff & Phelps or in
unrated fixed-income securities determined by the Adviser to be
of comparable quality. For a description of the ratings referred
to above, see Appendix A to this Statement of Additional
Information. For temporary defensive purposes, the Fund may
invest in money market instruments.
HIGH-YIELD SECURITIES. The Fund may invest in high-
yield, high-risk, fixed-income and convertible securities rated
at the time of purchase Ba or lower by Moody's or BB or lower by
S&P, or, if unrated, judged by the Adviser to be of comparable
quality ("High-Yield Securities"). The Fund will generally
invest in securities with a minimum rating of Caa- by Moody's or
CCC- by S&P or Fitch or CCC by Duff & Phelps or in unrated
securities judged by the Adviser to be of comparable quality.
However, from time to time, the Fund may invest in securities
rated in the lowest grades of Moody's (C), S&P (D), Fitch (D) or
Duff & Phelps (DD) or in unrated securities judged by the Adviser
to be of comparable quality, if the Fund's management determines
that there are prospects for an upgrade or a favorable conversion
into equity securities (in the case of convertible securities).
Securities rated Ba or BB or lower (and comparable unrated
securities) are commonly referred to as "junk bonds." Securities
rated D by S&P or Fitch and DD by Duff & Phelps are in default.
During the fiscal year ended October 31, 1995, the Fund did not
invest in any High-Yield Securities.
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As with other fixed-income securities, High-Yield
Securities are subject to credit risk and market risk and their
yields may fluctuate. Market risk relates to changes in a
security's value as a result of changes in interest rates. Credit
risk relates to the ability of the issuer to make payments of
principal and interest. High-Yield Securities are subject to
greater credit risk (and potentially greater incidences of
default) than comparable higher-rated securities because issuers
are more vulnerable to economic downturns, higher interest rates
or adverse issuer-specific developments. In addition, the prices
of High-Yield Securities are generally subject to greater market
risk and therefore react more sharply to changes in interest
rates. The value and liquidity of High-Yield Securities may be
diminished by adverse publicity and investor perceptions.
Because High-Yield Securities are frequently traded only
in markets where the number of potential purchasers and sellers,
if any, is limited, the ability of the Fund to sell High-Yield
Securities at their fair value either to meet redemption requests
or to respond to changes in the financial markets may be limited.
Thinly traded High-Yield Securities may be more difficult to
value accurately for the purpose of determining the Fund's net
asset value. Also, because the market for certain High-Yield
Securities is relatively new, that market may be particularly
sensitive to an economic downturn or a general increase in
interest rates. In addition, under such circumstances the values
of such securities may be more volatile.
Some High-Yield Securities in which the Fund may invest
may be subject to redemption or call provisions that may limit
increases in market value that might otherwise result from lower
interest rates while increasing the risk that the Fund may be
required to reinvest redemption or call proceeds during a period
of relatively low interest rates.
The credit ratings issued by Moody's, S&P, Fitch and
Duff & Phelps, a description of which is included as Appendix A
to this Statement of Additional Information, are subject to
various limitations. For example, while such ratings evaluate
credit risk, they ordinarily do not evaluate the market risk of
High-Yield Securities. In certain circumstances, the ratings may
not reflect in a timely fashion adverse developments affecting an
issuer. For these reasons, the Adviser conducts its own
independent credit analysis of High-Yield Securities. When the
Fund invests in securities in the lower rating categories, the
achievement of the Fund's goals is more dependent on the
Adviser's ability than would be the case if the Fund were
investing in higher rated securities.
In the event that the credit rating of a High-Yield
Security held by the Fund falls below its rating at the time of
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purchase (or, in the case of unrated securities, the Adviser
determines that the quality of such security has deteriorated
since purchased by the Fund), the Fund will not be obligated to
dispose of such security and may continue to hold the obligation
if, in the opinion of the Adviser, such investment is considered
appropriate in the circumstances.
Securities rated Baa by Moody's or BBB by S&P, Fitch, or
Duff & Phelps or judged by the Adviser to be of comparable
quality share some of the speculative characteristics of
High-Yield Securities described above.
CONVERTIBLE SECURITIES. The Fund may invest in
convertible securities. These securities normally provide a
higher yield than the underlying stock but lower than a fixed-
income security without the convertible feature. Also, the price
of the convertible security will normally vary to some degree
with changes in the price of the underlying stock although in
some market conditions the higher yield tends to make the
convertible security less volatile than the underlying common
stock. In addition, the price of the convertible security will
also vary to some degree inversely with interest rates.
Convertible debt securities that are rated below BBB by S&P,
Fitch, or Duff & Phelps, or Baa by Moody's or comparable unrated
securities as determined by the Adviser may share some or all of
the risks of High-Yield Securities. For a description of these
risks, see "High-Yield Securities" above.
ZERO-COUPON AND PAYMENT-IN-KIND BONDS. The Fund may at
times invest in so-called "zero-coupon" bonds and "payment-in-
kind" bonds. Zero-coupon bonds are issued at a significant
discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer, at its
option, to make current interest payments on the bonds either in
cash or in additional bonds. Because zero-coupon bonds do not
pay current interest, their value is generally subject to greater
fluctuation in response to changes in market interest rates than
bonds which pay interest currently. Both zero-coupon and
payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly,
such bonds may involve greater credit risks than bonds paying
interest currently. Even though such bonds do not pay current
interest in cash, the Fund is nonetheless required to accrue
interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, the Fund could
be required at times to liquidate other investments in order to
satisfy its dividend requirements.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. The Fund may
engage in foreign currency exchange transactions to protect
against uncertainty in the level of future currency exchange
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rates. The Adviser expects to engage in foreign currency
exchange transactions in connection with the purchase and sale of
portfolio securities ("transaction hedging") and to protect
against changes in the value of specific portfolio positions
("position hedging").
The Fund may engage in transaction hedging to protect
against a change in foreign currency exchange rates between the
date on which the Fund contracted to purchase or sell a security
and the settlement date, or to "lock in" the U.S. dollar
equivalent of a dividend or interest payment in a foreign
currency. The Fund may purchase or sell a foreign currency on a
spot (or cash) basis at the prevailing spot rate in connection
with the settlement of transactions in portfolio securities
denominated in that foreign currency.
If conditions warrant, the Fund may also enter into
contracts to purchase or sell foreign currencies at a future date
("forward contracts"), and may purchase and sell foreign currency
futures contracts, as a hedge against changes in foreign currency
exchange rates between the trade and settlement dates on
particular transactions and not for speculation. A foreign
currency forward contract is a negotiated agreement to exchange
currency at a future time at a rate or rates that may be higher
or lower than the spot rate. Foreign currency futures contracts
are standardized exchange-traded contracts and have margin
requirements.
For transactions hedging purposes, the Fund may also
purchase and sell call and put options on foreign currency
futures contracts and on foreign currencies.
The Fund may engage in position hedging to protect
against a decline in value relative to the U.S. dollar of the
currencies in which its portfolio securities are denominated or
quoted (or an increase in value of a currency in which securities
the Fund intends to buy are denominated, when the Fund holds cash
or short-term investments). For position hedging purposes, the
Fund may purchase or sell foreign currency futures contracts,
foreign currency forward contracts, and options on foreign
currency futures contracts and on foreign currencies. In
connection with position hedging, the Fund may also purchase or
sell foreign currency on a spot basis.
The Fund's currency hedging transactions may call for
the delivery of one foreign currency in exchange for another
foreign currency and may at times not involve currencies in which
its portfolio securities are then denominated. The Adviser will
engage in such "cross hedging" activities when it believes that
such transactions provide significant hedging opportunities for
the Fund.
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PORTFOLIO MANAGEMENT
The Adviser manages each Fund's portfolio by buying and
selling securities to help attain its investment objective. The
portfolio turnover rate for each Fund is included under
"Financial Highlights" in the Funds' Prospectus. A high
portfolio turnover rate will involve greater costs to a Fund
(including brokerage commissions and transaction costs) and may
also result in the realization of taxable capital gains,
including short-term capital gains taxable at ordinary income
rates. See "Dividends, Distributions and Taxes" and "Portfolio
Transactions" below.
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS
REPURCHASE AGREEMENTS
The repurchase agreements referred to in the Funds'
Prospectus are agreements by which a Fund purchases a security
and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date. The
resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the
purchased security. The purchased security serves as collateral
for the obligation of the seller to repurchase the security and
the value of the purchased security is initially greater than or
equal to the amount of the repurchase obligation and the seller
is required to furnish additional collateral on a daily basis in
order to maintain with the purchaser securities with a value
greater than or equal to the amount of the repurchase obligation.
Such transactions afford the Funds the opportunity to earn a
return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness,
note, or bond issued by an agency, authority or instrumentality
of the U.S. Government, the obligation of the seller is not
guaranteed by the U.S. Government and there is a risk that the
seller may fail to repurchase the underlying security, whether
because of the seller's bankruptcy or otherwise. In such event,
the Funds would attempt to exercise their rights with respect to
the underlying security, including possible disposition in the
market. However, the Funds may be subject to various delays and
risks of loss, including (a) possible declines in the value of
the underlying security during the period while the Funds seek to
enforce their rights thereto, (b) possible reduced levels of
income and lack of access to income during this period and
(c)inability to enforce rights and the expenses involved in the
attempted enforcement.
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NON-PUBLICLY TRADED SECURITIES
The Funds may invest in securities which are not
publicly traded, including securities sold pursuant to Rule 144A
under the Securities Act of 1933 ("Rule 144A Securities"). The
sale of these securities is usually restricted under Federal
securities laws, and market quotations may not be readily
available. As a result, a Fund may not be able to sell these
securities (other than Rule 144A Securities) unless they are
registered under applicable Federal and state securities laws, or
may have to sell such securities at less than fair market value.
Investment in these securities is restricted to 5% of a Fund's
total assets (excluding, to the extent permitted by applicable
law, Rule 144A Securities) and is also subject to the restriction
against investing more than 15% of total assets in "illiquid"
securities. To the extent permitted by applicable law, Rule 144A
Securities will not be treated as "illiquid" for purposes of the
foregoing restriction so long as such securities meet the
liquidity guidelines established by the Trust's Board of
Trustees. Pursuant to these guidelines, the Adviser will monitor
the liquidity of a Fund's investment in Rule 144A Securities.
FOREIGN SECURITIES
The Funds may invest without limit in securities of
foreign issuers which are not publicly traded in the United
States, although each of these Funds generally will not invest
more than 15% of its total assets in such securities. The
Strategic Balanced Fund may also purchase certificates of deposit
issued by foreign branches of domestic banks without regard to
the 15% limit. These certificates of deposit are not insured by
an agency or instrumentality of the U.S. Government. Investment
in foreign issuers or securities principally outside the United
States may involve certain special risks due to foreign economic,
political, diplomatic and legal developments, including favorable
or unfavorable changes in currency exchange rates, exchange
control regulations (including currency blockage), expropriation
of assets or nationalization, confiscatory taxation, imposition
of withholding taxes on dividend or interest payments, and
possible difficulty in obtaining and enforcing judgments against
foreign entities. Furthermore, issuers of foreign securities are
subject to different, often less comprehensive, accounting,
reporting and disclosure requirements than domestic issuers. The
securities of some foreign companies and foreign securities
markets are less liquid and at times more volatile than
securities of comparable U.S. companies and U.S. securities
markets, and foreign securities markets may be subject to less
regulation than U.S. securities markets. The laws of some
foreign countries may limit the Funds' abilities to invest in
securities of certain issuers located in these countries. Foreign
brokerage commissions and other fees are also generally higher
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than in the United States. There are also special tax
considerations which apply to securities of foreign issuers and
securities principally traded overseas. Foreign settlement
procedures and trade regulations may involve certain risks (such
as delay in payment or delivery of securities or in the recovery
of the Fund's assets held abroad) and expenses not present in the
settlement of domestic investments. The Fund may invest a
portion of its assets in developing countries or in countries
with new or developing capital markets. The risks noted above
are generally intensified for these investments. These countries
may have relatively unstable governments, economies based on only
a few industries or securities markets that trade a small number
of securities. Securities of issuers located in these countries
tend to have volatile prices and may offer significant potential
for loss as well as gain.
The value of foreign investments measured in U.S.
dollars will rise or fall because of decreases or increases,
respectively, in the value of the U.S. dollar in comparison to
the value of the currency in which the foreign investment is
denominated. The Fund may buy or sell foreign currencies,
options on foreign currencies, foreign currency futures contracts
(and related options) and deal in forward foreign currency
exchange contracts in connection with the purchase and sale of
foreign investments. See "Investment Objective and Policies of
the Strategic Balanced Fund - Foreign Currency Exchange
Transactions" above.
DESCRIPTIONS OF CERTAIN MONEY MARKET SECURITIES IN WHICH
THE FUNDS MAY INVEST
CERTIFICATES OF DEPOSIT, BANKERS' ACCEPTANCES AND BANK
TIME DEPOSITS. Certificates of deposit are receipts issued by a
bank in exchange for the deposit of funds. The issuer agrees to
pay the amount deposited plus interest to the bearer of the
receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior
to maturity.
Bankers' acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds
to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by another bank that, in effect,
unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
maturity. Although maturities for acceptances can be as long as
270 days, most maturities are six months or less.
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Bank time deposits are funds kept on deposit with a bank
for a stated period of time in an interest bearing account. At
present, bank time deposits maturing in more than seven days are
not considered by the Adviser to be readily marketable.
COMMERCIAL PAPER. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued by entities in order to finance their current operations.
VARIABLE NOTES. Variable amount master demand notes and
variable amount floating rate notes are obligations that permit
the investment of fluctuating amounts by a Fund at varying rates
of interest pursuant to direct arrangements between a Fund, as
lender, and the borrower. Master demand notes permit daily
fluctuations in the interest rate while the interest rate under
variable amount floating rate notes fluctuates on a weekly basis.
These notes permit daily changes in the amounts borrowed. The
Funds have the right to increase the amount under these notes at
any time up to the full amount provided by the note agreement, or
to decrease the amount, and the borrower may repay up to the full
amount of the note without penalty. Because these types of notes
are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that such instruments
will be traded and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately
repayable by the borrower) at face value, plus accrued interest,
at any time. Variable amount floating rate notes are subject to
next-day redemption 14 days after the initial investment therein.
With both types of notes, therefore, the Funds' right to redeem
depends on the ability of the borrower to pay principal and
interest on demand. In connection with both types of note
arrangements, the Funds consider earning power, cash flow and
other liquidity ratios of the issuer. These notes, as such, are
not typically rated by credit rating agencies. Unless they are
so rated, a Fund may invest in them only if at the time of an
investment the issuer has an outstanding issue of unsecured debt
rated Aa or better by Moody's or AA or better by S&P, Fitch, or
Duff & Phelps.
ASSET-BACKED SECURITIES
The Funds may invest in asset-backed securities
(unrelated to first mortgage loans) which represent fractional
interests in pools of retail installment loans, leases or
revolving credit receivables, both secured (such as Certificates
for Automobile Receivables or "CARS") and unsecured (such as
Credit Card Receivable Securities or "CARDS"). These assets are
generally held by a trust and payments of principal and interest
or interest only are passed through monthly or quarterly to
certificate holders and may be guaranteed up to certain amounts
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by letters of credit issued by a financial institution affiliated
or unaffiliated with the trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, principal repayment rates
tend not to vary too much with interest rates, and the short-term
nature of the underlying car loans or receivables tends to dampen
the impact of any change in the prepayment level. Certificate
holders may also experience delays in payment if the full amounts
due on underlying sales contracts or receivables are not realized
by the trust holding the obligations because of unanticipated
legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If
consistent with their investment objectives and policies, the
Funds may invest in other asset-backed securities that may be
developed in the future.
The staff of the Securities and Exchange Commission (the
"SEC") is of the view that certain asset-backed securities may
constitute investment companies under the Investment Company Act
of 1940 (the "1940 Act"). The Funds intend to conduct their
operations in a manner consistent with this view; therefore, the
Funds generally may not invest more than 10% of their total
assets in such securities without obtaining appropriate
regulatory relief.
LENDING OF SECURITIES
The Funds may seek to increase income by lending
portfolio securities. Under present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC, such loans may be made only to member firms
of the New York Stock Exchange (the "Exchange") and would be
required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury Bills maintained on a current basis
at an amount at least equal to the market value of the securities
loaned. A Fund would have the right to call a loan and obtain
the securities loaned at any time on five days' notice. During
the existence of a loan, a Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation based on
investment of the collateral. A Fund would not, however, have
the right to vote any securities having voting rights during the
existence of the loan but would call the loan in anticipation of
an important vote to be taken among holders of the securities or
of the giving or withholding of their consent on a material
matter affecting the investment. As with other extensions of
credit there are risks of delay in recovery or even loss of
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rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration that can be earned
currently from securities loans of this type justifies the
attendant risk. If the Adviser determines that a Fund should
make securities loans, it is not intended that the value of the
securities loaned would exceed 25% of the value of such Fund's
total assets.
FORWARD COMMITMENTS AND WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES
Each of the Funds may enter into forward commitments for
the purchase of securities and may purchase securities on a
"when-issued" or "delayed delivery" basis. Agreements for such
purchases might be entered into, for example, when a Fund
anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase
securities to be issued later. When a Fund purchases securities
in this manner (i.e., on a forward commitment, "when-issued" or
"delayed delivery" basis), it does not pay for the securities
until they are received, and a Fund is required to create a
segregated account with the Trust's custodian and to maintain in
that account cash, U.S. Government securities or other liquid
high-grade debt obligations in an amount equal to or greater
than, on a daily basis, the amount of the Fund's forward
commitments and "when-issued" or "delayed delivery" commitments.
A Fund will enter into forward commitments and make
commitments to purchase securities on a "when-issued" or "delayed
delivery" basis only with the intention of actually acquiring the
securities. However, a Fund may sell these securities before the
settlement date if it is deemed advisable as a matter of
investment strategy.
Although neither of the Funds intends to make such
purchases for speculative purposes and each Fund intends to
adhere to the provisions of SEC policies, purchases of securities
on such bases may involve more risk than other types of
purchases. For example, by committing to purchase securities in
the future, a Fund subjects itself to a risk of loss on such
commitments as well as on its portfolio securities. Also, a Fund
may have to sell assets which have been set aside in order to
meet redemptions. In addition, if a Fund determines it is
advisable as a matter of investment strategy to sell the forward
commitment or "when-issued" or "delayed delivery" securities
before delivery, that Fund may incur a gain or loss because of
market fluctuations since the time the commitment to purchase
such securities was made. Any such gain or loss would be treated
as a capital gain or loss and would be treated for tax purposes
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as such. When the time comes to pay for the securities to be
purchased under a forward commitment or on a "when-issued" or
"delayed delivery" basis, a Fund will meet its obligations from
the then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of
the forward commitment or "when-issued" or "delayed delivery"
securities themselves (which may have a value greater or less
than a Fund's payment obligation).
OPTIONS
OPTIONS ON SECURITIES. The Funds may write call options
and may purchase call and put options on securities. Each Fund
intends to write only covered options. In addition to the
methods of "cover" described in the Prospectus, this means that
so long as a Fund is obligated as the writer of a call option, it
will own the underlying securities subject to the option or
securities convertible into such securities without additional
consideration (or for additional cash consideration held in a
segregated account by the custodian). In the case of call
options on U.S. Treasury Bills, a Fund might own U.S. Treasury
Bills of a different series from those underlying the call
option, but with a principal amount and value corresponding to
the option contract amount and a maturity date no later than that
of the securities deliverable under the call option. A Fund will
be considered "covered" with respect to a put option it writes,
if, so long as it is obligated as the writer of a put option, it
deposits and maintains with its custodian in a segregated account
cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise
price of the option.
Effecting a closing transaction in the case of a written
call option will permit a Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit a Fund to write another put option to the extent that
the exercise price thereof is secured by deposited cash or short-
term securities. Such transactions permit a Fund to generate
additional premium income, which will partially offset declines
in the value of portfolio securities or increases in the cost of
securities to be acquired. Also, effecting a closing transaction
will permit the cash or proceeds from the concurrent sale of any
securities subject to the option to be used for other investments
by a Fund, provided that another option on such security is not
written. If a Fund desires to sell a particular security from
its portfolio on which it has written a call option, it will
effect a closing transaction in connection with the option prior
to or concurrent with the sale of the security.
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A Fund will realize a profit from a closing transaction
if the premium paid in connection with the closing of an option
written by the Fund is less than the premium received from
writing the option, or if the premium received in connection with
the closing of an option purchased by the Fund is more than the
premium paid for the original purchase. Conversely, a Fund will
suffer a loss if the premium paid or received in connection with
a closing transaction is more or less, respectively, than the
premium received or paid in establishing the option position.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
previously written by a Fund is likely to be offset in whole or
in part by appreciation of the underlying security owned by the
Fund.
A Fund may purchase a security and then write a call
option against that security or may purchase a security and
concurrently write an option on it. The exercise price of the
call a Fund determines to write will depend upon the expected
price movement of the underlying security. The exercise price of
a call option may be below ("in-the-money"), equal to ("at-the-
money") or above ("out-of-the-money") the current value of the
underlying security at the time the option is written. In-the-
money call options may be used when it is expected that the price
of the underlying security will decline moderately during the
option period. Out-of-the-money call options may be written when
it is expected that the premiums received from writing the call
option plus the appreciation in the market price of the
underlying security up to the exercise price will be greater than
the appreciation in the price of the underlying security alone.
If the call options are exercised in such transactions, a Fund's
maximum gain will be the premium received by it for writing the
option, adjusted upwards or downwards by the difference between
the Fund's purchase price of the security and the exercise price.
If the options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and a Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, a Fund may elect to close the
position or retain the option until it is exercised, at which
time the Fund will be required to take delivery of the security
at the exercise price; the Fund's return will be the premium
received from the put option minus the amount by which the market
price of the security is below the exercise price, which could
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result in a loss. Out-of-the-money put options may be written
when it is expected that the price of the underlying security
will decline moderately during the option period. In-the-money
put options may be used when it is expected that the premiums
received from writing the put option plus the appreciation in the
market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the
underlying security alone.
Each of the Funds may also write combinations of put and
call options on the same security, known as "straddles," with the
same exercise and expiration date. By writing a straddle, a Fund
undertakes a simultaneous obligation to sell and purchase the
same security in the event that one of the options is exercised.
If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Fund
will be required to sell the underlying security at a below
market price. This loss may be offset, however, in whole or
part, by the premiums received on the writing of the two options.
Conversely, if the price of the security declines by a sufficient
amount, the put will likely be exercised. The writing of
straddles will likely be effective, therefore, only where the
price of the security remains stable and neither the call nor the
put is exercised. In those instances where one of the options is
exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, a Fund limits its opportunity
to profit from any increase in the market value of the underlying
security above the exercise price of the option. By writing a
put option, a Fund assumes the risk that it may be required to
purchase the underlying security for an exercise price above its
then current market value, resulting in a capital loss unless the
security subsequently appreciates in value. Where options are
written for hedging purposes, such transactions constitute only a
partial hedge against declines in the value of portfolio
securities or against increases in the value of securities to be
acquired, up to the amount of the premium.
Each of the Funds may purchase put options to hedge
against a decline in the value of portfolio securities. If such
decline occurs, the put options will permit the Fund to sell the
securities at the exercise price or to close out the options at a
profit. By using put options in this way, a Fund will reduce any
profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and
by transaction costs.
A Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. If such increase occurs, the call
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option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by a Fund upon exercise of
the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Fund
and the Fund will suffer a loss on the transaction to the extent
of the premium paid.
OPTIONS ON SECURITIES INDEXES. Each of the Funds may
write (sell) covered call and put options on securities indexes
and purchase call and put options on securities indexes. A call
option on a securities index is considered covered if, so long as
a Fund is obligated as the writer of the call, the Fund holds in
its portfolio securities the price changes of which are, in the
option of the Adviser, expected to replicate substantially the
movement of the index or indexes upon which the options written
by the Fund are based. A put on a securities index written by a
Fund will be considered covered if, so long as it is obligated as
the writer of the put, the Fund segregates with its custodian
cash, U.S. Government securities or other liquid high-grade debt
obligations having a value equal to or greater than the exercise
price of the option.
A Fund may also purchase put options on securities
indexes to hedge its investments against a decline in value. By
purchasing a put option on a securities index, a Fund will seek
to offset a decline in the value of securities it owns through
appreciation of the put option. If the value of a Fund's
investments does not decline as anticipated, or if the value of
the option does not increase, the Fund's loss will be limited to
the premium paid for the option. The success of this strategy
will largely depend on the accuracy of the correlation between
the changes in value of the index and the changes in value of a
Fund's security holdings.
The purchase of call options on securities indexes may
be used by a Fund to attempt to reduce the risk of missing a
broad market advance, or an advance in an industry or market
segment, at a time when the Fund holds uninvested cash or
short-term debt securities awaiting investment. When purchasing
call options for this purpose, a Fund will also bear the risk of
losing all or a portion of the premium paid if the value of the
index does not rise. The purchase of call options on stock
indexes when a Fund is substantially fully invested is a form of
leverage, up to the amount of the premium and related transaction
costs, and involves risks of loss and of increased volatility
similar to those involved in purchasing calls on securities the
Fund owns.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS
FUTURES CONTRACTS. The Funds may enter into interest
rate futures contracts, index futures contracts and foreign
currency futures contracts. (Unless otherwise specified,
interest rate futures contracts, index futures contracts and
foreign currency futures contracts are collectively referred to
as "Futures Contracts.") Such investment strategies will be used
as a hedge and not for speculation.
Purchases or sales of stock or bond index futures
contracts are used for hedging purposes to attempt to protect a
Fund's current or intended investments from broad fluctuations in
stock or bond prices. For example, a Fund may sell stock or bond
index futures contracts in anticipation of or during a market
decline to attempt to offset the decrease in market value of the
Fund's portfolio securities that might otherwise result. If such
decline occurs, the loss in value of portfolio securities may be
offset, in whole or part, by gains on the futures position. When
a Fund is not fully invested in the securities market and
anticipates a significant market advance, it may purchase stock
or bond index futures contracts in order to gain rapid market
exposure that may, in part or entirely, offset increases in the
cost of securities that the Fund intends to purchase. As such
purchases are made, the corresponding positions in stock or bond
index futures contracts will be closed out.
Interest rate futures contracts are purchased or sold
for hedging purposes to attempt to protect against the effects of
interest rate changes on a Fund's current or intended investments
in fixed income securities. For example, if a Fund owned long-
term bonds and interest rates were expected to increase, that
Fund might sell interest rate futures contracts. Such a sale
would have much the same effect as selling some of the long-term
bonds in that Fund's portfolio. However, since the futures
market is more liquid than the cash market, the use of interest
rate futures contracts as a hedging technique allows a Fund to
hedge its interest rate risk without having to sell its portfolio
securities. If interest rates did increase, the value of the
debt securities in the portfolio would decline, but the value of
that Fund's interest rate futures contracts would be expected to
increase at approximately the same rate, thereby keeping the net
asset value of that Fund from declining as much as it otherwise
would have. On the other hand, if interest rates were expected
to decline, interest rate futures contracts could be purchased to
hedge in anticipation of subsequent purchases of long-term bonds
at higher prices. Because the fluctuations in the value of the
interest rate futures contracts should be similar to those of
long-term bonds, a Fund could protect itself against the effects
of the anticipated rise in the value of long-term bonds without
actually buying them until the necessary cash became available or
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the market had stabilized. At that time, the interest rate
futures contracts could be liquidated and that Fund's cash
reserves could then be used to buy long-term bonds on the cash
market.
The Funds may purchase and sell foreign currency futures
contracts for hedging purposes to attempt to protect its current
or intended investments from fluctuations in currency exchange
rates. Such fluctuations could reduce the dollar value of
portfolio securities denominated in foreign currencies, or
increase the cost of foreign-denominated securities to be
acquired, even if the value of such securities in the currencies
in which they are denominated remains constant. The Funds may
sell futures contracts on a foreign currency, for example, when
it holds securities denominated in such currency and it
anticipates a decline in the value of such currency relative to
the dollar. In the event such decline occurs, the resulting
adverse effect on the value of foreign-denominated securities may
be offset, in whole or in part, by gains on the futures
contracts. However, if the value of the foreign currency
increases relative to the dollar, the Fund's loss on the foreign
currency futures contract may or may not be offset by an increase
in the value of the securities because a decline in the price of
the security stated in terms of the foreign currency may be
greater than the increase in value as a result of the change in
exchange rates.
Conversely, the Funds could protect against a rise in
the dollar cost of foreign-denominated securities to be acquired
by purchasing futures contracts on the relevant currency, which
could offset, in whole or in part, the increased cost of such
securities resulting from a rise in the dollar value of the
underlying currencies. When a Fund purchases futures contracts
under such circumstances, however, and the price of securities to
be acquired instead declines as a result of appreciation of the
dollar, the Fund will sustain losses on its futures position
which could reduce or eliminate the benefits of the reduced cost
of portfolio securities to be acquired.
The Funds may also engage in currency "cross hedging"
when, in the opinion of the Adviser, the historical relationship
among foreign currencies suggests that a Fund may achieve
protection against fluctuations in currency exchange rates
similar to that described above at a reduced cost through the use
of a futures contract relating to a currency other than the U.S.
dollar or the currency in which the foreign security is
denominated. Such "cross hedging" is subject to the same risks
as those described above with respect to an unanticipated
increase or decline in the value of the subject currency relative
to the dollar.
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OPTIONS ON FUTURES CONTRACTS. The writing of a call
option on a Futures Contract constitutes a partial hedge against
declining prices of the securities in the Fund's portfolio. If
the futures price at expiration of the option is below the
exercise price, a Fund will retain the full amount of the option
premium, which provides a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings. The writing
of a put option on a Futures Contract constitutes a partial hedge
against increasing prices of the securities or other instruments
required to be delivered under the terms of the Futures Contract.
If the futures price at expiration of the put option is higher
than the exercise price, a Fund will retain the full amount of
the option premium, which provides a partial hedge against any
increase in the price of securities which the Fund intends to
purchase. If a put or call option a Fund has written is
exercised, the Fund will incur a loss which will be reduced by
the amount of the premium it receives. Depending on the degree
of correlation between changes in the value of its portfolio
securities and changes in the value of its options on futures
positions, a Fund's losses from exercised options on futures may
to some extent be reduced or increased by changes in the value of
portfolio securities.
The Funds may purchase options on Futures Contracts for
hedging purposes instead of purchasing or selling the underlying
Futures Contracts. For example, where a decrease in the value of
portfolio securities is anticipated as a result of a projected
market-wide decline or changes in interest or exchange rates, a
Fund could, in lieu of selling Futures Contracts, purchase put
options thereon. In the event that such decrease occurs, it may
be offset, in whole or part, by a profit on the option. If the
market decline does not occur, the Fund will suffer a loss equal
to the price of the put. Where it is projected that the value of
securities to be acquired by a Fund will increase prior to
acquisition, due to a market advance or changes in interest or
exchange rates, a Fund could purchase call options on Futures
Contracts, rather than purchasing the underlying Futures
Contracts. If the market advances, the increased cost of
securities to be purchased may be offset by a profit on the call.
However, if the market declines, the Fund will suffer a loss
equal to the price of the call, but the securities which the Fund
intends to purchase may be less expensive.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
The Funds may enter into forward foreign currency
exchange contracts ("Forward Contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. The Funds intend
to enter into Forward Contracts for hedging purposes similar to
those described above in connection with their transactions in
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foreign currency futures contracts. In particular, a Forward
Contract to sell a currency may be entered into in lieu of the
sale of a foreign currency futures contract where a Fund seeks to
protect against an anticipated increase in the exchange rate for
a specific currency which could reduce the dollar value of
portfolio securities denominated in such currency. Conversely, a
Fund may enter into a Forward Contract to purchase a given
currency to protect against a projected increase in the dollar
value of securities denominated in such currency which the Fund
intends to acquire. A Fund also may enter into a Forward
Contract in order to assure itself of a predetermined exchange
rate in connection with a security denominated in a foreign
currency. The Funds may engage in currency "cross hedging" when,
in the opinion of the Adviser, the historical relationship among
foreign currencies suggests that a Fund may achieve the same
protection for a foreign security at a reduced cost through the
use of a Forward Contract relating to a currency other than the
U.S. dollar or the foreign currency in which the security is
denominated.
If a hedging transaction in Forward Contracts is
successful, the decline in the value of portfolio securities or
the increase in the cost of securities to be acquired may be
offset, at least in part, by profits on the Forward Contract.
Nevertheless, by entering into such Forward Contracts, a Fund may
be required to forego all or a portion of the benefits which
otherwise could have been obtained from favorable movements in
exchange rates.
Each Fund has established procedures consistent with SEC
policies concerning purchases of foreign currency through Forward
Contracts. Since those policies currently recommend that an
amount of a Fund's assets equal to the amount of the purchase be
held aside or segregated to be used to pay for the commitment, a
Fund will always have cash, U.S. Government securities or other
liquid, high-grade debt securities available sufficient to cover
any commitments under these contracts or to limit any potential
risk.
OPTIONS ON FOREIGN CURRENCIES
The Funds may purchase and write options on foreign
currencies for hedging purposes. For example, a decline in the
dollar value of a foreign currency in which portfolio securities
are denominated will reduce the dollar value of such securities,
even if their value in the foreign currency remains constant. In
order to protect against such diminutions in the value of
portfolio securities, the Funds may purchase put options on the
foreign currency. If the value of the currency does decline, the
Fund will have the right to sell such currency for a fixed amount
in dollars and will thereby offset, in whole or in part, the
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adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, these
Funds may purchase call options thereon. The purchase of such
options could offset, at least partially, the effects of the
adverse movements in exchange rates. As in the case of other
types of options, however, the benefit to a Fund derived from
purchases of foreign currency options will be reduced by the
amount of the premium and related transaction costs. In
addition, where currency exchange rates do not move in the
direction or to the extent anticipated, a Fund could sustain
losses on transactions in foreign currency options which would
require it to forego a portion or all of the benefits of
advantageous changes in such rates.
The Funds may write options on foreign currencies for
the same types of hedging purposes or to increase return. For
example, where the Fund anticipates a decline in the dollar value
of foreign-denominated securities due to adverse fluctuations in
exchange rates it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected
decline occurs, the option will most likely not be exercised, and
the diminution in value of portfolio securities will be offset by
the amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, a Fund could write a put option on the relevant
currency, which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Fund
will be required to purchase or sell the underlying currency at a
loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, a Fund also
may be required to forego all or a portion of the benefits which
might otherwise have been obtained from favorable movements in
exchange rates.
RISK FACTORS IN OPTIONS, FUTURES AND FORWARD TRANSACTIONS
RISK OF IMPERFECT CORRELATION OF HEDGING INSTRUMENTS
WITH A FUND'S PORTFOLIO. The Funds' abilities effectively to
hedge all or a portion of their portfolios through transactions
in options, Futures Contracts, options on Futures Contracts,
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Forward Contracts and options on foreign currencies depend on the
degree to which price movements in the underlying index or
instrument correlate with price movements in the securities that
are the subject of the hedge. In the case of futures and options
based on an index, the portfolio will not duplicate the
components of the index, and in the case of futures and options
on fixed income securities, the portfolio securities which are
being hedged may not be the same type of obligation underlying
such contract. As a result, the correlation, to the extent it
exists, probably will not be exact.
It should be noted that stock index futures contracts or
options based upon a narrower index of securities, such as those
of a particular industry group, may present greater risk than
options or futures based on a broad market index. This is due to
the fact that a narrower index is more susceptible to rapid and
extreme fluctuations as a result of changes in the value of a
small number of securities.
The trading of futures and options entails the
additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying index or
instrument. The anticipated spread between the prices may be
distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures
market. In this regard, trading by speculators in futures and
options has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.
The trading of options on Futures Contracts also entails
the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option.
The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the Futures Contract or
expiration date of the option approaches.
Further, with respect to options on securities, options
on foreign currencies, options on stock indexes and options on
Futures Contracts, the Funds are subject to the risk of market
movements between the time that the option is exercised and the
time of performance thereunder. This could increase the extent
of any loss suffered by a Fund in connection with such
transactions.
If a Fund purchases futures or options in order to hedge
against a possible increase in the price of securities before the
Fund is able to invest its cash in such securities, the Fund
faces the risk that the market may instead decline. If the Fund
does not then invest in such securities because of concern as to
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possible further market declines or for other reasons, the Fund
may realize a loss on the futures or option contract that is not
offset by a reduction in the price of securities purchased.
In writing a call option on a security, foreign
currency, index or futures contract, a Fund also incurs the risk
that changes in the value of the assets used to cover the
position will not correlate closely with changes in the value of
the option or underlying index or instrument. For example, when
a Fund writes a call option on a stock index, the securities used
as "cover" may not match the composition of the index, and the
Fund may not be fully covered. As a result, the Fund could
suffer a loss on the call which is not entirely offset or offset
at all by an increase in the value of the Fund's portfolio
securities.
The writing of options on securities, options on stock
indexes or options on Futures Contracts constitutes only a
partial hedge against fluctuations in the value of a Fund's
portfolio. When a Fund writes an option, it will receive premium
income in return for the holder's purchase of the right to
acquire or dispose of the underlying security or future or, in
the case of index options, cash. In the event that the price of
such obligation does not rise sufficiently above the exercise
price of the option, in the case of a call, or fall below the
exercise price, in the case of a put, the option will not be
exercised and the Fund will retain the amount of the premium,
which will constitute a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings, or against
the increase in the cost of the instruments to be acquired.
When the price of the underlying obligation moves
sufficiently in favor of the holder to warrant exercise of the
option, however, and the option is exercised, the Fund will incur
a loss which may only be partially offset by the amount of the
premium the Fund received. Moreover, by writing an option, a
Fund may be required to forego the benefits which might otherwise
have been obtained from an increase in the value of portfolio
securities or a decline in the value of securities to be
acquired.
In the event of the occurrence of any of the foregoing
adverse market events, a Fund's overall return may be lower than
if it had not engaged in the transactions described above.
With respect to the writing of straddles on securities,
a Fund incurs the risk that the price of the underlying security
will not remain stable, that one of the options written will be
exercised and that the resulting loss will not be offset by the
amount of the premiums received. Such transactions, therefore,
while creating an opportunity for increased return by providing a
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Fund with two simultaneous premiums on the same security,
nonetheless involve additional risk, because the Fund may have an
option exercised against it regardless of whether the price of
the security increases or decreases.
POTENTIAL LACK OF A LIQUID SECONDARY MARKET. Prior to
exercise or expiration, a futures or option position can be
terminated only by entering into a closing purchase or sale
transaction. This requires a secondary market for such
instruments on the exchange on which the initial transaction was
entered into. While the Funds will enter into options or futures
positions only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist
for any particular contracts at any specific time. In that
event, it may not be possible to close out a position held by a
Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash
settlement or meet ongoing variation margin requirements. Under
such circumstances, if the Fund has insufficient cash available
to meet margin requirements, it may be necessary to liquidate
portfolio securities at a time when it is disadvantageous to do
so. The inability to close out options and futures positions,
therefore, could have an adverse impact on the Funds' ability to
effectively hedge their portfolios, and could result in trading
losses.
The liquidity of a secondary market in a Futures
Contract or option thereon may be adversely affected by "daily
price fluctuation limits," established by exchanges, which limit
the amount of fluctuation in the price of a contract during a
single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures or option
positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a
number of consecutive trading days.
The trading of Futures Contracts and options (including
options on Futures Contracts) is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.
The staff of the SEC has taken the position that over-
the-counter options and the assets used as cover for over-the-
counter options are illiquid securities, unless certain
arrangements are made with the other party to the option
contract, permitting the prompt liquidation of the option
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position. The Funds will enter into those special arrangements
only with primary U.S. Government securities dealers recognized
by the Federal Reserve Bank of New York ("primary dealers").
Under these special arrangements, the Trust will enter into
contracts with primary dealers which provide that each Fund has
the absolute right to repurchase an option it writes at any time
at a repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Fund for writing the
option, plus the amount, if any, by which the option is "in-the-
money." The formula will also include a factor to account for
the difference between the price of the security and the strike
price of the option if the option is written "out-of-the-money."
Under such circumstances the Fund only needs to treat as illiquid
that amount of the "cover" assets equal to the amount by which
(i) the formula price exceeds (ii) any amount by which the market
value of the security subject to the option exceeds the exercise
price of the option (the amount by which the option is "in-the-
money"). Although each agreement will provide that the Fund's
repurchase price shall be determined in good faith (and that it
shall not exceed the maximum determined pursuant to the formula),
the formula price will not necessarily reflect the market value
of the option written; therefore, the Fund might pay more to
repurchase the option contract than the Fund would pay to close
out a similar exchange-traded option.
MARGIN. Because of low initial margin deposits made
upon the opening of a futures position and the writing of an
option, such transactions involve substantial leverage. As a
result, relatively small movements in the price of the contract
can result in substantial unrealized gains or losses. However,
to the extent the Funds purchase or sell Futures Contracts and
options on Futures Contracts and purchase and write options on
securities and securities indexes for hedging purposes, any
losses incurred in connection therewith should, if the hedging
strategy is successful, be offset, in whole or in part, by
increases in the value of securities held by the Fund or
decreases in the prices of securities the Fund intends to
acquire. When a Fund writes options on securities or options on
stock indexes for other than hedging purposes, the margin
requirements associated with such transactions could expose the
Fund to greater risk.
TRADING AND POSITION LIMITS. The exchanges on which
futures and options are traded may impose limitations governing
the maximum number of positions on the same side of the market
and involving the same underlying instrument which may be held by
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a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or
different exchanges or held or written in one or more accounts or
through one or more brokers). In addition, the Commodity Futures
Trading Commission (the "CFTC") and the various contract markets
have established limits referred to as "speculative position
limits" on the maximum net long or net short position which any
person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions
found to be in violation of these limits and may impose other
sanctions or restrictions. The Adviser does not believe that
these trading and position limits will have any adverse impact on
the strategies for hedging the portfolios of the Funds.
RISKS OF OPTIONS ON FUTURES CONTRACTS. The amount of
risk a Fund assumes when it purchases an option on a Futures
Contract is the premium paid for the option, plus related
transaction costs. In order to profit from an option purchased,
however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks
of the availability of a liquid offset market described herein.
The writer of an option on a Futures Contract is subject to the
risks of commodity futures trading, including the requirement of
initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate
with movements in the price of the underlying security, index,
currency or Futures Contract.
RISKS OF FORWARD CONTRACTS, FOREIGN CURRENCY FUTURES
CONTRACTS AND OPTIONS THEREON, OPTIONS ON FOREIGN CURRENCIES AND
OVER-THE-COUNTER OPTIONS ON SECURITIES. Transactions in Forward
Contracts, as well as futures and options on foreign currencies,
are subject to all of the correlation, liquidity and other risks
outlined above. In addition, however, such transactions are
subject to the risk of governmental actions affecting trading in
or the prices of currencies underlying such contracts, which
could restrict or eliminate trading and could have a substantial
adverse effect on the value of positions held by a Fund. In
addition, the value of such positions could be adversely affected
by a number of other complex political and economic factors
applicable to the countries issuing the underlying currencies.
Further, unlike trading in most other types of
instruments, there is no systematic reporting of last sale
information with respect to the foreign currencies underlying
contracts thereon. As a result, the available information on
which trading decisions will be based may not be as complete as
the comparable data on which a Fund makes investment and trading
decisions in connection with other transactions. Moreover,
because the foreign currency market is a global, twenty-four hour
market, events could occur on that market which will not be
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reflected in the forward, futures or options markets until the
following day, thereby preventing the Funds from responding to
such events in a timely manner.
Settlements of exercises of over-the-counter Forward
Contracts or foreign currency options generally must occur within
the country issuing the underlying currency, which in turn
requires traders to accept or make delivery of such currencies in
conformity with any United States or foreign restrictions and
regulations regarding the maintenance of foreign banking
relationships and fees, taxes or other charges.
Unlike transactions entered into by the Funds in Futures
Contracts and exchange-traded options, options on foreign
currencies, Forward Contracts and over-the-counter options on
securities and securities indexes are not traded on contract
markets regulated by the CFTC or (with the exception of certain
foreign currency options) the SEC. Such instruments are instead
traded through financial institutions acting as market-makers,
although foreign currency options are also traded on certain
national securities exchanges, such as the Philadelphia Stock
Exchange and the Chicago Board Options Exchange, subject to SEC
regulation. In an over-the-counter trading environment, many of
the protections afforded to exchange participants will not be
available. For example, there are no daily price fluctuation
limits, and adverse market movements could therefore continue to
an unlimited extent over a period of time. Although the
purchaser of an option cannot lose more than the amount of the
premium plus related transaction costs, this entire amount could
be lost. Moreover, the option writer could lose amounts
substantially in excess of the initial investment, due to the
margin and collateral requirements associated with such
positions.
In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of a Fund's position unless the
institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Fund.
Where no such counterparty is available, it will not be possible
to enter into a desired transaction. There also may be no liquid
secondary market in the trading of over-the-counter contracts,
and a Fund could be required to retain options purchased or
written, or Forward Contracts entered into, until exercise,
expiration or maturity. This in turn could limit the Fund's
ability to profit from open positions or to reduce losses
experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject
to the guarantee of an exchange clearing house, and a Fund will
therefore be subject to the risk of default by, or the bankruptcy
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of, the financial institution serving as its counterparty. A
Fund will enter into an over-the-counter transaction only with
parties whose creditworthiness has been reviewed and found
satisfactory by the Adviser.
Transactions in over-the-counter options on foreign
currencies are subject to a number of conditions regarding the
commercial purpose of the purchaser of such option. The Funds
are not able to determine at this time whether or to what extent
additional restrictions on the trading of over-the-counter
options on foreign currencies may be imposed at some point in the
future, or the effect that any such restrictions may have on the
hedging strategies to be implemented by them.
As discussed below, CFTC regulations require that a Fund
not enter into transactions in commodity futures contracts or
commodity option contracts for other than "bona fide" hedging
purposes, unless the aggregate initial margin and premiums do not
exceed 5% of the fair market value of the Fund's assets. Premiums
paid to purchase over-the-counter options on foreign currencies,
and margins paid in connection with the writing of such options,
are required to be included in determining compliance with this
requirement, which could, depending upon the existing positions
in Futures Contracts and options on Futures Contracts already
entered into by a Fund, limit the Fund's ability to purchase or
write options on foreign currencies. Conversely, the existence of
open positions in options on foreign currencies could limit the
ability of the Fund to enter into desired transactions in other
options or futures contracts.
While Forward Contracts are not presently subject to
regulation by the CFTC, the CFTC may in the future assert or be
granted authority to regulate such instruments. In such event,
the Fund's ability to utilize Forward Contracts in the manner set
forth above could be restricted.
Options on foreign currencies traded on national
securities exchanges are within the jurisdiction of the SEC, as
are other securities traded on such exchanges. As a result, many
of the protections provided to traders on organized exchanges
will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on
a national securities exchange are cleared and guaranteed by the
Options Clearing Corporation ("OCC"), thereby reducing the risk
of counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting a Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
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The purchase and sale of exchange-traded foreign
currency options, however, is subject to the risks of the
availability of a liquid secondary market described above, as
well as the risks regarding adverse market movements, the
margining of options written, the nature of the foreign currency
market, possible intervention by governmental authorities and the
effects of other political and economic events. In addition,
exchange-traded options on foreign currencies involve certain
risks not presented by the over-the-counter market. For example,
exercise and settlement of such options must be made exclusively
through the OCC, which has established banking relationships in
applicable foreign countries for this purpose. As a result, if
it determines that foreign governmental restrictions or taxes
would prevent the orderly settlement of foreign currency option
exercises, or would result in undue burdens on the OCC or its
clearing member, the OCC may impose special procedures on
exercise and settlement, such as technical changes in the
mechanics of delivery of currency, the fixing of dollar
settlement prices or prohibitions on exercise.
RESTRICTIONS ON THE USE OF FUTURES AND OPTION CONTRACTS
Under applicable regulations, when a Fund enters into
transactions in Futures Contracts and options on Futures
Contracts other than for bona fide hedging purposes, that Fund
maintains with its custodian in a segregated account cash, short-
term U.S. Government securities or high quality United States
dollar denominated money market instruments, which, together with
any initial margin deposits, are equal to the aggregate market
value of the Futures Contracts and options on Futures Contracts
that it purchases. In addition, a Fund may not purchase or sell
such instruments for other than bona fide hedging purposes if,
immediately thereafter, the sum of the amount of initial margin
deposits on such futures and options positions and premiums paid
for options purchased would exceed 5% of the market value of the
Fund's total assets.
Each Fund has adopted the additional restriction that it
will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the
value of such Fund's total assets. Moreover, a Fund will not
purchase put and call options if as a result more than 10% of its
total assets would be invested in such options.
ECONOMIC EFFECTS AND LIMITATIONS
Income earned by a Fund from its hedging activities will
be treated as capital gain and, if not offset by net realized
capital losses incurred by a Fund, will be distributed to
shareholders in taxable distributions. Although gain from such
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transactions may hedge against a decline in the value of a Fund's
portfolio securities, that gain, to the extent not offset by
losses, will be distributed in light of certain tax
considerations and will constitute a distribution of that portion
of the value preserved against decline.
Neither Fund will "over-hedge," that is, neither Fund
will maintain open short positions in futures or options
contracts if, in the aggregate, the market value of its open
positions exceeds the current market value of its securities
portfolio plus or minus the unrealized gain or loss on such open
positions, adjusted for the historical volatility relationship
between the portfolio and futures and options contracts.
Each Fund's ability to employ the options and futures
strategies described above will depend on the availability of
liquid markets in such instruments. Markets in financial futures
and related options are still developing. It is impossible to
predict the amount of trading interest that may hereafter exist
in various types of options or futures. Therefore no assurance
can be given that a Fund will be able to use these instruments
effectively for the purposes set forth above.
The Funds' ability to use options, futures and forward
contracts may be limited by tax considerations. In particular,
tax rules might affect the length of time for which the Funds can
hold such contracts and the character of the income earned on
such contracts. In addition, differences between each Fund's
book income (upon the basis of which distributions are generally
made) and taxable income arising from its hedging activities may
result in return of capital distributions, and in some
circumstances, distributions in excess of the Fund's book income
may be required in order to meet tax requirements.
FUTURE DEVELOPMENTS
The above discussion relates to each Fund's proposed use
of Futures Contracts, options and options on Futures Contracts
currently available. As noted above, the relevant markets and
related regulations are evolving. In the event of future
regulatory or market developments, each Fund may also use
additional types of futures contracts or options and other
investment techniques for the purposes set forth above.
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INVESTMENT RESTRICTIONS
Except as described below and except as otherwise
specifically stated in the Funds' Prospectus or this Statement of
Additional Information, the investment policies of each Fund set
forth in the Prospectus and in this Statement of Additional
Information are not fundamental and may be changed without
shareholder approval.
The following is a description of restrictions on the
investments to be made by the Funds, which restrictions may not
be changed without the approval of a majority of the outstanding
voting securities of the relevant Fund.
Neither of the Funds will:
(1) Borrow money in excess of 10% of the value (taken
at the lower of cost or current value) of its total
assets (not including the amount borrowed) at the
time the borrowing is made, and then only from
banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage)
which might otherwise require the untimely
disposition of portfolio investments or pending
settlement of securities transactions or for
extraordinary or emergency purposes.
(2) Underwrite securities issued by other persons
except to the extent that, in connection with the
disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal
securities laws.
(3) Purchase or retain real estate or interests in real
estate, although each Fund may purchase securities
which are secured by real estate and securities of
companies which invest in or deal in real estate.
(4) Make loans to other persons except by the purchase
of obligations in which such Fund may invest
consistent with its investment policies and by
entering into repurchase agreements, or by lending
its portfolio securities representing not more than
25% of its total assets.
(5) Issue any senior security (as that term is defined
in the 1940 Act), if such issuance is specifically
prohibited by the 1940 Act or the rules and
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regulations promulgated thereunder. For the
purposes of this restriction, collateral
arrangements with respect to options, Futures
Contracts and Options on Futures Contracts and
collateral arrangements with respect to initial and
variation margins are not deemed to be the issuance
of a senior security. (There is no intention to
issue senior securities except as set forth in
paragraph 1 above.)
It is also a fundamental policy of each Fund that it may
purchase and sell futures contracts and related options.
In addition, the following is a description of operating
policies which the Trust has adopted on behalf of the Funds but
which are not fundamental and are subject to change without
shareholder approval.
Neither of the Funds will:
(a) Pledge, mortgage, hypothecate or otherwise encumber
an amount of its assets taken at current value in
excess of 15% of its total assets (taken at the
lower of cost or current value) and then only to
secure borrowings permitted by restriction (1)
above. For the purpose of this restriction, the
deposit of securities and other collateral
arrangements with respect to reverse repurchase
agreements, options, Futures Contracts, Forward
Contracts and options on foreign currencies, and
payments of initial and variation margin in
connection therewith are not considered pledges or
other encumbrances.
(b) Purchase securities on margin, except that each
Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales
of securities, and except that each Fund may make
margin payments in connection with Futures
Contracts, Options on Futures Contracts, options,
Forward Contracts or options on foreign currencies.
(c) Make short sales of securities or maintain a short
position for the account of such Fund unless at all
times when a short position is open it owns an
equal amount of such securities or unless by virtue
of its ownership of other securities it has at all
such times a right to obtain securities (without
payment of further consideration) equivalent in
kind and amount to the securities sold, provided
that if such right is conditional the sale is made
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upon equivalent conditions and further provided
that no Fund will make such short sales with
respect to securities having a value in excess of
5% of its total assets.
(d) Write, purchase or sell any put or call option or
any combination thereof, provided that this shall
not prevent a Fund from writing, purchasing and
selling puts, calls or combinations thereof with
respect to securities, indexes of securities or
foreign currencies, and with respect to Futures
Contracts.
(e) Purchase voting securities of any issuer if such
purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of
such issuer to be held by such Fund; or purchase
securities of any issuer if such purchase at the
time thereof would cause more than 10% of any class
of securities of such issuer to be held by such
Fund. For this purpose all indebtedness of an
issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a
single class.
(f) Invest in securities of any issuer if, to the
knowledge of the Trust, officers and Trustees of
the Trust and officers and directors of the Adviser
who beneficially own more than 0.5% of the shares
of securities of that issuer together own more than
5%.
(g) Purchase securities issued by any other registered
investment company or investment trust except
(A) by purchase in the open market where no
commission or profit to a sponsor or dealer results
from such purchase other than the customary
broker's commission, or (B) where no commission or
profit to a sponsor or dealer results from such
purchase, or (C) when such purchase, though not
made in the open market, is part of a plan of
merger or consolidation; provided, however, that a
Fund will not purchase such securities if such
purchase at the time thereof would cause more than
5% of its total assets (taken at market value) to
be invested in the securities of such issuers; and,
provided further, that a Fund's purchases of
securities issued by an open-end investment company
will be consistent with the provisions of the 1940
Act.
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(h) Make investments for the purpose of exercising
control or management.
(i) Participate on a joint or joint and several basis
in any trading account in securities.
(j) Invest in interests in oil, gas, or other mineral
exploration or development programs, although each
Fund may purchase securities which are secured by
such interests and may purchase securities of
issuers which invest in or deal in oil, gas or
other mineral exploration or development programs.
(k) Purchase warrants, if, as a result, a Fund would
have more than 5% of its total assets invested in
warrants or more than 2% of its total assets
invested in warrants which are not listed on the
New York Stock Exchange or the American Stock
Exchange.
(l) Purchase commodities or commodity contracts,
provided that this shall not prevent a Fund from
entering into interest rate futures contracts,
securities index futures contracts, foreign
currency futures contracts, forward foreign
currency exchange contracts and options (including
options on any of the foregoing) to the extent such
action is consistent with such Fund's investment
objective and policies.
(m) Purchase additional securities in excess of 5% of
the value of its total assets until all of a Fund's
outstanding borrowings (as permitted and described
in Restriction No. 1 above) have been repaid.
Whenever any investment restriction states a maximum
percentage of a Fund's assets which may be invested in any
security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of such Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease beyond the
specified limitation resulting from a change in value or net
asset value will not be considered a violation of such percentage
limitation.
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MANAGEMENT OF THE FUNDS
Adviser
Alliance Capital Management L.P. (the "Adviser"), 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 "Investment
Advisory Contract") to provide investment advice and, in general,
to conduct the management and investment program of the Trust
under the supervision of the Trust's Board of Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1995 of more than $140 billion (of which more than
$47 billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 50
registered investment companies comprising 104 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1995, approximately 33% and 8%
of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
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international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%). As of January 1, 1995, 62.1%
of the issued shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA which are not
entitled to be voted. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa.
INVESTMENT ADVISORY CONTRACT AND EXPENSES
The Adviser serves as investment manager and adviser of
each of the Funds, furnishes continuously an investment program
for each Fund and manages, supervises and conducts the
affairs of each Fund. The Investment Advisory Contract also
provides that the Adviser will furnish or pay the expenses of the
Trust for office space, facilities and equipment, services of
executive and other personnel of the Trust and certain
administrative services. The Adviser is compensated for its
services to the Funds at an annual rate of .75% of each Fund's
average daily net assets. The Adviser has voluntarily undertaken
until further notice to waive its fees in respect of each Fund
and has agreed to bear certain expenses of the Class A, Class B
and Class C shares of each Fund to the extent that expenses
exceed an annual rate of 1.40% for Class A shares and 2.10% for
Class B and Class C shares. The management fees of the Funds are
higher than those paid by most mutual funds.
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The Investment Advisory Contract became effective on
July 23, 1993. The Investment Advisory Contract replaced an
earlier agreement (the "First Investment Advisory Contract")
between the Trust and Equitable Capital Management Corporation
with respect to the Funds. The First Investment Advisory
Contract terminated because of its technical assignment in
connection with the transfer of substantially all of the assets
comprising Equitable Capital's business to the Adviser and
certain of its subsidiaries in exchange for newly issued limited
partnership interests in the Adviser and the assumption by the
Adviser and such subsidiaries of certain liabilities of Equitable
Capital. Equitable Capital was compensated for its services as
investment manager of the Funds at the same rates as are
currently paid by the Funds to the Adviser.
In anticipation of the assignment of the First
Investment Advisory Contract, the Investment Advisory Contract
was approved by the vote of the Trust's Trustees, including the
Trustees who are not parties to the Investment Advisory Contract
or interested persons of any such party, at meetings called for
the purpose and held on February 16, 1993 and March 31, 1993. At
a meeting held on April 8, 1993, a majority of the outstanding
voting securities of the Funds approved the Investment Advisory
Contract. Most recently, the continuance of the Investment
Advisory Contract until July 31, 1996 was approved by a vote,
cast in person, of the Board of Trustees, including a majority of
the Trustees who are not parties to the Investment Advisory
Contract or interested persons of any such party, at their
Regular Meeting held on July 19, 1995.
Prior to July 22, 1992, Equitable served as investment
manager to the Funds and Equitable Capital served as sub-adviser
to the Funds. Equitable was compensated for its services as
investment manager to such Funds at the same rates as are
currently paid by such Funds to the Adviser. Equitable Capital
was compensated for its services as sub-adviser to such Funds by
Equitable at an annual rate equal to .45% of the average daily
net assets of such Funds.
For the fiscal year ended July 31, 1995, the Adviser
earned $400,593 in management fees from the Strategic Balanced
Fund (an additional $211,406 in fees were waived). During the
period May 1, 1994 through July 31, 1994, the Adviser earned
$108,893 in management fees from the Strategic Balanced Fund (an
additional $81,067 in fees were waived). During the period
July 23, 1993 through the fiscal year ended April 30, 1994, the
Adviser earned $280,948 from the Strategic Balanced Fund (an
additional $136,242 in fees were waived).
During the period May 1, 1994 through October 31, 1994,
the Adviser earned $2,953,562 in management fees from the Growth
40
<PAGE>
Fund. During the period July 23, 1993 through the fiscal year
ended April 30, 1994, the Adviser earned $1,425,457 in management
fees from the Growth Fund (an additional $56,371 in fees were
waived). During the period May 1, 1993 to July 22, 1993,
Equitable Capital earned $145,980 in management fees from the
Growth Fund (an additional $20,951 in fees were waived).
The Investment Advisory Contract provides that it will
continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at
least annually (i) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the relevant
Fund, and (ii) by vote of a majority of the Trustees who are not
interested persons of the Adviser cast in person at a meeting
called for the purpose of voting on such approval. Any amendment
to the Investment Advisory Contract must be approved by vote of a
majority of the outstanding voting securities of the relevant
Fund and by vote of a majority of the Trustees who are not such
interested persons, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory
Contract may be terminated without penalty by the Adviser, by
vote of the Trustees or by vote of a majority of the outstanding
voting securities of the relevant Fund upon sixty days' written
notice, and it terminates automatically in the event of its
assignment. The Adviser controls the word "Alliance" in the
names of the Trust and each Fund, and if Alliance should cease to
be the investment manager of any Fund, the Trust and such Fund
may be required to change their names and delete that word.
The Investment Advisory Contract provides that the
Adviser shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
TRUSTEES AND OFFICERS
The Trustees and principal officers of the Trust, their
ages as of the date of this Statement of Additional Information
and their primary occupations during the past five years are set
forth below.
TRUSTEES
*John D. Carifa, 50, is Chairman of the Board and
President, is the President, Chief Operating Officer, and a
Director of Alliance Capital Management Corporation, the general
_____________________
* An "interested person" of the Trust, as defined by the 1940
Act.
41
<PAGE>
partner of the Adviser. His address is 1345 Avenue of the
Americas, New York, New York 10105.
Alberta B. Arthurs, 62, is the Director for Arts and
Humanities for The Rockefeller Foundation. Her address is 1133
Avenue of the Americas, New York, New York 10036.
Ruth Block, 64, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and Amoco Corporation (oil and
gas). Her address is Box 4653, Stamford, Connecticut 06903.
Richard W. Couper, 72, is President Emeritus and Trustee
of The Woodrow Wilson Fellowship Foundation and President
Emeritus of the New York Public Library. His address is Box 345,
Clinton, New York, 13323-0345.
Brenton W. Harries, 67, is a Director of Enhance
Reinsurance Co. and was formerly the President and Chief
Executive of Global Electronic Markets Company. His address is
14 Point Road, Wilson Point, South Norwalk, Connecticut 06854.
Donald J. Robinson, 61, was formerly a partner at
Orrick, Herrington & Sutcliffe and is currently of counsel to
that firm. His address is 599 Lexington Avenue, 26th Floor, New
York, New York 10022.
OFFICERS
John D. Carifa, President, see biography above.
Edmund P. Bergan, Jr., 45, Clerk, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
His address is 1345 Avenue of the Americas, New York, New York
10105.
Mark D. Gersten, 45, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. His address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Patrick J. Farrell, 35, Controller and Chief Accounting
Officer, is a Vice President of Alliance Fund Services, Inc. His
address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Melvin J. Oliver, 37, Assistant Controller, is an
Accounting Manager of Alliance Fund Services, Inc. His address is
500 Plaza Drive, Secaucus, New Jersey 07094.
Bruce W. Calvert, 48, Vice President, is the Vice
Chairman and Chief Investment Officer of Alliance Capital
42
<PAGE>
Management Corporation, the general partner of Alliance Capital
Management L.P. His address is 1345 Avenue of the Americas, New
York, NY 10105.
Kathleen A. Corbet, 35, Vice President, is, since July
23, 1993, Senior Vice President of Alliance Capital Management
Corporation, general partner of Alliance Capital Management L.P.
She was formerly employed by Equitable Capital. Her address is
1345 Avenue of the Americas, New York, NY 10105.
Franklin Kennedy, III, 53, Vice President, is, since
July 23, 1993, Senior Vice President of Alliance Capital
Management Corporation, the general partner of Alliance Capital
Management L.P. He was formerly employed by Equitable Capital.
His address is 1345 Avenue of the Americas, New York, New York
10105.
Barbara J. Krumsiek, 43, Vice President - Marketing, is,
since July 23, 1993, a Senior Vice President of Alliance Fund
Distributors, Inc. She was formerly an Investment Officer of
Equitable, Senior Vice President of Equitable Capital and Vice
President of Equitable Variable Life Insurance Company. Her
address is 1345 Avenue of the Americas, New York, New York 10105.
Wayne D. Lyski, 54, Vice President, is Executive Vice
President of Alliance Capital Management Corporation, the general
partner of Alliance Capital Management L.P. His address is 1345
Avenue of the Americas, New York, NY 10105.
The aggregate compensation paid to each of the Trustees
by the Growth Fund for the fiscal year ended October 31, 1994 and
by the Strategic Balanced Fund for the fiscal year ended July 31,
1995, the aggregate compensation paid to each of the Trustees
during calendar year 1994 by all of the funds to which the
Adviser provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the Trustees serves as a director or trustee, are
set forth below. Neither of the Funds nor any fund in the
Alliance Fund Complex provides compensation in the form of
pension or retirement benefits to any of its directors or
trustees. Each of the Trustees is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
43
<PAGE>
Total Number of
Total Funds in the
Compensation Alliance Fund
Aggregate From the Complex, Including
Aggregate Compensation Alliance the Trust, as to
Compensation from the Fund Complex, which the Trustee
Name of Trustee from the Strategic Including is a Director or
of the Fund Growth Fund Balanced Fund the Trust* Trustee
_______________ ____________ _____________ ____________ __________________
Alberta B. Arthurs $3,600 $4,800 $25,000 5
Ruth Block $3,600 $5,000 $157,000 31
John D. Carifa $ -- $ -- $ -- 42
Richard W. Couper $3,600 $5,000 $26,000 5
Brenton W. Harries $3,600 $5,000 $24,000 5
Donald J. Robinson $3,600 $5,000 $26,000 5
____________________________
* There are 104 investment companies or portfolios thereof in
the Alliance Fund Complex.
As of October 13, 1995, the Trustees and officers of the
Funds as a group owned less than 1% of the shares of the Fund.
The Trust undertakes to provide assistance to
shareholders in communications concerning the removal of any
Trustee of the Trust in accordance with Section 16 of the 1940
Act.
PORTFOLIO TRANSACTIONS
Under the general supervision of the Board of Trustees,
the Adviser makes the Funds' portfolio decisions and determines
the broker to be used in each specific transaction with the
objective of negotiating a combination of the most favorable
commission and the best price obtainable on each transaction
(generally defined as best execution). When consistent with the
objective of obtaining best execution, brokerage may be directed
to persons or firms supplying investment information to the
Adviser. Neither the Funds nor the Adviser have entered into
agreements or understandings with any brokers regarding the
placement of securities transactions because of research services
they provide. To the extent that such persons or firms supply
investment information to the Adviser for use in rendering
investment advice to the Funds, such information may be supplied
at no cost to the Adviser and, therefore, may have the effect of
reducing the expenses of the Adviser in rendering advice to the
Funds. While it is impossible to place an actual dollar value on
44
<PAGE>
such investment information, its receipt by the Adviser probably
does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of
the type described in Section 28(e) of the Securities Exchange
Act of 1934, as amended, and is designed to augment the Adviser's
own internal research and investment strategy capabilities.
Research services furnished by brokers through which the Funds
effect securities transactions are used by the Adviser in
carrying out its investment management responsibilities with
respect to all its clients' accounts. There may be occasions
where the transaction cost charged by a broker may be greater
than that which another broker may charge if it is determined in
good faith that the amount of such transaction cost is reasonable
in relation to the value of brokerage and research services
provided by the executing broker.
The Funds may deal in some instances in securities which
are not listed on a national securities exchange but are traded
in the over-the-counter market. They may also purchase listed
securities through the third market. Where transactions are
executed in the over-the-counter market or third market, the
Funds will seek to deal with the primary market makers; but when
necessary in order to obtain best execution, they will utilize
the services of others.
Aggregate securities transactions for the Strategic
Balanced Fund during the fiscal year ended July 31, 1995 were
$152,033,912 and, in connection therewith, brokerage commissions
of $196,452 (100%) were allocated to persons or firms supplying
research information. Aggregate securities transactions for the
Growth Fund during the period May 1, 1994 through October 31,
1994 were $729,539,979, and in connection therewith, brokerage
commissions of $909,509 (100%) were allocated to persons or firms
supplying research information. For the fiscal year ended July
31, 1995, the Strategic Balanced Fund paid an aggregate of
$196,452 in brokerage commissions. For the period May 1, 1994
through July 31, 1994, the Strategic Balanced Fund paid an
aggregate of $33,604 in brokerage commissions. For the fiscal
year ended April 30, 1994, the Strategic Balanced Fund paid an
aggregate of $101,939 in brokerage commissions. For the period
May 1, 1994 through October 31, 1994, the Growth Fund paid an
aggregate of $909,509 in brokerage commissions. For the fiscal
year ended April 30, 1994, the Growth Fund paid an aggregate of
$1,235,459 in brokerage commissions. For the fiscal year ended
April 30, 1993, the Growth Fund paid an aggregate of $195,924 in
brokerage commissions.
The Funds may from time to time place orders for the
purchase or sale of securities (including listed call options)
45
<PAGE>
with Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and with brokers which may have their transactions cleared or
settled, or both, by the Pershing Division of DLJ, for which DLJ
may receive a portion of the brokerage commission. In such
instances, the placement of orders with such brokers would be
consistent with the Funds' objective of obtaining the best
execution and would not be dependent upon the fact that DLJ is an
affiliate of the Adviser. With respect to orders placed with DLJ
for execution on a national securities exchange, commissions
received must conform to Section 17(e)(2)(A) of the 1940 Act and
Rule 17e-1 thereunder, which permit an affiliated person of a
registered investment company (such as the Trust), or any
affiliated person of such person, to receive a brokerage
commission from such registered investment company provided that
such commission is reasonable and fair compared to the
commissions received by other brokers in connection with
comparable transactions involving similar securities during a
comparable period of time.
The brokerage transactions engaged in by the Funds with
DLJ and its affiliates during the fiscal years ended October 31,
1994 for the Growth Fund and July 31, 1995 for the Strategic
Balanced Fund are set forth below:
% of Fund's % of Fund's
Amount of Aggregate Aggregate Dollar
Fiscal Year Brokerage Brokerage Amount of
Ended Fund Commissions Commissions Transactions
___________ ____ ___________ ___________ ________________
October 31, 1994 Growth Fund None None None
July 31, 1995 Strategic Balanced 240 0.12% 0.0001%
Fund
Neither Fund engaged in brokerage transactions during
fiscal 1994 with DLJ or its affiliates.
EXPENSES OF THE FUNDS
In addition to the payments to the Adviser under the
Investment Advisory Contract described above, the Trust pays
certain other costs including (a) brokerage and commission
expenses, (b) Federal, state and local taxes, including issue and
transfer taxes incurred by or levied on a Fund, (c) interest
charges on borrowing, (d) fees and expenses of registering the
shares of the Funds under the appropriate Federal securities laws
46
<PAGE>
and of qualifying shares of the Funds under applicable state
securities laws including expenses attendant upon renewing and
increasing such registrations and qualifications, (e) expenses of
printing and distributing the Funds' prospectuses and other
reports to shareholders, (f) costs of proxy solicitations,
(g) transfer agency fees described below, (h) charges and
expenses of the Trust's custodian, (i) compensation of the
Trust's officers, Trustees and employees who do not devote any
part of their time to the affairs of the Adviser or its
affiliates, (j) costs of stationery and supplies, and (k) such
promotional expenses as may be contemplated by the Distribution
Services Agreement described below.
DISTRIBUTION ARRANGEMENTS
Rule 12b-1 adopted by the SEC under the 1940 Act permits
an investment company to directly or indirectly pay expenses
associated with the distribution of its shares in accordance with
a duly adopted and approved plan. The Trust has adopted a plan
for each class of shares of the Funds pursuant to Rule 12b-1
(each a "Plan" and collectively the "Plans"). Pursuant to the
Plans, each Fund pays Alliance Fund Distributors, Inc. (the
"Principal Underwriter") a Rule 12b-1 distribution services fee
which may not exceed an annual rate of .50% of a Fund's aggregate
average daily net assets attributable to the Class A shares,
1.00% of a Fund's aggregate average daily net assets attributable
to the Class B shares and 1.00% of a Fund's aggregate average
daily net assets attributable to the Class C shares to compensate
the Principal Underwriter for distribution expenses. The
Trustees currently limit payments under the Class A Plan to .30%
of a Fund's aggregate average daily net assets attributable to
the Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the
aggregate average daily net assets of a Fund attributable to each
of the Class A shares, Class B shares and Class C shares
constitutes a service fee that the Principal Underwriter will use
for personal service and/or the maintenance of shareholder
accounts. The Plans also provide that the Adviser may use its
own resources, which may include management fees received by the
Adviser from the Trust or other investment companies which it
manages and the Adviser's past profits, to finance the
distribution of the Funds' shares.
Each Plan may be terminated with respect to the class of
shares of any Fund to which the Plan relates by vote of a
majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in
the operation of the Plans or in any agreement related to the
Plans (the "Qualified Trustees"), or by vote of a majority of the
outstanding voting securities of that class. Each Plan may be
amended by vote of the Trustees, including a majority of the
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<PAGE>
Qualified Trustees, cast in person at a meeting called for that
purpose. Any change in a Plan that would materially increase the
distribution costs to the class of shares of any Fund to which
the Plan relates requires approval by the affected class of
shareholders of that Fund. The Trustees review quarterly a
written report of such distribution costs and the purposes for
which such costs have been incurred with respect to each Fund's
Class A, Class B and Class C shares. For so long as the Plans
are in effect, selection and nomination of those Trustees who are
not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Plans may be terminated with respect to any Fund or
class of shares thereof at any time on 60 days' written notice
without payment of any penalty by the Principal Underwriter or by
vote of a majority of the outstanding voting securities of that
Fund or that class (as appropriate) or by vote of a majority of
the Qualified Trustees.
The Plans will continue in effect with respect to each
Fund and each class of shares thereof for successive one-year
periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Qualified Trustees
and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
For services rendered by the Principal Underwriter in
connection with the distribution of Class A shares pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $26,650 with respect to the Class A shares of the
Strategic Balanced Fund and $27,148 with respect to the Class A
shares of Growth Fund for the fiscal year ended July 31, 1995 and
for the period May 1 through October 31, 1994, respectively.
For services rendered by the Principal Underwriter in
connection with the distribution of Class B shares pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $95,168 with respect to the Class B shares of the
Strategic Balanced Fund and $184,574 with respect to the Class B
Shares of the Growth Fund for the fiscal year ended July 31, 1995
and for the period May 1 through October 31, 1994, respectively.
For services rendered by the Principal Underwriter in
connection with the distribution of Class C shares pursuant to
the Plan applicable to such shares, the Principal Underwriter
received $28,755 with respect to the Class C shares of the
Strategic Balanced Fund and $30,222 with respect to the Class C
shares of the Growth Fund for the fiscal year ended July 31, 1995
and for the period May 1 through October 31, 1994, respectively.
48
<PAGE>
The Principal Underwriter has informed the Trust that
expenses incurred by it and costs allocated to it in connection
with activities primarily intended to result in the sale of
Class A, Class B, and Class C shares, respectively, were as
follows for the periods indicated:
<TABLE>
STRATEGIC BALANCED FUND
_______________________
Amount of Expense and Allocated Cost
____________________________________
<CAPTION>
Class A Shares Class B Shares Class C Shares
(For the Fiscal (For the Fiscal (For the Fiscal
year ended year ended year ended
Category of Expense July 31, 1995) July 31, 1995) July 31, 1995)
___________________ _______________ _______________ _______________
<S> <C> <C> <C>
Advertising/Marketing $11,999 $42,533 $12,341
Printing and Mailing of $2,527 $5,862 $3,729
Prospectuses and Semi-Annual
and Annual Reports to Other
than Current Shareholders
Compensation to Underwriters $26,650 $95,168 $28,755
Compensation to Dealers $23,751 $239,175 $41,543
Compensation to Sales $1,013 $4,145 $1,456
Personnel
Interest, Carrying or Other -0- $119,209 -0-
Financing Charges
Other (includes personnel
costs of those home office
employees involved in the
distribution effort and the
travel-related expenses
incurred by the marketing
personnel conducting
seminars) $47,807 $149,168 $45,661
_______ ________ _______
$113,747 $655,260 $133,485
======== ======== ========
</TABLE>
49
<PAGE>
<TABLE>
GROWTH FUND
___________
Amount of Expense and Allocated Cost
____________________________________
<CAPTION>
Class A Shares Class B Shares Class C Shares
(For the Fiscal (For the Fiscal (For the Fiscal
year ended year ended year ended
October 31, October 31, October 31,
Category of Expense 1994) 1994) 1994)
___________________ _______________ _______________ _______________
<S> <C> <C> <C>
Advertising/Marketing $12,064 $80,938 $13,305
Printing and Mailing of
Prospectuses and Semi-Annual
and Annual Reports to Other
than Current Shareholders $20,866 $41,659 $21,064
Compensation to Underwriters $27,148 $184,574 $30,222
Compensation to Dealers $158,472 $13,344,410 $437,247
Compensation to Sales
Personnel $58,239 $553,547 $94,116
Interest, Carrying or Other
Financing Charges -0- -0- -0-
Other (includes personnel
costs of those home office
employees involved in the
distribution effort and the
travel-related expenses
incurred by the marketing
personnel conducting
seminars) $120,024 $239,504 $62,778
________ ________ _______
$396,813 $14,444,632 $658,732
======== =========== ========
50
<PAGE>
CUSTODIAL ARRANGEMENTS
State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA, 02110 ("State Street Bank") is the Trust's
custodian.
TRANSFER AGENCY ARRANGEMENTS
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Funds, plus reimbursement for out-of-pocket
expenses.
PURCHASE OF SHARES
The following information supplements that set forth in
the Funds' Prospectus under the heading "Purchase and Sale of
Shares --How To Buy Shares."
GENERAL
Shares of the Funds are offered on a continuous basis at
a price equal to their net asset value plus an initial sales
charge at the time of purchase (the "initial sales charge
alternative"), with a contingent deferred sales charge (the
"deferred sales charge alternative"), or without any initial or
contingent deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of the Funds are
offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers,
Inc. and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), or (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," the Funds offer an automatic investment program and a
403(b)(7) retirement plan which permit investments of $25 or
more. The subscriber may use the Subscription Application found
in the Prospectus for his or her initial investment. Sales
personnel of selected dealers and agents distributing the Funds'
shares may receive differing compensation for selling Class A,
Class B or Class C shares.
51
<PAGE>
Investors may purchase shares of the Funds in the United
States either through selected dealers or agents or directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible. The Funds may refuse any
order for the purchase of shares. The Funds reserve the right to
suspend the sale of their shares to the public in response to
conditions in the securities markets or for other reasons.
The public offering price of shares of the Funds is
their net asset value, plus, in the case of most purchases of
Class A shares, a sales charge which will vary depending on the
amount of the purchase, as shown in the table in the Prospectus.
On each Fund business day on which a purchase or redemption order
is received by a 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 Trust's Agreement and Declaration of Trust and By-Laws
as of the next close of regular trading on the New York Stock
Exchange (the "Exchange") (currently 4:00 p.m. New York time) by
dividing the value of the total assets attributable to a class,
less its liabilities, by the total number of its shares then
outstanding. The respective per share net asset values of the
Class A, Class B and Class C shares are expected to be
substantially the same. Under certain circumstances, however,
the per share net asset values of the Class B and Class C shares
may be lower than the per share net asset value of the Class A
shares as a result of the daily expense accruals of the
distribution and transfer agency fees applicable with respect to
the Class B and Class C shares. Even under those circumstances,
the per share net asset values of the three classes eventually
will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense
accrual differential among the classes. A Fund business day is
any weekday, exclusive of national holidays on which the Exchange
is closed and Good Friday. For purposes of this computation, the
securities in a Fund's portfolio are valued at their current
market value determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as
the Trustees believe would accurately reflect fair market value.
The Funds will accept unconditional orders for their
shares to be executed at the public offering price equal to their
net asset value next determined (plus applicable Class A sales
charges). Orders received by the Principal Underwriter prior to
the close of regular trading on the Exchange on each day the
Exchange is open for trading are priced at the net asset value
computed as of the close of regular trading on the Exchange on
that day (plus applicable Class A sales charges). In the case of
orders for purchase of shares placed through selected dealers or
agents, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer or
52
<PAGE>
agent receives the order prior to the close of regular trading on
the Exchange and transmits it to the Principal Underwriter prior
to its close of business that same day (normally 5:00 p.m. New
York time). The selected dealer or agent is responsible for
transmitting such orders by 5:00 p.m. If the selected dealer or
agent fails to do so, the investor's right to that day's closing
price must be settled between the investor and the selected
dealer or agent. If the selected dealer or agent receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "Literature" telephone number
shown on the cover of this Statement of Additional Information.
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. New York
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, share 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 amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., the previous principal
underwriter of the Funds and an affiliate of the Principal
Underwriter ("Equico"), in connection with the sale of shares of
the Funds. Such additional amounts may be utilized, in whole or
in part, to provide additional compensation to registered
representatives who sell shares of the Funds. On some occasions,
such cash or other incentives will be conditioned upon the sale
of a specified minimum dollar amount of the shares of a Fund
53
<PAGE>
and/or other Alliance Mutual Funds, as defined below, during a
specified 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 incurred in connection with travel, lodging and
entertainment by persons associated with a dealer or agent and
their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
ALTERNATIVE PURCHASE ARRANGEMENTS
Each Fund issues three classes of shares: Class A
shares are sold to investors choosing the initial sales charge
alternative, Class B shares are sold to investors choosing the
deferred sales charge alternative, and Class C shares are sold to
investors choosing the asset-based sales charge alternative. The
three classes of shares each represent an interest in the same
portfolio of investments of a Fund, have the same rights and are
identical in all respects, except that (i) Class A shares bear
the expense of the initial sales charge (or contingent deferred
sales charge, when applicable) and Class B shares bear the
expense of the contingent deferred sales charge, (ii) Class B
shares and Class C shares each bear the expense of a higher
distribution services fee and in the case of Class B shares,
higher transfer agency costs, (iii) each class has exclusive
voting rights with respect to 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,
and (iv) only the Class B shares are subject to a conversion
feature. Each class has different exchange privileges and
certain different shareholder service options available.
The alternative purchase arrangements permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in a Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans) for more than $250,000 for Class B
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<PAGE>
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 $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, most investors purchasing Class A shares would not
have all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge. For example, based on current fees and
expenses, an investor subject to the 4.25% initial sales charge
would have to hold his or her investment approximately seven
years for the Class C distribution services fee to exceed the
initial sales charge plus the accumulated distribution services
fee of Class A shares. In this example, an investor intending to
maintain his or her investment for a longer period might consider
purchasing Class A shares. This example does not take into
account the time value of money, which further reduces the impact
of the Class C distribution services fees on the investment,
fluctuations in net asset value or the effect of different
performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
period during which Class B shares are subject to a contingent
deferred sales charge may find it more advantageous to purchase
Class C shares.
The Trustees of the Trust have determined that currently
no conflict of interest exists between or among the Class A,
Class B and Class C shares. On an ongoing basis, the Trustees of
the Trust, pursuant to their fiduciary duties under the 1940 Act
and state laws will seek to ensure that no such conflict arises.
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<PAGE>
INITIAL SALES CHARGE ALTERNATIVE--CLASS A SHARES
The public offering price of Class A shares for
purchasers choosing the initial sales charge alternative is the
net asset value plus a sales charge, as set forth below:
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
_________ ________ ________ __________
Less than
$100,000 . . . .4.44% 4.25% 4.00%
$100,000 but
less than
250,000 . . . .3.36 3.25 3.00
250,000 but
less than
500,000 . . . .2.30 2.25 2.00
500,000 but
less than
1,000,000*. . .1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, and such charge will be applied to
redemptions of shares by shareholders who hold both Class A
shares and Class B shares, as described below under "Deferred
Sales Charge Alternative--Class B Shares." Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Funds
in connection with sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling
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<PAGE>
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 Rule 12b-1 Plans 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, or (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge. The Funds receive the entire net asset value of
their Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown in the
Prospectus 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 in the Prospectus. The Principal
Underwriter may, however, elect to reallow the entire sales
charge to selected dealers and agents for all sales with respect
to which orders are placed with the Principal Underwriter. A
selected dealer who receives a reallowance in excess of 90% of
such a sales charge may be deemed to be an "underwriter" under
the Securities Act of 1933, as amended.
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 Growth Fund aggregating less
than $100,000 subject to the schedule of sales charges set forth
in the Prospectus at a price based upon the net asset value of
Class A shares of the Fund on April 30, 1995.
Net Asset Value per Class A
Share at April 30, 1995 $25.52
Per Share Sales Charge - 4.25%
of offering price (4.43% of
net asset value per share) $ 1.13
Class A Per Share Offering Price
to the Public $26.65
======
During the Strategic Balanced Fund's fiscal year ended
July 31, 1995, the aggregate amount of underwriting commissions
payable with respect to Class A shares of the Fund was $44,654.
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<PAGE>
Of that amount, the Principal Underwriter received the amount of
$1,814, representing that portion of the sales charges paid on
Class A shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Strategic Balanced Fund's
fiscal year ended July 31, 1995, the Principal Underwriter
received $85,826 in contingent deferred sales charges.
During the Strategic Balanced Fund's fiscal year ended July 31,
1994, the aggregate amount of underwriting commissions payable
with respect to Class A shares of the Fund was $38,541. During
the Strategic Balanced Fund's fiscal year ended July 31, 1994,
the Principal Underwriter received $21,732 in contingent deferred
sales charges. During the Strategic Balanced Fund's fiscal year
ended April 30, 1994, the aggregate amount of underwriting
commissions payable with respect to Class A shares of the Fund
was $149,378. During the period August 2, 1993 through April 30,
1994, the Principal Underwriter received $53,292 in contingent
deferred sales charges, and during the period May 1, 1993 through
August 1, 1993 Equico received $7,146 in contingent deferred
sales charges with respect to the Strategic Balanced Fund.
During the Growth Fund's fiscal year ended October 31,
1994, the aggregate amount of underwriting commissions payable
with respect to Class A shares of the Fund was $3,061,478. Of
that amount, the Principal Underwriter received the amount of
$89,423, representing that portion of the sales charges paid on
Class A shares of the Fund sold during the year which was not
reallowed to selected dealers (and was, accordingly, retained by
the Principal Underwriter). During the Growth Fund's fiscal year
ended October 31, 1994, the Principal Underwriter received
$410,313 in contingent deferred sales charges. During the Growth
Fund's fiscal year ended April 30, 1994, the aggregate amount of
underwriting commissions payable with respect to Class A shares
of the Fund was $3,947,074. During the period August 2, 1993
through April 30, 1994, the Principal Underwriter received
$199,405 in contingent deferred sales charges, and during the
period May 1, 1993 through August 1, 1993 Equico received $67,835
in contingent deferred sales charges with respect to the Growth
Fund. During the Growth Fund's fiscal year ended April 30, 1993,
the aggregate amount of underwriting commissions payable with
respect to Class A shares of the Fund was $253,581. During the
Growth Fund's fiscal year ended April 30, 1993, Equico received
$102,633 in contingent deferred sales charges.
An investor choosing the initial sales charge
alternative may under certain circumstances be entitled to pay
reduced sales charges or no initial sales charge (but the shares
may nonetheless be subject in most cases to a contingent deferred
sales charge.) The circumstances under which such investors may
pay reduced sales charges are described below.
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<PAGE>
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges shown in the Prospectus by combining purchases of
shares of a 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 a 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 that 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 a
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 Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, 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
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<PAGE>
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 Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
-Alliance Strategic Balanced Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown on
the front cover of this Statement of Additional Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of a Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all Class A,
Class B and Class C shares of the Fund held
by the investor and (b) all shares of any
other Alliance Mutual Fund held by the
investor; and
(iii) the net asset value of all shares described
in paragraph (ii) owned by another
shareholder eligible to combine his or her
purchase with that of the investor into a
single "purchase" (see above).
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<PAGE>
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced initial sales charges shown in the Prospectus
by means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and/or
Class C shares) of a 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 a 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 a 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 initial
sales charge on the total amount being invested, i.e., the
initial sales charge applicable to an investment of $100,000.
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher initial
sales charge applicable to the shares actually purchased if the
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<PAGE>
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 initial sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The difference in
the initial sales charge will be used to purchase additional
shares of a Fund subject to the rate of the initial sales charge
applicable to the actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
a 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 a Fund or
any other Alliance Mutual Fund at a reduced initial sales charge
on a monthly basis during the 13-month period following such a
plan's initial purchase. The initial sales charge applicable to
such initial purchase of shares of a Fund will be that normally
applicable, under the schedule of the initial sales charges set
forth above, to an investment 13 times larger than such initial
purchase. The sales charge applicable to each succeeding monthly
purchase will be that normally applicable, under such schedule,
to an investment equal to the sum of (i) the current month's
purchase multiplied by the number of months (including the
current month) remaining in the 13-month period, and (ii) the
total purchase previously made during the 13-month period. Sales
charges previously paid during such period will not be
retroactively adjusted on the basis of later purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A shares of a Fund to be redeemed
or repurchased may reinvest all or any portion of the redemption
or repurchase proceeds in Class A shares of the Fund at net asset
value without any sales charge, provided that such reinvestment
is made within 120 calendar days after the redemption or
repurchase date. Shares are sold to a reinvesting shareholder at
the net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal tax purposes except
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<PAGE>
that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund. The reinstatement
privilege may be used by the shareholder only once, irrespective
of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with
transactions whose sole purpose is to transfer a shareholder's
interest in a Fund to his or her individual retirement account or
other qualified retirement plan account. Investors may exercise
the reinstatement privilege by written request sent to a Fund at
the address shown on the cover of this Statement of Additional
Information.
SALES AT NET ASSET VALUE. The Funds may sell their
Class A shares at net asset value (i.e., without any initial
sales charge) and without any contingent deferred sales charge to
certain categories of investors including: (i) investment
advisory clients of the Adviser or its affiliates; (ii) officers
and present or former Trustees of the Trust; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser; officers, directors and present or retired full-time
employees 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 relevant
Fund); (iii) certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; (iv) persons participating in a fee-based
program, sponsored and maintained by a registered broker-dealer
and approved by the Principal Underwriter, pursuant to which such
persons pay an asset-based fee to such broker-dealer, or its
affiliate or agent, for service in the nature of investment
advisory or administrative services; (v) persons who establish to
the Principal Underwriter's satisfaction that they are investing
in the Fund, within such time period as may be designated by the
Principal Underwriter, proceeds of their redemption of shares of
such other registered investment companies as may be designated
from time to time by the Principal Underwriter; and (vi)
employer-sponsored qualified pension or profit-sharing plans
(including Section 401(k) plans), custodial accounts maintained
pursuant to Section 403(b)(7) retirement plans and individual
retirement accounts (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.
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<PAGE>
DEFERRED SALES CHARGE ALTERNATIVE--CLASS B SHARES
Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Funds 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 Funds 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 Funds to sell Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which
are redeemed within four 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 on or after November 19, 1993
an investor purchased 100 Class B shares at $10 per share (at a
cost of $1,000) and in the second year after purchase the net
asset value per share is $12 and, during such time, the investor
has acquired 10 additional Class B shares upon dividend
reinvestment. If at such time the investor makes his or her
first redemption of 50 Class B shares (proceeds of $600), 10
Class B shares will not be subject to charge because of dividend
reinvestment. With respect to the remaining 40 Class B shares,
the charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2 per share.
Therefore, $400 of the $600 redemption proceeds will be charged
at a rate of 3.0% (the applicable rate in the second year after
purchase).
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<PAGE>
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Year Since
Purchase Contingent Deferred Sales Charge for the
Subject to Funds as a % of Dollar Amount
Charge ________________________________________
___________
Shares purchased
Shares on or after Shares
purchased August 2, 1993, purchased
before but before on or after
August 2, 1993 November 19, 1993 November 19, 1993
______________ _________________ _________________
First 5.00% 5.50% 4.00%
Second 4.00% 4.50% 3.00%
Third 3.00% 3.50% 2.00%
Fourth 1.00% 2.50% 1.00%
Fifth None 1.50 None
Sixth None None None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed in the case of
Class B shares purchased on or after November 19, 1993, that the
redemption is first of any shares in the shareholder's Fund
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for over three years and
third of Class A shares that are subject to a contingent deferred
sales charge held shortest during the one-year period during
which such shares are subject to the sales charge. When Class B
shares acquired in an exchange are redeemed, the applicable
contingent deferred sales charge and conversion schedules will be
the schedules that applied to Class B shares of the Alliance
Mutual Fund originally purchased by the shareholder at the time
of their purchase.
The contingent deferred sales charges on Class A and
Class B shares are waived on redemptions of shares (i) following
the death or disability, as defined in the Internal Revenue Code
of 1986, as amended (the "Code"), of a shareholder, (ii) to the
extent that the redemption represents a minimum required
distribution from an individual retirement account or other
retirement plan to a shareholder who has attained the age of
70-1/2, (iii) that had been purchased by present or former
Trustees of the Trust, 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
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<PAGE>
of any such person or relative, or (iv) pursuant to a systematic
withdrawal plan (see "Shareholder Services - Systematic
Withdrawal Plan" below).
CONVERSION FEATURE. Class B shares purchased on or
after August 2, 1993 and held for eight years after the end of
the calendar month in which the shareholder's purchase order was
accepted will automatically convert to Class A shares and such
shares will no longer be subject to a higher distribution
services fee. Class B shares purchased before August 2, 1993 and
held for six years after the calendar month in which the
shareholder's purchase order was accepted will automatically
convert to Class A Shares at the end of this period. Such
conversions will be on the basis of the relative net asset values
of the two classes, without the imposition of any sales load, fee
or other charge. The purpose of the conversion feature is to
reduce the distribution services fee paid by holders of Class B
shares that have been outstanding long enough for the Principal
Underwriter to have been compensated for distribution expenses
incurred in the sale of such shares. See "Shareholder
Services--Exchange Privilege."
For purposes of conversion to Class A shares, 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
shares, an equal pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in a Fund's dividends or distributions
constituting "preferential dividends" under the Code, and
(ii) the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The
conversion of Class B shares to Class A shares may be suspended
if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of
Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee for an indefinite
period.
ASSET-BASED SALES CHARGE ALTERNATIVE--CLASS C SHARES
Investors choosing the asset-based sales charge
alternative purchase Class C shares at the public offering price
equal to the net asset value per share of the Class C shares on
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the date of purchase without the imposition of a sales charge
either at the time of purchase or upon redemption. Class C
shares are sold without an initial sales charge so that a Fund
will receive the full amount of the investor's purchase payment
and without a contingent deferred sales charge so that the
investor will receive as proceeds upon redemption the entire net
asset value of his or her Class C shares. The Class C
distribution services fee enables a Fund to sell Class C shares
without either an initial or contingent deferred sales charge.
Class C shares do not convert to any other class of shares and
incur higher distribution services fees than Class A shares, and
will thus have a higher expense ratio and pay correspondingly
lower dividends than Class A shares.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in
the Funds' Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares."
REDEMPTION
Subject only to the limitations described below, the
Funds will redeem the shares tendered to them, as described
below, at a redemption price equal to their net asset value as
next computed following the receipt of shares tendered for
redemption in proper form. Except for any contingent deferred
sales charge which may be applicable to Class A shares or Class B
shares, there is no redemption charge. Payment of the redemption
price will be made within seven days after a Fund's receipt of
such tender for redemption.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the SEC) exists as a result of which
disposal by a Fund of securities owned by it is not reasonably
practicable or as a result of which it is not reasonably
practicable for a Fund fairly to determine the value of its net
assets, or for such other periods as the Securities and Exchange
Commission may by order permit for the protection of security
holders of a Fund.
Payment of the redemption price may be made in cash. The
value of a shareholder's shares on redemption or repurchase may
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be more or less than the cost of such shares to the shareholder,
depending upon the market value of a Fund's portfolio securities
at the time of such redemption or repurchase. Redemption
proceeds on Class A shares and Class B shares will reflect the
deduction of the contingent deferred sales charge, if any.
Payment received by a shareholder upon redemption or repurchase
of his shares, assuming the shares constitute capital assets in
his 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 a 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 institution that is an "eligible guarantor" as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER.
Requests for redemption of shares for which no share certificates
have been issued can also be made 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 must be for
at least $500 and may not exceed $100,000, and must be made
between 9:00 a.m. and 4:00 p.m. New York time on a Fund business
day as defined above. Proceeds of telephone redemptions will be
sent by Electronic Funds Transfer to a shareholder's designated
bank account at a bank selected by the shareholder that is a
member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Except as noted below,
each Fund shareholder is eligible to request redemption, once in
any 30-day period, of Fund shares by telephone at (800) 221-5672
before 4:00 p.m. New York time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record.
Telephone redemption by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) purchased within 15
calendar days prior to the redemption request, (iv) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (v) held in any retirement plan
account. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
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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 Funds reserve the
right to suspend or terminate their telephone redemption service
at any time without notice. Neither the Funds nor the Adviser,
the Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that a Fund reasonably believes to be genuine.
Alliance Fund Services, Inc. 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 Alliance Fund
Services, Inc. did not employ such procedures, it could be liable
for losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers or agents may charge a commission
for handling telephone requests for redemptions.
To redeem shares of the Funds 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 relevant 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 relevant Fund.
The signature or signatures on the assignment form must be
guaranteed in the manner described above.
REPURCHASE
The Funds may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request (less the contingent deferred
sales charge, if any, with respect to the Class A shares and
Class B shares), except that requests placed through selected
dealers or agents before the close of regular trading on the
Exchange on any day will be executed at the net asset value
determined as of such close of regular trading on that day if
received by the Principal Underwriter prior to its close of
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business on that day (normally 5:00 p.m. New York time). The
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of a Fund to the Principal Underwriter either directly or
through a selected dealer or agent. Neither the Funds 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 shares and Class B
shares). Normally, if shares of the Funds are offered through a
selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Funds as described
above is a voluntary service of the Funds and the Funds may
suspend or terminate this practice at any time.
GENERAL
The Funds reserve the right to close out an account that
through redemption has remained below $200 for at least 60 days
after at least 30 days' written notice to the shareholder
subsequent to such period. 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 Funds
recently purchased by check, redemption proceeds will not be made
available until the relevant 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 Funds' Prospectus under the heading "Purchase and Sale of
Shares-Shareholder Services." The shareholder services set forth
below are applicable to all three classes of shares of the Funds.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Funds through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
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receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
EXCHANGE PRIVILEGE
Class A shareholders can exchange their Class A shares
for Class A shares of any other Alliance Mutual Fund that offers
Class A shares and for shares of Alliance World Income Trust,
Inc. without the payment of any sales or service charges. For
purposes of applying any applicable contingent deferred sales
charge upon the newly acquired Class A shares, the period of time
the Class A shares surrendered in the exchange have been held is
added to the period of time the newly acquired shares have been
held. Prospectuses for each Alliance Mutual Fund may be obtained
by contacting Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information or by
telephone at (800) 227-4618 or, in Illinois, (800) 227-4170.
Class B shareholders of the Funds can exchange their
Class B shares ("original Class B shares") for Class B shares of
any other Alliance Mutual Fund that offers Class B shares ("new
Class B shares") without the payment of any contingent deferred
sales or service charges. For purposes of computing both the
time remaining before the new Class B shares convert to Class A
shares of that fund and the contingent deferred sales charge
payable upon disposition of the new Class B shares, the period of
time for which the original Class B shares have been held is
added to the period of time for which the new Class B shares have
been held. After an exchange, new Class B shares will
automatically convert into Class A shares in accordance with the
conversion schedule applicable to the Alliance Mutual Fund Class
B shares originally purchased for cash, and when redemption
occurs, the contingent deferred sales charge schedule applicable
to the Class B shares originally purchased for cash is applied.
Class C shareholders of the Funds can exchange their
Class C shares for Class C shares of any other Alliance Mutual
Fund that offers Class C shares.
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All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for Federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer or agent, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc. receives written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus. Such
telephone requests cannot be accepted with respect to shares then
represented by share certificates. Shares acquired pursuant to a
telephone request for exchange will be held under the same
account registration as the shares redeemed through such
exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange at (800) 221-5672
between 9:00 a.m. and 4:00 p.m., New York time, on a Fund
business day as defined above. Telephone requests for exchange
received before 4:00 p.m. New York 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
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of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the following
Fund business day.
Neither the Alliance Mutual Funds nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that a Fund reasonably believes to be genuine. Alliance
Fund Services, Inc. will employ reasonable procedures in order to
verify that telephone requests for exchanges are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If Alliance Fund Services, Inc. did
not employ such procedures, it could be liable for losses arising
from unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to modify, restrict or
terminate the exchange privilege.
RETIREMENT PLANS
The Funds 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 Funds have available forms of
such plans pursuant to which investments can be made in a Fund
and other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "Literature" telephone number on the cover of this
Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 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 a Fund is
deferred until distribution from the IRA. An individual's
eligible contribution 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
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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.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan investing through
the Alliance Premier Retirement Program reaches $5 million on or
before December 15 in any year, all Class B shares or Class C
shares of the Fund held by such plan can be exchanged, without
any sales charge, for Class A shares of such Fund shortly before
the end of the calendar year in which the $5 million level is
attained. The Fund waives any contingent deferred sales charge
applicable to redemptions of Class B shares by qualified plans
investing through the Alliance Premier Retirement Program.
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
retirements 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 The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
plan prototype forms available from the Funds, 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 a 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.
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DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B or Class C account, a Class A, Class B or
Class C account with one or more other Alliance Mutual Funds may
direct that income dividends and/or capital gains paid on his or
her Class A, Class B or Class C shares be automatically
reinvested, in any amount, without the payment of any sales or
service charges, in shares of the same class of such other
Alliance Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
SYSTEMATIC WITHDRAWAL PLAN
General. Any shareholder who owns or purchases shares
of a 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 a Fund automatically reinvested in additional shares of that
Fund.
Shares of a Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal 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
relevant 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 a
Fund's involuntary redemption provisions. See "How to Sell
Shares--General." Purchases of additional shares concurrently
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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 a Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "Literature" telephone number shown on the cover of this
Statement of Additional Information.
Class B CDSC Waiver for shares acquired after July 1,
1995. Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B shares in a shareholder's account acquired after
July 1, 1995 may be redeemed free of any contingent deferred
sales charge. Class B shares acquired after July 1, 1995 that are
not subject to a contingent deferred sales charge (such as shares
acquired with reinvented dividends or distributions) will be
redeemed first and will count toward these limitations. Remaining
Class B shares acquired after July 1, 1995 that are held the
longest will be redeemed next. Redemptions of Class B shares
acquired after July 1, 1995 in excess of the foregoing
limitations and redemptions of Class B shares acquired before
July 1, 1995 will be subject to any otherwise applicable
contingent deferred sales charge.
STATEMENTS AND REPORTS
Each shareholder 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 Trust's
independent auditors, Price Waterhouse 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.
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NET ASSET VALUE
The net asset value of a share of each class is
determined by dividing the value, as of the close of regular
trading on the New York Stock Exchange (currently 4:00 p.m.), of
the net assets of the Fund represented by that class (i.e., the
value of the assets of the Fund allocated to that class less the
liabilities of the Fund allocated to that class, including
expenses payable or accrued) by the total number of shares of
such class then outstanding at such closing.
For purposes of this computation, readily marketable
portfolio securities, including open short positions, listed on
the Exchange are valued at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, then the security is valued at the mean
of the closing bid and asked prices on such day. If no bid and
asked prices are quoted on such day, then the security is valued
by such method as the Board of Trustees of the Trust shall
determine in good faith to reflect its fair market value.
Securities not listed on the Exchange but listed on other
national securities exchanges or admitted to trading on the
National Association of Securities Dealers Automatic Quotations,
Inc. ("Nasdaq") National List ("List") are valued in like manner.
Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the
business day as of which such value is being determined as
reflected on the tape at the close of the exchange representing
the principal market for such securities. Securities traded only
in the over-the-counter market, excluding those admitted to
trading on the List, are valued at the mean of the current bid
and asked prices therefor as reported by Nasdaq or, in the case
of securities not quoted by Nasdaq, the National Quotation Bureau
or such other comparable sources as the Board of Trustees of the
Trust deems appropriate to reflect the fair market value thereof.
Call options written or purchased by a Fund are valued at the
last sale price and put options purchased by a Fund are valued at
the last sale price. Readily marketable fixed-income securities
may be valued on the basis of prices provided by a pricing
service when such prices are believed by the Adviser to reflect
the fair market value of such securities. The prices provided by
a pricing service take into account institutional size trading in
similar groups of securities and any developments related to
specific securities. U.S. Government Securities and other debt
instruments having 60 days or less remaining until maturity are
stated at amortized cost if their original maturity was 60 days
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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 Trustees of the Trust
determines that this method does not represent fair value). All
other assets, including restricted securities of a Fund, are
valued in such manner as the Board of Trustees of the Trust in
good faith deems appropriate to reflect their fair market value.
The Trustees may suspend the determination of a Fund's
net asset value (and the offering and sales of shares), subject
to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
a Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
The assets belonging to the Class A shares, the Class B
shares and the Class C shares will be invested together in a
single portfolio.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each Fund intends to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code
for each taxable year. In order to qualify as a regulated
investment company, each Fund must, among other things,
(1) derive at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains
from the sale or other disposition of stock or securities,
foreign currencies or other income (including gains from options,
futures or forward contracts) derived with respect to its
business of investing in stock, securities or currencies,
(2) derive less than 30% of its gross income from the sale or
other disposition of stock, securities, options, futures, forward
contracts, and certain foreign currencies (or options, futures,
or forward contracts on foreign currencies held for less than
three months), and (3) diversify its holdings so that at the end
of each quarter of its taxable year (i) at least 50% of the
market value of the Fund's assets is represented by cash or cash
items, U.S. Government Securities, securities of other regulated
investment companies, and other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the value of
the Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
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assets is invested in the securities of any one issuer (other
than U.S. Government Securities or the securities of other
regulated investment companies) or of two or more issuers that
the Fund controls and that are engaged in the same, similar, or
related trades or businesses. These requirements may restrict
the degree to which the Fund may engage in short-term trading and
limit the range of the Fund's investments. If a Fund qualifies
as a regulated investment company, it will not be subject to
federal income tax on the part of its income distributed to
shareholders, provided the Fund distributes during its taxable
year at least (a) 90% of its taxable net investment income
(generally, dividends, interest, certain other income, and the
excess, if any, of net short-term capital gain over net long-term
loss), and (b) 90% of the excess of (i) its tax-exempt interest
income less (ii) certain deductions attributable to that income.
Each Fund intends to make sufficient distributions to
shareholders to meet this requirement. Investors should consult
their own counsel for a complete understanding of the
requirements the Funds 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 a Fund and assumes that each 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.
Dividends out of net ordinary income and distributions
of net short-term capital gains are taxable to shareholders as
ordinary income. The dividends-received deduction for
corporations should also be applicable to a Fund's dividends of
net investment income. The amount of such dividends and
distributions eligible for the dividends-received deduction is
limited to the amount of dividends from domestic corporations
received by a Fund during the fiscal year. Furthermore,
provisions of the tax law disallow the dividends-received
deduction to the extent a corporation's investment in shares of a
Fund is financed with indebtedness.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by a Fund to
its shareholders as capital gains distributions will not be
taxable to the Fund but will be taxable to the shareholders as
long-term capital gains, irrespective of the length of time a
shareholder may have held his Fund shares. Capital gains
distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution
received by a shareholder on shares of the Fund shortly after the
purchase of such shares by him or her will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. A loss on the sale of shares held for
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less than six months will be treated as a long-term capital loss
for Federal income tax purposes to the extent of any capital gain
distribution made with respect to such shares.
Dividends and distributions are taxable in the manner
described above regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of a
Fund.
For Federal income tax purposes, when equity call
options which a Fund has written expire unexercised, the premiums
received by the Fund give rise to short-term capital gains at the
time of expiration. When a call written by a Fund is exercised,
the selling price or purchase price of stock is increased by the
amount of the premium, and the gain or loss on the sale of stock
becomes long-term or short-term depending on the holding period
of the stock. There may be short-term gains or losses associated
with closing purchase transactions.
Each Fund is required to withhold and remit to the U.S.
Treasury 31% of all dividend income paid to any shareholder
account for which an incorrect or no taxpayer identification
number has been provided or where the Fund is notified that the
shareholder has under-reported income in the past (or the
shareholder fails to certify that he or she is not subject to
such withholding). In addition, the Fund will be required to
withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of shares of a shareholder account for
which an incorrect or no taxpayer identification number has been
provided.
The foregoing discussion relates only to U.S. Federal
income tax law as it affects U.S. shareholders. The effects of
Federal income tax law on non-U.S. shareholders 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 a Fund.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST
The Trust is organized as a Massachusetts business trust
under the laws of The Commonwealth of Massachusetts by an
Agreement and Declaration of Trust ("Declaration of Trust") dated
March 26, 1987, a copy of which is on file with the Secretary of
State of The Commonwealth of Massachusetts. The Trust is a
"series" company as described in Rule 18f-2 under the 1940 Act,
80
<PAGE>
having five separate portfolios, each of which is represented by
a separate series of shares. In addition to the Funds, the other
portfolios of the Trust are Alliance Short-Term U.S. Government
Fund, Alliance Conservative Investors Fund and Alliance Growth
Investors Fund.
The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of each series
and of each class of shares thereof. The shares of each Fund and
each class thereof do not have any preemptive rights. Upon
termination of any Fund or any class thereof, whether pursuant to
liquidation of the Trust or otherwise, shareholders of that Fund
or that class are entitled to share pro rata in the net assets of
that Fund or that class then available for distribution to such
shareholders.
The assets received by the Trust for the issue or sale
of the Class A, Class B and Class C shares of each Fund and all
income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of creditors, are allocated to, and constitute
the underlying assets of, the appropriate class of that Fund. The
underlying assets of each Fund and each class of shares thereof
are segregated and are charged with the expenses with respect to
that Fund and that class and with a share of the general expenses
of the Trust. While the expenses of the Trust are allocated to
the separate books of account of each Fund and each class of
shares thereof, certain expenses may be legally chargeable
against the assets of all Funds or a particular class of shares
thereof.
The Declaration of Trust provides for the perpetual
existence of the Trust. The Trust or any Fund, however, may be
terminated at any time by vote of at least a majority of the
outstanding shares of each Fund affected. The Declaration of
Trust further provides that the Trustees may also terminate the
Trust upon written notice to the shareholders.
CAPITALIZATION
Except as noted below under "Shareholder and Trustee
Liability," all shares of the Funds when duly issued will be
fully paid and non-assessable.
Set forth below is certain information as to all persons
who owned of record or beneficially 5% or more of any class of
the Funds' outstanding shares at October 13, 1995:
81
<PAGE>
NAMES AND ADDRESSES % OF CLASS
___________________ __________
GROWTH FUND - CLASS A
Merrill Lynch
Mutual Fund Operations 8.03%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
CLASS B
Merrill Lynch
Mutual Fund Operations 20.79%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
CLASS C
Merrill Lynch
Mutual Fund Operations 46.23%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
STRATEGIC BALANCED FUND - CLASS C
Merrill Lynch
Mutual Fund Operations 15.01%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Tri-M Corporation 401k
PS-Savings Plan 16.11%
204 Gale Lane, P.O. Box 69
Kennett Square, PA 19348-0069
Southern Colorado Clinic
PC 401k 26.82%
2002 Lake Ave.
Pueblo, CO 81004-3536
VOTING RIGHTS
As summarized in the Prospectus, shareholders are
entitled to one vote for each full share held (with fractional
votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination
82
<PAGE>
of the Trust or a Fund and on other matters submitted to the vote
of shareholders.
The By-Laws of the Trust provide that the shareholders
of any particular series or class shall not be entitled to vote
on any matters as to which such series or class is not affected.
Except with respect to matters as to which the Trustees have
determined that only the interests of one or more particular
series or classes are affected or as required by law, all of the
shares of each series or class shall, on matters as to which such
series or class is entitled to vote, vote with other series or
classes so entitled as a single class. Notwithstanding the
foregoing, with respect to matters which would otherwise be voted
on by two or more series or classes as a single class, the
Trustees may, in their sole discretion, submit such matters to
the shareholders of any or all such series or classes,
separately. Shares of each class of a Fund will vote separately
with respect to matters pertaining to the respective Distribution
Plans applicable to each class.
The terms "shareholder approval" and "majority of the
outstanding voting securities" as used in the Prospectus and this
Statement of Additional Information mean the lesser of (i) 67% or
more of the shares of the applicable Fund or applicable class
thereof represented at a meeting at which more than 50% of the
outstanding shares of such Fund or such class are represented or
(ii) more than 50% of the outstanding shares of such Fund or such
class.
There will normally be no meetings of shareholders for
the purpose of electing Trustees except that in accordance with
the 1940 Act (i) the Trust will hold a shareholders' meeting for
the election of Trustees at such time as less than a majority of
the Trustees holding office have been elected by shareholders,
and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been
elected by the shareholders, that vacancy may only be filled by a
vote of the shareholders. The Funds' shares have non-cumulative
voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so, and in such event the
holders of the remaining less than 50% of the shares voting for
such election of Trustees will not be able to elect any person or
persons to the Board of Trustees. A special meeting of
shareholders for any purpose may be called by 10% of the Trust's
outstanding shareholders.
Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees.
83
<PAGE>
No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding
shares of the Trust except (i) to change the Trust's name,
(ii) to establish, change or eliminate the par value of shares or
(iii) to supply any omission, cure any ambiguity or cure, correct
or supplement any defective or inconsistent provision contained
in the Declaration of Trust.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Trust. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification out of a Fund's property for all
loss and expense of any shareholder of that Fund held liable on
account of being or having been a shareholder. Thus, the risk of
a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund of which
he was a shareholder would be unable to meet its obligations.
The Declaration of Trust further provides that the
Trustees will not be liable for errors of judgment or mistakes of
fact or law. However, nothing in the Declaration of Trust
protects a Trustee against any liability to which the Trustee
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The By-Laws of the Trust
provide for indemnification by the Trust of the Trustees and the
officers of the Trust but no such person may be indemnified
against any liability to the Trust or the Trust's shareholders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
COUNSEL
Legal matters in connection with the issuance of the
shares of the Funds offered hereby are passed upon by Ropes &
Gray, One International Place, Boston, Massachusetts 02110.
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP, 1177 Avenue of the Americas, New
York, New York 10036, the independent accountants to the Trust,
is registered as a Registered Limited Liability Partnership (LLP)
under the laws of the State of Delaware.
84
<PAGE>
The financial statements of the Strategic Balanced Fund
for the fiscal year ended July 31, 1995, and of the Growth Fund
for the fiscal year ended October 31, 1994, which are included in
this Statement of Additional Information, have been audited by
Price Waterhouse LLP, the Trust's independent accountants for
such period, as stated in their report appearing herein, and have
been so included in reliance upon such report given upon the
authority of that firm as experts in accounting and auditing.
TOTAL RETURN QUOTATIONS
From time to time, a Fund may advertise its "total
return." Total return is computed separately for Class A,
Class B and Class C shares. Such advertisements disclose a
Fund's average annual compounded total return for recent one-
five-and ten-year periods (or the life of a Fund or class, if
shorter). Total return for each such period is computed by
finding, through the use of a formula prescribed by the SEC, the
average annual compounded rate of return over such period that
would equate an assumed initial amount invested to the value of
such investment at the end of the period. For purposes of
computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been
reinvested when received and the maximum sales charge applicable
to purchases of Fund shares is assumed to have been paid. A Fund
will include performance data for each of the Class A, Class B
and Class C shares in any advertisement or information including
performance data of the Fund.
The average annual compounded total return for Class A
shares of the Growth Fund was 1.65% for the one-year period ended
October 31, 1994, and 21.69% for the period September 4, 1990
(commencement of distribution of Class A shares) through
October 31, 1994. The average annual compounded total return for
Class B shares of the Growth Fund was 1.80% for the one-year
period ended October 31, 1994, 16.93% for the five-year period
ended October 31, 1994, and 20.17% for the period October 23,
1987 (commencement of distribution of Class B shares) through
October 31, 1994. The average annual compounded total return for
Class C shares of the Growth Fund was 2.06% for the one-year
period ended October 31, 1994 and 8.04% for the period August 2,
1993 (commencement of distribution of Class C shares) through
October 31, 1994. The average annual compounded total return for
Class A shares of the Strategic Balanced Fund was 7.63% for the
one-year period ended July 31, 1995 and 11.29% for the period
September 4, 1990 (commencement of distribution of Class A
shares) through July 31, 1995. The average annual compounded
total return for Class B shares of the Strategic Balanced Fund
was 7.63% for the one-year period ended July 31, 1995, 9.56% for
the five-year period ended July 31, 1995 and 12.08% for the
period October 23, 1987 (commencement of distribution of Class B
85
<PAGE>
shares) through July 31, 1995. The average annual compounded
total return for Class C shares of the Strategic Balanced Fund
was 11.62% for the one-year period ended July 31, 1995 and was
4.68% for the period August 2, 1993 (commencement of distribution
of Class C shares) through July 31, 1995.
A Fund's total return is not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type and quality of the securities in the Fund's portfolio and
the Fund's expenses. 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 return for a stated period of time.
An investor's principal invested in the Fund is not fixed and
will fluctuate in response to prevailing market conditions.
Advertisements quoting performance rankings of a Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
performance of such Fund, may also from time to time be sent to
investors or placed in newspapers and magazines such as The
New York Times, The Wall Street Journal, Barrons, Investor's
Daily, Money Magazine, Changing Times, Business Week and Forbes
or other media on behalf of such Fund.
ADDITIONAL INFORMATION
This Statement of Additional Information does not
contain all the information set forth in the Registration
Statement filed by the Trust with the SEC under the Securities
Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the SEC or may be examined,
without charge, at the offices of the SEC in Washington, D.C.
86
<PAGE>
PORTFOLIO OF INVESTMENTS
JULY 31, 1995 ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS-74.3%
TECHNOLOGY-21.4%
AEROSPACE & DEFENSE-2.7%
Boeing Co. 18,000 $1,206,000
Coltec Industries, Inc.* 15,000 228,750
1,434,750
COMPUTERS-5.5%
Bay Networks, Inc.* 25,000 1,121,875
Ceridian Corp.* 31,900 1,319,863
Compuware Corp.* 17,000 429,250
2,870,988
ELECTRONICS-1.5%
Applied Materials, Inc.* 5,000 517,500
National Semiconductor Corp.* 10,000 270,000
787,500
TELECOMMUNICATIONS-6.6%
AirTouch Communications, Inc.* 15,300 481,950
Cox Communications, Inc* 35,000 708,750
General Instrument Corp.* 12,000 442,500
Scientific-Atlanta, Inc.* 30,600 657,900
Tele-Communications, Inc. Cl.A* 15,000 375,000
Vodafone Group Plc (ADR)(a) 20,700 815,062
3,481,162
MISCELLANEOUS-5.1%
ITT Corp. 22,400 2,688,000
11,262,400
CONSUMER NONCYCLICALS-11.6%
DRUGS-7.4%
Glaxo Wellcome Plc (ADR)(a) 30,000 720,000
Lilly (Eli) & Co. 9,000 704,250
Upjohn Co. 30,000 1,155,000
Warner-Lambert Co. 15,500 1,302,000
3,881,250
HOSPITAL SUPPLIES & SERVICES-0.6%
AMSCO International Inc.* 15,000 $279,375
TOBACCO-3.6%
Philip Morris Cos., Inc. 26,500 1,898,062
6,058,687
BUSINESS SERVICES-9.9%
BROADCASTING-3.5%
Cablevision Systems Corp.* 16,500 1,132,312
Comcast Corp. Cl.A SPL 35,000 708,750
1,841,062
ENVIRONMENTAL CONTROL-2.1%
WMX Technologies, Inc 35,000 1,093,750
PAPER & FOREST PRODUCTS-1.5%
Champion International Corp. 14,000 789,250
PRINTING, PUBLISHING & BROADCASTING-2.8%
Clear Channel Communications, Inc.* 8,000 535,000
Infinity Broadcasting Corp. Cl.A* 25,000 925,000
1,460,000
5,184,062
CONSUMER CYCLICALS-9.5%
AUTOS & TRUCKS-0.5%
General Motors Corp. 6,000 255,000
LEISURE RELATED-6.8%
Cyrk International Inc.* 30,900 351,488
Eastman Kodak Co. 31,500 1,815,187
Gaylord Entertainment Co. Cl.A* 12,915 353,548
Loews Corp. 5,000 601,875
Time Warner, Inc. 10,000 428,750
3,550,848
5
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
RETAIL - GENERAL-2.2%
Fingerhut Cos., Inc. 69,300 $1,160,775
4,966,623
BASIC MATERIALS-8.5%
CHEMICALS-6.4%
Hercules, Inc. 20,000 1,072,500
IMC Fertilizer Group, Inc. 18,000 1,084,500
Monsanto Co. 12,800 1,192,000
3,349,000
ENVIRONMENTAL CONTROL-2.1%
Wellman, Inc. 41,500 1,115,313
METALS & MINING-0.0%
Nord Resources Corp.* 812 2,639
4,466,952
CREDIT SENSITIVE-8.0%
INSURANCE-6.4%
Aetna Life & Casualty Co. 6,000 371,250
American International Group, Inc. 10,650 798,750
Life Re Corp. 30,000 536,250
TIG Holdings, Inc. 18,100 447,975
Transatlantic Holdings, Inc. 18,000 1,188,000
3,342,225
UTILITY - TELEPHONE-1.6%
Telephone and Data Systems, Inc. 21,800 844,750
4,186,975
ENERGY-3.5%
OIL & GAS-3.5%
Atlantic Richfield Co. 5,000 576,250
Louis Dreyfus Natural Gas Corp.* 12,200 164,700
Louisiana Land &
Exploration Co. 10,000 397,500
Occidental Petroleum Corp. 30,000 675,000
1,813,450
SHARES OR
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ----------------------------------------------------------------------
CAPITAL GOODS-1.2%
MACHINERY-1.2%
Trinity Industry, Inc. 11,000 $ 368,500
York International Corp. 5,500 253,688
622,188
COMMERCIAL SERVICES-0.7%
Ideon Group, Inc. 35,200 369,600
Total Common Stocks (cost $35,336,818) 38,930,937
LONG-TERM DEBT SECURITIES-24.0%
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-21.3%
Federal National Mortgage Association
6.00%, 12/01/09 $1,411 1,357,158
U.S. Treasury Bonds
6.25%, 8/15/23 1,400 1,284,934
7.625%, 2/15/25 335 367,401
U.S. Treasury Notes
6.125%, 5/15/98 2,000 2,006,240
6.50%, 5/15/05 815 818,692
7.75%, 1/31/00 5,000 5,301,550
11,135,975
MISCELLANEOUS-2.7%
BCH Cayman Islands
8.25%, 6/15/04 450 467,397
Liberty Mutual Insurance Co.
8.50%, 5/15/25(b) 525 528,659
Republic of Italy
6.875%, 9/27/23 500 436,715
1,432,771
6
ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
COMPANY (000) VALUE
- ----------------------------------------------------------------------
Total Long-Term Debt Securities
(cost $12,291,581) $12,568,746
SHORT-TERM DEBT
SECURITIES-2.5%
Federal Home Loan Mortgage Corp.
5.75%, 8/01/95
(amortized cost $1,300,000) $1,300 1,300,000
VALUE
- ----------------------------------------------------------------------
TOTAL INVESTMENTS-100.8%
(cost $48,928,399) $52,799,683
Other assets less liabilities-(0.8%) (433,753)
NET ASSETS-100% $52,365,930
* Non-income producing security.
(a) Country of origin - United Kingdom.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to certain qualified institutional buyers. At July 31, 1995, this
security amounted to $528,659 representing 1.0% of net assets.
Glossary:
ADR - American Depository Receipt
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995 ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $48,928,399) $52,799,683
Cash 92,758
Receivable for shares of beneficial interest sold 515,449
Receivable for investment securities sold 370,648
Receivable due from adviser 50,370
Interest and dividends receivable 147,697
Deferred organization expenses 951
Total assets 53,977,556
LIABILITIES
Payable for investment securities purchased 1,010,660
Payable for shares of beneficial interest redeemed 410,779
Distribution fee payable 37,926
Accrued expenses 152,261
Total liabilities 1,611,626
NET ASSETS $52,365,930
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 33
Additional paid-in capital 47,481,990
Undistributed net investment income 482,409
Accumulated net realized gain on investments 541,071
Net unrealized appreciation on investments and other assets 3,860,427
$52,365,930
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($10,952,356/609,269
shares of beneficial interest issued and outstanding) $17.98
Sales charge-4.25% of public offering price .80
Maximum offering price $18.78
CLASS B SHARES
Net asset value and offering price per share ($37,300,701/2,397,785
shares of beneficial interest issued and outstanding) $15.56
CLASS C SHARES
Net asset value, redemption and offering price per share($4,112,873/
264,193 shares of beneficial interest issued and outstanding) $15.57
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995 ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Interest $1,339,107
Dividends (net of foreign taxes withheld of $4,918) 517,597
$1,856,704
EXPENSES
Advisory fee 400,593
Distribution fee - Class A 29,183
Distribution fee - Class B 395,190
Distribution fee - Class C 41,658
Transfer agency 123,873
Custodian 81,778
Registration 65,206
Audit and legal 60,406
Trustees' fees 28,000
Printing 22,117
Amortization of organization expenses 7,300
Miscellaneous 9,670
Total expenses 1,264,974
Less: expenses waived and assumed by adviser
(see Note B) (211,406)
Net expenses 1,053,568
Net investment income 803,136
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,585,794
Net change in unrealized appreciation of investments 3,225,074
Net gain on investments 4,810,868
NET INCREASE IN NET ASSETS FROM OPERATIONS $5,614,004
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
YEAR ENDED MAY 1, 1994 YEAR ENDED
JULY 31, TO JULY 31, APRIL 30,
1995 1994* 1994
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 803,136 $ 151,149 $ 509,064
Net realized gain (loss) on
investments 1,585,794 (279,249) 1,846,056
Net change in unrealized appreciation
of investments 3,225,074 (677,270) (1,190,672)
Net increase (decrease) in net assets
from operations 5,614,004 (805,370) 1,164,448
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (128,387) -0- (104,771)
Class B (351,616) -0- (329,947)
Class C (36,666) -0- (5,749)
Net realized gain on investments
Class A (20,950) -0- (507,212)
Class B (105,192) -0- (2,851,133)
Class C (10,969) -0- (47,095)
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Net increase (decrease) (10,129,045) 612,180 15,616,965
Total increase (decrease) (5,168,821) (193,190) 12,935,506
NET ASSETS
Beginning of period 57,534,751 57,727,941 44,792,435
End of period (including undistributed
net investment income of $482,409,
$159,778 and $8,629, respectively) $52,365,930 $57,534,751 $57,727,941
* The Fund changed its fiscal year end from April 30 to July 31.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Strategic Balanced Fund, formerly Alliance Balanced Fund (the "Fund"),
a series of The Alliance Portfolios (the "Trust"), is registered under the
Investment Company Act of 1940, as a diversified, open-end investment company.
Prior to August 2, 1993, the Trust was known as The Equitable Funds, and the
Fund was known as The Equitable Balanced Fund. Class A shares are sold with a
front-end sales charge of up to 4.25%. Class B shares are sold with a
contingent deferred sales charge which declines from 4% to zero depending on
the period of time the shares are held. Shares purchased before August 2, 1993
and redeemed within six years of purchase are subject to different rates than
shares purchased after that date. Class C shares are sold without an initial or
contingent deferred sales charge. The shares also bear different distribution
fees. All three classes of shares have identical voting, dividend, liquidation
and other rights with respect to its distribution plan. The following is a
summary of significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on national securities exchanges are valued at the
last sales price or, if no sale occurred, at the mean of the bid and asked
price at the regular close of the New York Stock Exchange. Securities traded
on the over-the-counter market are valued at the mean of the closing bid and
asked price. Securities for which current market quotations are not readily
available (including investments which are subject to limitations as to their
sale) are valued at their fair value as determined in good faith by the Board
of Trustees. The Board of Trustees has further determined that the value of
certain portfolio debt securities, other than temporary investments in short
term securities, be determined by reference to valuations obtained from a
pricing service. Restricted securities are valued at fair value as determined
by the Board of Trustees. Securities which mature in 60 days or less are valued
at amortized cost, which approximates market value. The ability of issuers of
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $30,000 have been deferred and are being
amortized on a straight-line basis through September, 1995.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily. Security transactions are accounted for on the date securities
are purchased or sold. Security gains and losses are determined on the
identified cost basis. The Fund accretes discounts and amortizes premiums as
adjustments to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
6. INCOME AND EXPENSES
All income earned, and expenses incurred by the Fund are borne on a pro-rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares of such class, except that the Funds'
Class B and Class C shares bear higher distribution and transfer agent fees.
Expenses attributable to the Fund are charged to the Fund. Expenses of the
Trust are charged to the Fund in proportion to net assets.
11
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to July 22, 1993, Equitable Capital Management Corporation (Equitable
Capital) served as the investment adviser to the Trust. On July 22, 1993,
Alliance Capital Management, L.P. (Alliance) acquired the business and
substantially all of the assets of Equitable Capital and became the investment
adviser to the Trust.
Under the terms of an investment advisory agreement, the Fund pays Alliance an
advisory fee at an annual rate of .75% of the Fund's average daily net assets.
Under the old agreement the fee charge was the same. Such fee is accrued daily
and paid monthly. The Investment Adviser has agreed, under the terms of the
investment advisory agreement, to voluntarily waive its fees and bear certain
expenses so that total expenses do not exceed on an annual basis 1.40%, 2.10%
and 2.10% of average net assets, respectively, for the Class A, Class B and
Class C shares. Prior to August 2, 1993, the annual expense cap for Class B
Shares was 2.15%. For the year ended July 31, 1995, such reimbursement amounted
to $211,406. In addition to these voluntary arrangements, the Investment
Adviser will reduce its compensation, to the extent that expenses of the Fund
for any fiscal year (not including any distribution expenses paid by the Fund)
exceed the lowest applicable expense limitation prescribed by any state in
which the Fund's shares are qualified for sale. The Fund believes that the most
restrictive expense ratio limitation imposed by any state in which the Fund has
qualified its shares for sale is 2.5% of the first $30 million of the Fund's
average daily net assets, 2% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million.
The Fund has a Services Agreement with Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) to provide personnel and facilities to
perform transfer agency services for the Fund. Compensation under this
agreement amounted to $89,368 for the year ended July 31, 1995.
Alliance Fund Distributors, Inc. (a wholly owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $1,814 from the sale of Class A shares and $85,826
in contingent deferred sales charges imposed upon redemptions by shareholders
of Class B shares for the year ended July 31, 1995.
Brokerage commissions paid on securities transactions for the year ended July
31, 1995 amounted to $196,452, of which $240 was paid to brokers utilizing the
services of the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corp. ("DLJ"), an affiliate of the Adviser.
Accrued expenses includes amounts owed to two of the Trustees under a deferred
compensation plan, of $37,972.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. The Trustees currently limit payments under the Class A
plan to .30% of the Fund's average daily net assets attributable to Class A
shares. Prior to August 2, 1993, Equico Securities served as the distributor of
the Fund. The Fund paid a distribution fee to the distributor of .25% of the
Funds average daily net assets attributed to Class A shares. The Agreement
provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activities. The Distributor has
incurred expenses in excess of the distribution costs reimbursed by the Fund in
the amount of $759,314 and $219,442 for Class B and C shares, respectively;
such costs may be recovered from the Fund in future periods so long as the
Agreement is in effect. In accordance with the Agreement, there is no provision
for recovery of unreimbursed distribution costs, incurred by the Distributor,
beyond the current fiscal year for Class A shares. The Agreement also provides
that the Adviser may use its own resources to finance the distribution of the
Fund's shares.
12
ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $76,930,163 and $75,103,749, respectively, for the year ended July
31, 1995. There were purchases of $18,087,684 and sales of $15,054,315 of U.S.
Government and government agency obligations for the year ended July 31, 1995.
At July 31, 1995, the cost of securities for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $4,429,309 and gross unrealized
depreciation of investments was $558,025 resulting in net unrealized
appreciation of $3,871,284.
The Fund fully utilized its capital loss carryover of $765,373 to offset gain
realized during the year ended July 31, 1995.
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized divided into three classes, designated Class A, Class B and
Class C shares. Transactions in shares of beneficial interest were as follows:
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
----------------------------------------- ----------------------------------------
MAY 1, 1994 MAY 1, 1994
YEAR ENDED TO YEAR ENDED YEAR ENDED TO YEAR ENDED
JULY 31, JULY 31, APRIL 30, JULY 31, JULY 31, APRIL 30,
1995 1994** 1994 1995 1994** 1994
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 215,830 49,331 276,843 $ 3,566,155 $ 798,528 $ 4,797,182
Shares issued in reinvestment of
dividends and distributions 8,938 -0- 34,373 138,715 -0- 589,070
Shares redeemed (208,409) (53,073) (223,556) (3,417,256) (861,885) (3,785,573)
Net increase (decrease) 16,359 (3,742) 87,660 $ 287,614 $ (63,357) $ 1,600,679
CLASS B
Shares sold 323,750 185,371 916,638 $ 4,608,223 $ 2,621,004 $13,826,031
Shares issued in reinvestment of
dividends and distributions 30,603 -0- 202,615 412,834 -0- 3,027,444
Shares redeemed (1,047,251) (144,019) (493,204) (14,853,928) (2,029,917) (7,402,027)
Net increase (decrease) (692,898) 41,352 626,049 $(9,832,871) $ 591,087 $ 9,451,448
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
------------------------------------------ -----------------------------------------
MAY 1, 1994 AUGUST 2, MAY 1, 1994 AUGUST 2,
YEAR ENDED TO 1993* YEAR ENDED TO 1993*
JULY 31, JULY 31, TO JULY 31, JULY 31, TO
1995 1994** APRIL 30,1994 1995 1994** APRIL 30,1994
------------- ------------ ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C
Shares sold 88,024 42,010 357,421 $1,241,321 $594,022 $5,401,615
Shares issued in reinvestment of
dividends and distributions 3,015 -0- 2,365 40,701 -0- 35,078
Shares redeemed (132,830) (35,791) (60,021) (1,865,810) (509,572) (871,855)
Net increase (decrease) (41,791) 6,219 299,765 $(583,788) $84,450 $4,564,838
</TABLE>
* Commencement of distribution.
** The Fund changed its fiscal year end from April 30 to July 31.
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
NOTE F: RECLASSIFICATION OF COMPONENTS OF NET ASSETS
In accordance with Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies, permanent book and tax differences,
relating to shareholder distributions have been reclassified to additional
paid-in capital. As of July 31, 1995, the cumulative effect of such differences
totaling $36,164 was reclassified from undistributed net investment income to
additional paid in capital. Net investment income, net realized gains and net
assets were not affected by this change.
14
FINANCIAL HIGHLIGHTS ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------
MAY 1,1994
YEAR ENDED TO YEAR ENDED APRIL 30,
JULY 31, JULY 31, ------------------------------------------
1995 1994** 1994 1993 1992 1991(A)
----------- ---------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $16.26 $16.46 $16.97 $17.06 $14.48 $12.51
INCOME FROM INVESTMENT OPERATIONS
Net investment income * .34 .07 .16 .39 .27 .34
Net realized and unrealized gain (loss)
on investments 1.64 (.27) .74 .59 2.80 1.66
Net increase (decrease) in net asset
value from operations 1.98 (.20) .90 .98 3.07 2.00
LESS: DISTRIBUTIONS
Dividends from net investment income (.22) -0- (.24) (.42) (.17) (.03)
Distributions from net realized gains (.04) -0- (1.17) (.65) (.32) -0-
Total dividends and distributions (.26) -0- (1.41) (1.07) (.49) (.03)
Net asset value, end of period $17.98 $16.26 $16.46 $16.97 $17.06 $14.48
TOTAL RETURN
Total investment return based on
net asset value (b) 12.40% (1.22)% 5.06% 5.85% 20.96% 16.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $10,952 $9,640 $9,822 $8,637 $6,843 $443
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 1.40% 1.40%(c) 1.40% 1.40% 1.40% 1.40%(c)
Expenses, before waivers/
reimbursements 1.81% 1.94%(c) 1.70% 1.85% 2.05% 11.59%(c)
Net investment income 2.07% 1.63%(c) 1.67% 2.29% 1.92% 3.54%(c)
Portfolio turnover rate 172% 21% 139% 98% 103% 137%
</TABLE>
See footnote summary on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------------
MAY 1, 1994
YEAR ENDED TO YEAR ENDED APRIL 30,
JULY 31, JULY 31, --------------------------------------
1995 1994** 1994 1993 1992 1991
---------- ----------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $14.10 $14.30 $14.92 $15.51 $13.96 $12.40
INCOME FROM INVESTMENT OPERATIONS
Net investment income * .22 .03 .06 .23 .22 .43
Net realized and unrealized gain (loss)
on investments 1.40 (.23) .63 .53 2.70 1.60
Net increase (decrease) in net asset
value from operations 1.62 (.20) .69 .76 2.92 2.03
LESS: DISTRIBUTIONS
Dividends from net investment income (.12) -0- (.14) (.25) (.29) (.47)
Distributions from net realized gains (.04) -0- (1.17) (1.10) (1.08) -0-
Total dividends and distributions (.16) -0- (1.31) (1.35) (1.37) (.47)
Net asset value, end of period $15.56 $14.10 $14.30 $14.92 $15.51 $13.96
TOTAL RETURN
Total investment return based on
net asset value (b) 11.63% (1.40)% 4.29% 4.96% 20.14% 16.73%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period(000's omitted) $37,301 $43,578 $43,616 $36,155 $31,842 $22,552
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.10% 2.10%(c) 2.10% 2.15% 2.15% 2.10%
Expenses, before waivers/
reimbursements 2.49% 2.64%(c) 2.42% 2.56% 2.70% 2.93%
Net investment income 1.38% .92%(c) .93% 1.55% 1.34% 3.23%
Portfolio turnover rate 172% 21% 139% 98% 103% 137%
</TABLE>
See footnote summary on page 17.
16
ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
CLASS C
-----------------------------------
MAY 1,1994 AUGUST 2,
YEAR ENDED TO 1993(D)
JULY 31, JULY 31, TO
1995 1994** APRIL 30,1994
--------- --------- -------------
Net asset value, beginning of period $14.11 $14.31 $15.64
INCOME FROM INVESTMENT OPERATIONS
Net investment income * .16 .03 .15
Net realized and unrealized loss
on investments 1.46 (.23) (.17)
Net increase (decrease) in net asset
value from operations 1.62 (.20) (.02)
LESS: DISTRIBUTIONS
Dividends from net investment income (.12) -0- (.14)
Distributions from net realized gains (.04) -0- (1.17)
Total dividends and distributions (.16) -0- (1.31)
Net asset value, end of period $15.57 $14.11 $14.31
TOTAL RETURN
Total investment return based on
net asset value (b) 11.62% (1.40)% .45%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,113 $4,317 $4,289
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.10% 2.10%(c) 2.10%(c)
Expenses, before waivers/
reimbursements 2.50% 2.64%(c) 2.07%(c)
Net investment income 1.38% .93%(c) .69%(c)
Portfolio turnover rate 172% 21% 139%
* Net of fee waived and expenses reimbursed by the Adviser.
** The Fund changed its fiscal year end from April 30 to July 31.
(a) For the period September 4, 1990 (commencement of operations) to April 30,
1991.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges is not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Annualized.
(d) Commencement of distribution.
Prior to July 22, 1993, Equitable Capital Management Corporation (Equitable
Capital) served as investment adviser to the Trust. On July 22, 1993, Alliance
Capital Management L.P. acquired the business and substantially all of the
assets of Equitable Capital and became investment adviser for the Trust.
17
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE STRATEGIC BALANCED FUND
- -------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ALLIANCE STRATEGIC BALANCED FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Strategic Balanced Fund
(one of the portfolios of The Alliance Portfolios, hereafter referred to as the
"Fund") at July 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for the year then ended, for the period
May 1, 1994 to July 31, 1994, and for the year ended April 30, 1994, and the
financial highlights for each of the periods presented, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by mangement, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at July 31, 1995 by
correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
September 27, 1995
<PAGE>
PORTFOLIO OF INVESTMENTS
April 30, 1995 (unaudited) Alliance Growth Fund
- -------------------------------------------------------------------------------
Company Shares Value
- -------------------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS - 99.6%
TECHNOLOG Y - 27.5%
ELECTRONICS - 19.3%
cisco Systems, Inc.(b)* 1,549,000 $ 61,669,563
EMC Corp.* 2,059,300 40,671,175
General Instrument Corp.(b)* 1,004,200 34,268,325
Intel Corp.(b) 738,300 75,629,606
Micron Technology, Inc. 104,500 8,595,125
Motorola, Inc.(b) 926,800 52,711,750
273,545,544
OFFICE EQUIPMENT & SERVICES - 1.1%
Dell Computer Corp.* 203,051 11,104,352
Silicon Graphics, Inc.(b)* 137,000 5,137,500
16,241,852
TELECOMMUNICATIONS - 7.1%
Air - Touch Communications, Inc.* 1,170,700 31,462,562
DSC Communications Corp.(b) 986,000 36,420,375
Millicom International Cellular S.A.* 275,000 6,875,000
QUALCOMM, Inc.* 41,400 1,078,988
Rogers Cantel Mobile Communications, Inc. Cl.B* 571,500 13,644,562
United States Cellular Corp.* 259,700 7,531,300
Vodafone PLC (ADR) 125,000 3,984,375
100,997,162
390,784,558
CREDIT SENSITIVE - 27.1%
BANKS - 1.1%
First Chicago Corp. 110,000 2,131,250
MBNA Corp. 170,000 5,142,500
Shawmut National Corp. 302,000 8,003,000
15,276,750
FINANCIAL SERVICES - 4.5%
American Express Co. 335,000 $ 11,641,250
Capital One Financial Corp. 203,000 4,085,375
Dean Witter, Discover & Co.(b) 150,000 6,356,250
Federal National Mortgage Assn. 112,800 9,954,600
First USA, Inc. 112,000 4,760,000
Franchise Financial Corp. of America 200,000 3,950,000
JP Realty, Inc. 609,300 11,576,700
Mercury Finance Co. 144,800 2,190,100
Merrill Lynch & Co., Inc. 50,000 2,275,000
Student Loan Marketing Assn. 186,000 7,533,000
64,322,275
INSURANCE - 13.0%
20th Century Industries, Inc. 1,118,300 13,559,387
Acceptance Insurance Cos., Inc.* 465,600 7,100,400
American International Group, Inc. 527,900 56,353,325
Delphi Financial Group, Inc.* 149,000 2,514,375
Emphesys Financial Group, Inc. 39,400 1,039,175
General Reinsurance Corp. 10,300 1,311,963
John Alden Financial Corp. 876,500 15,886,562
MGIC Investment Corp. 21,400 906,825
PennCorp Financial Group, Inc. 484,500 8,357,625
PMI Group, Inc. 71,700 2,670,825
Progressive Corp. (Ohio) 187,500 7,078,125
PXRE Corp.
common 58,200 1,425,900
cv. pfd. 50,000 2,475,000
TIG Holdings, Inc. 341,600 7,686,000
Travelers, Inc. 1,257,000 52,008,375
USF&G Corp. 227,500 3,355,625
183,729,487
5
PORTFOLIO OF INVESTMENTS (continued) Alliance Growth Fund
- -------------------------------------------------------------------------------
Company Shares Value
- -------------------------------------------------------------------------------
REAL ESTATE - 7.4%
Amli Residential Properties Trust 204,000 $ 3,723,000
Associated Estates Realty Corp. 98,700 1,949,325
Avalon Properties, Inc. 60,700 1,191,238
CBL & Associates Properties, Inc. 244,000 4,758,000
Columbus Realty Trust 167,600 3,016,800
Essex Property Trust 201,900 3,280,875
Evans Withycombe Residential 77,500 1,453,125
First Industrial Realty Trust, Inc. 162,000 2,835,000
Gables Residential Trust 230,000 4,226,250
Highwoods Properties, Inc. 401,800 8,839,600
JDN Realty Corp. 59,500 1,100,750
Liberty Property, Inc. 85,000 1,583,125
Macerich Co. 391,400 7,876,925
Manufactured Home Communities, Inc. 235,000 3,701,250
Mid-America Apartment Communities, Inc. 75,700 1,892,500
Oasis Residential, Inc.
common 70,000 1,531,250
cv. pfd. 160,000 3,980,000
Paragon Group, Inc. 170,000 2,932,500
Regency Realty Corp. 39,000 619,125
Saul Centers, Inc. 238,000 4,016,250
Simon Property Group, Inc. 301,500 7,160,625
Spieker Properties, Inc. 211,200 4,118,400
Storage USA, Inc. 203,700 5,830,912
Summit Properties, Inc. 296,000 4,921,000
Sun Communities, Inc. 280,000 5,985,000
Tucker Properties Corp. 429,800 5,211,325
Walden Residential Properties, Inc. 222,100 4,275,425
Weeks Corp. 126,500 2,767,188
104,776,763
UTILITY-GAS - 0.6%
Enron Corp. 30,000 1,020,000
Renaissance Energy, Ltd. 334,000 7,554,060
8,574,060
UTILITY-TELEPHONE - 0.5%
Sprint Corp. 222,000 $ 7,326,000
384,005,335
CONSUMER NONCYCLICALS - 12.9%
DRUGS - 4.1%
Abbott Laboratories 274,000 10,788,750
Astra, Series A 400,000 11,671,920
Gensia, Inc.(a)* 68,500 573,688
Lilly (Eli) & Co. 41,000 3,064,750
Merck & Co., Inc. 378,000 16,206,750
Pfizer, Inc. 184,000 15,939,000
58,244,858
HOSPITAL SUPPLIES & SERVICES - 4.2%
Guidant Corp. 155,000 3,080,625
Healthsource, Inc.* 437,000 15,677,375
Quest Medical, Inc.* 265,225 2,320,719
U.S. Healthcare, Inc.(b) 629,100 16,749,787
United Healthcare Corp.(b) 608,900 22,072,625
59,901,131
TOBACCO - 4.6%
Loews Corp. 317,600 32,355,500
Philip Morris Cos., Inc. 484,000 32,791,000
65,146,500
183,292,489
CONSUMER CYCLICALS - 12.7%
AUTO & TRUCKS - 4.8%
Chrysler Corp.(b) 728,600 31,420,875
General Motors Corp.(b) 496,500 22,404,562
Cl.H 364,300 14,253,238
68,078,675
PHOTO & OPTICAL - 2.7%
Eastman Kodak Co. 655,700 37,702,750
RETAIL-GENERAL - 5.2%
Home Depot, Inc. 175,000 7,306,250
Sears Roebuck & Co. 1,237,500 67,134,375
74,440,625
180,222,050
6
Alliance Growth Fund
- -------------------------------------------------------------------------------
Company Shares Value
- -------------------------------------------------------------------------------
BUSINESS SERVICES - 8.2%
PRINTING, PUBLISHING & BROADCASTING - 8.1%
Chris-Craft Industries, Inc. 21,238 $ 716,783
Comcast Corp., Cl. A (SPL) 250,000 3,921,875
Donnelley (R.R.) & Sons Co. 539,200 18,332,800
Grupo Television S.A. de C.V. (ADR) 25,000 496,875
Tele-Communications, Inc. Cl.A(b)* 1,683,500 32,302,156
Time Warner, Inc. 158,600 5,808,725
Viacom, Inc. Cl.B* 1,160,745 53,249,177
114,828,391
RAILROADS & EQUIPMENT - 0.1%
Conrail, Inc. 20,300 1,108,887
115,937,278
BASIC MATERIALS - 4.5%
ALUMINUM - 0.0%
Kaiser Aluminum Corp. 25,000 281,250
CHEMICALS - 3.4%
Du Pont E I De Nemours & Co. 50,000 3,293,750
Great Lakes Chemical Corp. 309,100 18,159,625
Lubrizol Corp. 164,000 5,719,500
Monsanto Co. 179,000 14,901,750
Union Carbide Corp. 180,000 5,760,000
47,834,625
PAPER - 0.7%
Bowater, Inc. 200,000 7,650,000
Jefferson Smurfit Group PLC* 167,400 2,249,437
9,899,437
STEEL - 0.4%
AK Steel Holding Corp.* 18,900 $ 507,938
National Steel Corp. 432,000 5,508,000
6,015,938
64,031,250
ENERGY - 3.4%
OIL SUPPLIES & CONSTRUCTION - 3.4%
Apache Corp. 130,000 3,510,000
Baker Hughes, Inc. 103,000 2,317,500
Energy Service Co., Inc.* 228,475 3,826,956
Enron Oil & Gas Co. 100,100 2,289,788
Seagull Energy Corp. 294,000 5,218,500
Western Atlas, Inc.* 328,600 14,787,000
YPF S.A. (ADS) 809,000 16,382,250
48,331,994
CAPITAL GOODS - 2.6%
MACHINERY - 2.6%
Mannesmann AG (ADR) 135,000 36,723,645
CONSUMER BASICS - 0.4%
HOUSEHOLD
PRODUCTS - 0.4%
Colgate-Palmolive Co. 50,000 3,512,500
Corning, Inc. 80,000 2,670,000
6,182,500
CONSUMER SERVICES - 0.3%
HOTELS &
RESTAURANTS - 0.3%
McDonald's Corp. 100,000 3,500,000
DIVERSIFIED - 0.0%
Hanson PLC (ADR)* 839,000 209,750
warrants, 9/30/97* 1,000,000 245,413
455,163
Total Common Stocks & Other Investments
(cost $1,341,515,594) 1,413,466,262
7
PORTFOLIO OF INVESTMENTS (continued) Alliance Growth Fund
- -------------------------------------------------------------------------------
Contracts (c),
or Principal
Amount
Company (000) Value
- -------------------------------------------------------------------------------
LONG-TERM DEBT SECURITIES - 0.5%
ELECTRONICS- 0.5%
Cypress Semiconductor Corp.
3.15%, 3/15/01 (a)
(cost $6,093,732) $ 6,500 $ 7,491,250
SHORT-TERM DEBT SECURITIES - 1.9%
Federal Home Loan Bank
5.83%, 5/05/95 10,000 9,993,522
Federal Home Loan
Mortgage Corp.
5.85%, 5/01/95 11,200 11,200,000
5.95%, 5/03/95 5,200 5,198,281
16,398,281
Total Short-Term Debt Securities
(amortized cost $26,391,803) 26,391,803
TOTAL INVESTMENTS - 102.0%
(cost $1,374,001,129) 1,447,349,315
OUTSTANDING CALL OPTIONS WRITTEN - (1.1%)
Chrysler Corp.
expiring May 1995
@ $44.63 120 (9,600)
expiring May 1995
@ $45.50 100 (34,000)
expiring May 1995
@ $44.88 80 (23,200)
cisco Systems, Inc.
expiring May 1995
@ $35.00 100 (512,500)
expiring June 1995
@ $33.88 50 (343,000)
expiring June 1995
@ $36.38 150 (825,000)
expiring July 1995
@ $39.00 100 (362,500)
expiring July 1995
@ $39.50 100 (300,000)
Dean Witter, Discover & Co.
expiring May 1995
@ $40.00 50 $ (121,875)
DSC Communications Corp.
expiring May 1995
@ $31.88 200 (1,050,000)
expiring May 1995
@ $35.25 50 (121,875)
expiring May 1995
@ $36.13 50 (106,250)
expiring May 1995
@ $35.38 50 (118,750)
expiring June 1995
@ $35.75 50 (150,000)
expiring June 1995
@ $34.13 150 (678,000)
expiring July 1995
@ $34.13 100 (400,000)
General Instrument Corp.
expiring May 1995
@ $28.75 100 (412,500)
expiring July 1995
@ $35.13 100 (218,750)
General Motors Corp.
expiring May 1995
@ $39.13 210 (1,023,750)
Intel Corp.
expiring May 1995
@ $70.25 200 (6,500,000)
expiring July 1995
@ $94.38 100 (1,087,500)
Motorola, Inc.
expiring May 1995
@ $58.00 100 (50,000)
Silicon Graphics, Inc.
expiring June 1995
@ $34.88 50 (168,750)
Tele-Communications, Inc.
expiring May 1995
@ $21.75 20 (200)
expiring May 1995
@ $21.13 150 (18,750)
8
Alliance Growth Fund
- -------------------------------------------------------------------------------
Company Contracts(c) Value
- -------------------------------------------------------------------------------
expiring May 1995
@ $21.88 30 $ (300)
expiring June 1995
@ $20.75 40 (20,800)
U.S. Healthcare, Inc.
expiring May 1995
@ $44.00 100 (6,250)
expiring June 1995
@ $41.13 100 (12,500)
expiring June 1995
@ $45.25 150 (9,000)
expiring July 1995
@ $41.00 50 (12,500)
expiring July 1995
@ $30.00 100 (137,500)
United Healthcare Corp.
expiring June 1995
@ $42.38 100 (100,000)
expiring June 1995
@ $46.23 100 $ (312,500)
expiring July 1995
@ $44.50 100 (18,000)
expiring July 1995
@ $44.88 50 (9,000)
Total Outstanding Call
Options Written
(premiums received $9,646,493) (15,275,100)
TOTAL INVESTMENTS, NET OF OUTSTANDING
CALL OPTIONS WRITTEN - 100.9%
(cost $1,364,354,636) 1,432,074,215
Other assets less
liabilities - (0.9%) (12,183,079)
NET ASSETS - 100% $1,419,891,136
* Non-income producing.
(a) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. The securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At April 30,
1995 these securities amounted to $8,064,938 or 0.6% of net assets.
(b) Security on which options are written (shares subject to call have an
aggregate market value of $14,417,188).
(c) One contract relates to 100 shares.
See notes to financial statements.
9
STATEMENT OF ASSETS AND LIABILITIES
April 30, 1995 (unaudited) Alliance Growth Fund
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $1,374,001,129) $1,447,349,315
Cash 59,612
Receivable for shares of beneficial interest sold 15,171,510
Receivable for investment securities sold 8,159,203
Dividends and interest receivable 782,518
Deferred organization expenses 3,047
Total assets 1,471,525,205
LIABILITIES
Payable for investment securities purchased 32,776,521
Outstanding call options written, at value
(premiums received $9,646,493) 15,275,100
Payable for shares of beneficial interest redeemed 1,387,220
Distribution fee payable 1,011,233
Advisory fee payable 848,236
Accrued expenses 335,759
Total liabilities 51,634,069
NET ASSETS $1,419,891,136
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $644
Additional paid-in capital 1,359,191,209
Undistributed net investment income 394,973
Accumulated net realized loss on investments (7,340,019)
Net unrealized appreciation of investments, options
and other assets less liabilities 67,644,329
$1,419,891,136
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($213,280,750 /
8,358,699 shares of beneficial interest issued and outstanding) $25.52
Sales charge-4.25% of public offering price 1.13
Maximum offering price $26.65
CLASS B SHARES
Net asset value and offering price per share ($1,051,753,558 /
48,858,750 shares of beneficial interest issued and outstanding) $21.53
CLASS C SHARES
Net asset value, redemption and offering price per share
($154,856,828 / 7,191,000 shares of beneficial interest issued
and outstanding) $21.53
See notes to financial statements.
10
STATEMENT OF OPERATIONS
Six Months Ended April 30, 1995 (unaudited) Alliance Growth Fund
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends $10,440,947
Interest 1,689,517 $12,130,464
EXPENSES
Advisory fee 4,424,968
Distribution fee - Class A 277,475
Distribution fee - Class B 4,329,401
Distribution fee - Class C 645,678
Transfer agency 1,329,980
Registration 214,306
Printing 149,806
Custodian 91,604
Audit and legal 65,365
Trustees' fees 12,000
Amortization of organization expenses 3,620
Miscellaneous 3,547
Total expenses 11,547,750
Net investment income 582,714
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on securities transactions (6,977,741)
Net realized gain on options transactions 1,520,422
Net change in unrealized appreciation of securities 62,914,816
Net change in unrealized appreciation of options
and other assets less liabilities (5,920,502)
Net gain on investments 51,536,995
NET INCREASE IN NET ASSETS FROM OPERATIONS $52,119,709
11
STATEMENT OF CHANGES IN NET ASSETS Alliance Growth Fund
- -------------------------------------------------------------------------------
Six Months Ended May 1, 1994*
April 30, 1995 to
(unaudited) Oct. 31, 1994
--------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $582,714 $1,087,125
Net realized gain (loss) on investments (5,457,319) 7,686,932
Net change in unrealized appreciation of
investments, options and other assets less
liabilities 56,994,314 29,276,693
Net increase in net assets from operations 52,119,709 38,050,750
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (773,224) -0-
Class B (380,866) -0-
Class C (57,618) -0-
Net realized gain on investments
Class A (2,882,018) -0-
Class B (15,615,519) -0-
Class C (2,362,349) -0-
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 356,138,740 434,991,030
Total increase 386,186,855 473,041,780
NET ASSETS
Beginning of period 1,033,704,281 560,662,501
End of period (including undistributed net
investment income of $394,973 and
$1,023,967, respectively) $1,419,891,136 $1,033,704,281
* The Fund changed its fiscal year end from April 30 to October 31.
See notes to financial statements.
12
NOTES TO FINANCIAL STATEMENTS
April 30, 1995 (unaudited) Alliance Growth Fund
- -------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Growth Fund (the 'Fund'), a series of The Alliance Portfolios (the
'Trust'), is registered under the Investment Company Act of 1940, as a
diversified, open-end investment company. Prior to August 2, 1993, the Trust
was known as The Equitable Funds, and the Fund was known as The Equitable
Growth Fund. The Fund offers Class A, Class B and Class C shares. Class A
shares are sold with a front-end sales charge of up to 4.25%. Class B shares
are sold with a contingent deferred sales charge which declines from 4.00% to
zero depending on the period of time the shares are held. Shares purchased
before August 2, 1993 and redeemed within six years of purchase are subject to
different rates than shares purchased after that date. Class B shares purchased
on or after August 2, 1993 and held for a period ending eight years after the
end of the calendar month of purchase will convert to Class A shares. Class C
shares are sold without an initial or contingent deferred sales charge. All
three classes of shares have identical voting, dividend, liquidation and other
rights, except that each class bears different distribution expenses and has
exclusive voting rights with respect to its distribution plan. The following is
a summary of significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on national securities exchanges are valued at the
last sales price or, if no sale occurred, at the mean of the bid and asked
price at the regular close of the New York Stock Exchange. Securities traded on
the over-the-counter market are valued at the mean of the closing bid and asked
price. Securities for which current market quotations are not readily available
(including investments which are subject to limitations as to their sale) are
valued at their fair value as determined in good faith by the Board of
Trustees. The Board of Trustees has further determined that the value of
certain portfolio debt securities, other than temporary investments in
short-term securities, be determined by reference to valuations obtained from a
pricing service. Restricted securities are valued at fair value as determined
by the Board of Trustees. Securities which mature in 60 days or less are valued
at amortized cost, which approximates market value. The ability of issuers of
debt securities held by the Fund to meet their obligations may be affected by
economic developments in a specific industry or region.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $30,000 has been deferred and is being
amortized on a straight-line basis through September, 1995.
3. OPTION WRITING
When the Fund writes an option, an amount equal to the premium received by the
Fund is recorded as a liability and is subsequently adjusted to the current
market value of the option written. Premiums received from writing options
which expire unexercised are recorded by the Fund on the expiration date as
realized gains. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale in determining
whether the Fund has realized a gain or loss. As a writer of options, the Fund
bears the risk of unfavorable changes in the price of the financial instruments
underlying the options.
4. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Security transactions are accounted for on the date securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis. The Fund accretes discounts and amortizes premiums as adjustments
to interest income.
6. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
13
NOTES TO FINANCIAL STATEMENTS (continued) Alliance Growth Fund
- -------------------------------------------------------------------------------
7. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro rata
basis by each outstanding class of shares, based on the proportionate interest
in the Fund represented by the shares on such class, except that the Funds'
Class B and Class C shares bear higher distribution and transfer agent fees.
Expenses attributable to the Fund are charged to the Fund. Expenses of the
Trust are charged to the Fund in proportion to net assets.
8. CHANGE OF YEAR END
The Fund changed its fiscal year end from April 30 to October 31. Accordingly,
the changes in net assets and per share data and ratios reflect the period from
May 1, 1994 to October 31, 1994.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to July 22, 1993, Equitable Capital Management Corporation (Equitable
Capital) served as the investment adviser to the Trust. On July 22, 1993,
Alliance Capital Management, L.P. (Alliance) acquired the business and
substantially all of the assets of Equitable Capital and became the investment
adviser to the Trust.
Under the terms of an investment advisory agreement, the Fund pays Alliance an
advisory fee at an annual rate of .75% of the Fund's average daily net assets.
Such a fee is accrued daily and paid monthly. The Investment Adviser has
agreed, under the terms of the investment advisory agreement, to voluntarily
waive its fees and bear certain expenses so that total expenses do not exceed
on an annual basis 1.40%, 2.10% and 2.10% of average net assets, respectively,
for the Class A, Class B and Class C shares. Prior to August 2, 1993, the rate
for Class B shares was 2.15%. No reimbursement was required for the six months
ended April 30, 1995. In addition to these voluntary arrangements, the
Investment Adviser will reduce its compensation, to the extent that expenses of
the Fund for any fiscal year (not including any distribution expenses paid by
the Fund) exceed the lowest applicable expense limitation prescribed by any
state in which the Fund's shares are qualified for sale. The Fund believes that
the most restrictive expense ratio limitation imposed by any state in which the
Fund has qualified its shares for sale is 2.5% of the first $30 million of the
Fund's average daily net assets, 2% of the next $70 million of its average
daily net assets and 1.5% of its average daily net assets in excess of $100
million.
The Fund has a Services Agreement with Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) to provide personnel and facilities to
perform transfer agency services for the Fund. Compensation under this
agreement amounted to $956,509 for the six months ended April 30, 1995.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received net
front-end sales charges of $62,444 from the sale of Class A shares and $971,711
in contingent deferred sales charges imposed upon redemptions by shareholders
of Class B shares for the six months ended April 30, 1995.
Brokerage commissions paid on securities transactions for the six months ended
April 30, 1995 amounted to $1,276,977, none of which was paid to Donaldson,
Lufkin & Jenrette Securities Corp. ('DLJ'), an affiliate of the Adviser.
Trustees' fees and expenses payable include amounts owed to one of the Trustees
under a deferred compensation plan.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the 'Agreement')
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50 of 1% the Fund's average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to both
Class B and Class C shares. The Trustees currently limit payments under the
Class A plan to .30 of 1% the Fund's aggregate daily net assets attributable to
Class A shares. The Agreement provides that the Distributor will use such
payments in their entirety for distribution assistance and promotional
activities. The Distributor has incurred expenses in
14
Alliance Growth Fund
- -------------------------------------------------------------------------------
excess of the distribution costs reimbursed by the Fund in the amount of
$31,659,056, and $749,906, for Class B and C shares, respectively; such costs
may be recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement, there is no provision for recovery of
unreimbursed distribution costs incurred by the Distributor beyond the current
fiscal year for Class A shares. The Agreement also provides that the Adviser
may use its own resources to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $675,568,774 and $293,031,980 respectively, for the six months ended
April 30, 1995. There were purchases of $2,852,279,207 and sales of
$2,943,072,657 of U.S. Government and government agency obligations for the six
months ended April 30, 1995.
1. OPTION TRANSACTIONS
For hedging purposes, the Fund purchases and writes (sells) put and call
options on U.S. and foreign government securities and foreign currencies that
are traded on U.S. and foreign securities exchanges and over-the-counter
markets.
The risk associated with purchasing an option is that the Fund pays a premium
whether or not the option is exercised. Additionally, the Fund bears the risk
of loss of premium and change in market value should the counterparty not
perform under the contract. Put and call options purchased are accounted for in
the same manner as portfolio securities. The cost of securities acquired
through the exercise of call options is increased by premiums paid. The
proceeds from securities sold through the exercise of put options are decreased
by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as
a liability and is subsequently adjusted to the current market value of the
option written. Premiums received from writing options which expire unexercised
are recorded by the Fund on the expiration date as realized gains from option
transactions. The difference between the premium and the amount paid on
effecting a closing purchase transaction, including brokerage commissions, is
also treated as a realized gain, or if the premium is less than the amount paid
for the closing purchase transaction, as a realized loss. If a call option is
exercised, the premium is added to the proceeds from the sale of the underlying
security or currency in determining whether the Fund has realized a gain or
loss. If a put option is exercised, the premium reduces the cost basis of the
security or currency purchased by the Fund. In writing an option, the Fund
bears the market risk of an unfavorable change in the price of the security or
currency underlying the written option. Exercise of an option written by the
Fund could result in the Fund selling or buying a security or currency at a
price different from the current market value.
Transactions in options written for the six months ended April 30, 1995 were as
follows:
Number of
Contracts Premiums
--------- ------------
Options outstanding at beginning of year 1,500 $ 4,049,495
Options written 6,131 17,156,794
Options terminated in closing purchase transactions (2,088) (9,507,414)
Options expired (1,725) (937,922)
Options exercised (368) (1,114,460)
Options outstanding at April 30, 1995 3,450 $ 9,646,493
At April 30, 1995, the cost of securities for federal income tax purposes was
$1,376,016,083. Accordingly gross unrealized appreciation of investments was
$144,768,843 and gross unrealized depreciation of investments was $73,435,611
resulting in net unrealized appreciation of $71,333,232.
15
NOTES TO FINANCIAL STATEMENTS (continued) Alliance Growth Fund
- -------------------------------------------------------------------------------
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized divided into three classes, designated Class A, Class B and
Class C shares. Transactions in shares of beneficial interest were as follows:
Shares Amount
--------------------------- ----------------------------
Six Months Ended May 1,1994* Six Months Ended May 1,1994*
April 30,1995 to April 30,1995 to
(unaudited) Oct.31,1994 (unaudited) Oct.31,1994
------------- ------------ ------------- -------------
CLASS A
Shares sold 2,470,036 2,831,659 $ 60,646,656 $ 68,901,177
Shares issued in
reinvestment of
dividends and
distributions 136,788 -0- 3,174,842 -0-
Shares redeemed (939,040) (427,892) (23,111,998) (10,438,866)
Net increase 1,667,784 2,403,767 $ 40,709,500 $ 58,462,311
CLASS B
Shares sold 15,771,708 17,260,944 $327,607,697 $356,698,970
Shares issued in
reinvestment of
dividends and
distributions 631,579 -0- 12,397,903 -0-
Shares redeemed (2,979,535) (1,274,037) (61,847,663) (26,373,086)
Net increase 13,423,752 15,986,907 $278,157,937 $330,325,884
CLASS C
Shares sold 2,676,466 2,792,380 $ 55,628,864 $ 57,684,514
Shares issued in
reinvestment of
dividends and
distributions 61,296 -0- 1,203,861 -0-
Shares redeemed (941,379) (554,996) (19,561,422) (11,481,679)
Net increase 1,796,383 2,237,384 $ 37,271,303 $46,202,835
* The Fund changed its fiscal year end from April 30 to October 31.
** Commencement of distribution.
16
FINANCIAL HIGHLIGHTS Alliance Growth Fund
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
Class A
--------------------------------------------------------------------------------------
Six Months
Ended May 1, 1994 Year Ended April 30,
April 30, 1995 to Oct. 31, ------------------------------------------------------
(unaudited) 1994** 1994 1993 1992 1991(a)
-------------- ------------ ----------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $25.08 $23.89 $22.67 $20.31 $17.94 $13.61
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .08 .09 (.01)* .05* .29* .17*
Net realized and unrealized gain
on investments .88 1.10 3.55 3.68 3.95 4.22
Net increase in net asset value
from operations .96 1.19 3.54 3.73 4.24 4.39
LESS: DISTRIBUTIONS
Dividends from net investment income (.11) -0- -0- (.14) (.26) (.06)
Distributions from net realized gains (.41) -0- (2.32) (1.23) (1.61) -0-
Total dividends and distributions (.52) -0- (2.32) (1.37) (1.87) (.06)
Net asset value, end of period $25.52 $25.08 $23.89 $22.67 $20.31 $17.94
TOTAL RETURN
Total investment return based on
net asset value (b) 4.04% 4.98% 15.66% 18.89% 23.61% 32.40%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $213,281 $167,800 $102,406 $13,889 $8,228 $713
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.37%(c) 1.35%(c) 1.40% 1.40% 1.40% 1.40%(c)
Expenses, before waivers/reimbursements 1.37%(c) 1.35%(c) 1.46% 1.84% 1.94% 8.79%(c)
Net investment income .69%(c) .86%(c) .32% .20% 1.44% 1.99%(c)
Portfolio turnover rate 25% 24% 87% 124% 137% 130%
</TABLE>
See footnote summary on page 19.
17
FINANCIAL HIGHLIGHTS (continued) Alliance Growth Fund
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------------------
Six Months May 1, 1994
Ended to Year Ended April 30,
April 30, 1995 October 31, ----------------------------------------------------
(unaudited) 1994** 1994 1993 1992 1991(a)
-------------- ----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $21.21 $20.27 $19.68 $18.16 $16.88 $14.38
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) -0- .01 (.07)*(e) (.06)* .17* .08*
Net realized and unrealized gain
on investments .74 .93 2.98 3.23 3.67 3.22
Net increase in net asset value from
operations .74 .94 2.91 3.17 3.84 3.30
LESS: DISTRIBUTIONS
Dividends from net investment income (.01) -0- -0- (.03) (.21) (.09)
Distributions from net realized gains (.41) -0- (2.32) (1.62) (2.35) (.71)
Total dividends and distributions (.42) -0- (2.32) (1.65) (2.56) (.80)
Net asset value, end of period $21.53 $21.21 $20.27 $19.68 $18.16 $16.88
TOTAL RETURN
Total investment return based
on net asset value (b) 3.68% 4.64% 14.79% 18.16% 22.75% 24.72%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,051,753 $751,521 $394,227 $56,704 $37,845 $22,710
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.07%(c) 2.05%(c) 2.10% 2.15% 2.15% 2.10%
Expenses, before waivers/reimbursements 2.07%(c) 2.05%(c) 2.13% 2.52% 2.65% 3.06%
Net investment income (loss) (.01)%(c) .16%(c) (.36)% (.53)% .78% .56%
Portfolio turnover rate 25% 24% 87% 124% 137% 130%
</TABLE>
See footnote summary on page 19.
18
Alliance Growth Fund
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
Class C
------------------------------------------
Six Months May 1, 1994 August 2,
Ended to 1993 (d)
April30,1995 Oct. 31, to April 30,
(unaudited) 1994** 1994
------------- -------------- ------------
Net asset value, beginning of period $21.22 $20.28 $21.47
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) -0- .01 (.02)*
Net realized and unrealized gain
on investments .73 .93 1.15
Net increase in net asset value
from operations .73 .94 1.13
LESS: DISTRIBUTIONS
Dividends from net investment income (.01) -0- -0-
Distributions from net realized gains (.41) -0- (2.32)
Total dividends and distributions (.42) -0- (2.32)
Net asset value, end of period $21.53 $21.22 $20.28
TOTAL RETURN
Total investment return based
on net asset value (b) 3.63% 4.64% 5.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $154,857 $114,455 $64,030
Ratios to average net assets of:
Expenses, net of waivers/
reimbursements 2.07%(c) 2.05%(c) 2.10%(c)
Expenses, before waivers/
reimbursements 2.07%(c) 2.05%(c) 2.13%(c)
Net investment income (loss) (.01)%(c) .16%(c) (.31)%(c)
Portfolio turnover rate 25% 24% 87%
* Net of fee waived and expenses reimbursed by the Adviser.
** The Fund changed its fiscal year end from April 30 to October 31.
(a) For the period September 4, 1990 (commencement of distribution) to April
30, 1991.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total investment return calculated for a period
of less than one year is not annualized.
(c) Annualized.
(d) Commencement of distribution.
(e) Per share data based upon average monthly shares outstanding.
<PAGE>
Portfolio of Investments
October 31, 1994 Alliance Growth Fund
- -------------------------------------------------------------------------------
Company Shares Value
COMMON STOCKS & OTHER
INVESTMENTS--94.3%
CREDIT SENSITIVE--29.4%
BANKS--2.1%
Citicorp 110,000 $ 5,252,500
First Chicago Corp. 110,000 2,557,500
Grupo Financiero
Bancomer (ADR) (a)* 72,900 1,667,587
Shawmut National Corp. 582,000 12,003,750
-------------
21,481,337
-------------
FINANCIAL SERVICES--2.4%
American Express Co. 285,000 8,763,750
Franchise Financial
Corp. of America 200,000 3,700,000
JP Realty, Inc. 609,300 11,957,512
-------------
24,421,262
-------------
INSURANCE--15.1%
Acceptance Insurance Cos., Inc.* 428,400 7,015,050
American International
Group, Inc. 527,900 49,424,638
Delphi Financial Group, Inc.* 149,000 2,924,125
Emphesys Financial Group, Inc. 402,500 13,835,937
John Alden Financial Corp. 876,500 26,295,000
PennCorp Financial Group, Inc. 484,500 7,630,875
Progressive Corp. (Ohio) 155,000 5,890,000
PXRE Corp.
common 77,000 1,905,750
cv. pfd. 50,000 2,525,000
TIG Holdings, Inc. 351,600 6,768,300
Transnational Re Corp.* 108,300 2,138,925
Travelers, Inc. 550,000 19,112,500
20th Century Industries, Inc. 712,100 8,634,213
USF&G Corp. 115,000 1,566,875
-------------
155,667,188
-------------
REAL ESTATE--8.5%
Amli Residential Properties Trust 135,000 $ 2,565,000
Associated Estates Realty Corp. 75,000 1,415,625
Avalon Properties, Inc. 60,700 1,183,650
Bay Apartment Communities, Inc.* 44,000 858,000
CBL & Associates Properties, Inc. 244,000 4,575,000
Columbus Realty Trust 167,600 3,037,750
Equity Residential Properties
Trust, Inc. 105,000 3,136,875
Essex Property Trust 165,000 2,908,125
Evans Withycombe Residential 67,500 1,333,125
First Industrial Realty Trust, Inc. 75,000 1,462,500
Gables Residential Trust 125,000 2,687,500
Highwoods Properties, Inc. 148,300 3,058,687
JDN Realty Corp. 59,500 1,309,000
Liberty Property, Inc. 85,000 1,615,000
Macerich Co. 313,900 6,278,000
Manufactured Home Communities, Inc. 200,000 3,725,000
Mid-America Apartment Communities, Inc. 75,700 1,883,038
Oasis Residential, Inc. 70,000 1,636,250
Paragon Group, Inc. 170,000 3,421,250
Regency Realty Corp. 39,000 619,125
Saul Centers, Inc. 238,000 3,599,750
Simon Property Group, Inc. 181,500 4,333,313
Spieker Properties, Inc. 211,200 4,224,000
Storage USA, Inc. 203,700 5,117,963
Summit Properties, Inc. 94,000 1,633,250
Sun Communities, Inc. 280,000 6,300,000
Tucker Properties Corp. 429,800 7,145,425
Walden Residential Properties, Inc. 222,100 4,275,425
Weeks Corp. 126,500 2,640,688
-------------
87,978,314
-------------
<PAGE>
Company Shares Value
UTILITY/GAS--0.0%
Enron Corp. 9,300 $ 205,762
-------------
UTILITY/TELEPHONE--1.3%
PT Tri Puyta Indonesian
Satellite (ADS) 71,300 2,798,525
Sprint Corp. 340,000 11,092,500
-------------
13,891,025
-------------
303,644,888
-------------
TECHNOLOGY--23.2%
ELECTRONICS--14.7%
Advanced Micro Devices, Inc.* 415,200 10,950,900
cisco Systems, Inc.* 649,000 19,510,562
EMC Corp.* 1,161,000 24,961,500
General Instrument Corp.* 879,200 29,453,200
Intel Corp. 441,300 27,443,344
Motorola, Inc. 419,800 24,715,725
Texas Instruments, Inc. 193,000 14,450,875
-------------
151,486,106
-------------
OFFICE EQUIPMENT
SERVICES--2.2%
Dell Computer Corp.*
common 26,000 1,157,000
pfd. 69,800 13,096,225
Microsoft Corp.* 89,800 5,663,013
Silicon Graphics, Inc.* 110,000 3,341,250
-------------
23,257,488
-------------
TELECOMMUNICATIONS--6.3%
Air-Touch Communications, Inc.* 449,700 13,434,787
DSC Communications Corp.* 811,000 24,988,937
QUALCOMM, Inc.* 161,400 4,801,650
Rogers Cantel Mobile Communications,
Inc.* 445,500 13,615,594
United States Cellular Corp.* 249,700 8,208,888
-------------
65,049,856
-------------
239,793,450
-------------
CONSUMER CYCLICALS--12.5%
AUTO & TRUCKS--7.4%
Chrysler Corp. (b) 792,700 $ 38,644,125
Ser. A cv. pfd. (a) 8,900 1,189,262
Ford Motor Co. 85,000 2,507,500
General Motors Corp. 852,500 33,673,750
-------------
76,014,637
-------------
PHOTO & OPTICAL--1.3%
Eastman Kodak Co. 282,900 13,614,563
-------------
RETAIL-GENERAL--3.8%
Sears Roebuck & Co. 801,000 39,649,500
-------------
129,278,700
-------------
BUSINESS SERVICES--11.4%
PRINTING, PUBLISHING &
BROADCASTING--11.2%
Chris-Craft Industries, Inc. 79,600 3,004,900
Comcast Corp. 225,000 3,712,500
Donnelley (R. R.) & Sons Co. 389,200 12,211,150
Grupo Televisa S.A. (ADS) 186,600 8,280,375
Multimedia, Inc.* 129,200 3,795,250
Tele-Communications, Inc.* 1,308,500 29,686,594
Viacom, Inc.*
Cl.A* 13,600 545,700
Cl.B* 1,400,745 54,979,241
-------------
116,215,710
-------------
TRUCKING & SHIPPING--0.2%
Covenant Transportation, Inc. 90,000 1,721,250
-------------
117,936,960
-------------
CONSUMER NONCYCLICALS--8.0%
DRUGS--2.7%
Abbot Laboratories 230,000 7,130,000
AB Astra 200,000 5,405,931
Lilly (Eli) & Co. 83,000 5,146,000
Gensia, Inc.(a)* 55,000 701,250
Merck & Co., Inc. 155,000 5,541,250
<PAGE>
Company Shares Value
Pfizer, Inc. 67,000 $ 4,966,375
-------------
28,890,806
-------------
HOSPITAL SUPPLY &
SERVICES--4.0%
Columbia--HCA Healthcare Corp. 30,562 1,272,143
Healthsource, Inc.* 449,000 17,398,750
Maxxim Medical, Inc.* 42,614 553,982
Quest Medical, Inc. 265,225 1,326,125
United Healthcare Corp. 240,900 12,707,475
U.S. Healthcare, Inc. 161,000 7,587,125
-------------
40,845,600
-------------
TOBACCO--1.3%
Loews Corp. 94,000 8,295,500
Philip Morris Cos., Inc. 80,000 4,900,000
-------------
13,195,500
-------------
82,931,906
-------------
BASIC MATERIALS--6.7%
CHEMICALS--2.9%
Great Lakes Chemical Corp. 202,000 11,867,500
Lubrizol Corp. 344,700 11,116,575
Union Carbide Corp. 200,000 6,625,000
-------------
29,609,075
-------------
METALS & MINING--1.4%
Newmont Mining Corp. 347,175 14,364,366
-------------
PAPER--0.2%
Jefferson Smurfit Group PLC* 126,300 2,036,588
-------------
STEEL--2.2%
AK Steel Holding Corp.* 110,000 3,602,500
Bethlehem Steel Corp.* 723,500 13,746,500
USX-US Steel Group, Inc. 154,000 5,775,000
-------------
23,124,000
-------------
69,134,029
-------------
Contracts (c),
Shares or
Principal
Amount
Company (000) Value
CAPITAL GOODS--1.5%
ELECTRICAL EQUIPMENT--0.5%
General Electric Co. 115,200 $ 5,630,400
-------------
MACHINERY--1.0%
Caterpillar, Inc. 175,000 10,456,250
-------------
16,086,650
-------------
ENERGY--1.2%
OIL-SUPPLIES
& CONSTRUCTION--1.2%
Energy Service Co., Inc.* 215,275 3,121,487
Western Atlas, Inc.* 155,600 7,157,600
YPF S.A. (ADS) 100,000 2,412,500
-------------
12,691,587
-------------
DIVERSIFIED--0.4%
Hanson PLC (ADR)* 839,000 314,625
warrants, 9/30/97* 1,000,000 368,007
India Growth Fund, Inc. 250,000 3,218,750
-------------
3,901,382
-------------
Total Common Stocks
(cost $965,041,432) 975,399,552
-------------
SHORT-TERM DEBT
SECURITIES--11.2%
Federal Farm Credit Bank
4.83%, 11/08/94 $ 10,000 9,990,608
-------------
Federal Home Loan Bank
4.66%, 11/04/94 3,830 3,828,513
4.77%, 11/18/94 5,000 4,988,737
4.79%, 12/06/94 6,500 6,469,730
4.81%, 11/28/94 8,000 7,971,140
4.88%, 11/14/94 2,000 1,996,475
-------------
25,254,595
-------------
Federal Home Loan Mortgage Corp.
4.65%, 11/01/94 11,500 11,500,000
4.67%, 11/02/94 1,000 999,870
<PAGE>
Contracts (c),
or Principal
Amount
Company (000) Value
4.83%, 11/02/94 $12,440 $ 12,438,331
4.84%, 11/02/94 5,255 5,254,293
4.85%, 11/02/94 10,900 10,898,532
4.81%, 11/25/94 6,968 6,945,656
4.86%, 11/03/94 2,875 2,874,224
4.86%, 11/07/94 9,400 9,392,386
4.95%, 11/04/94 11,400 11,395,297
-------------
71,698,589
-------------
Federal National Mortgage Association
4.87%, 11/08/94 1,100 1,098,958
5.05%, 12/30/94 7,650 7,586,686
-------------
8,685,644
-------------
Total Short-Term Debt Securities
(amortized cost $115,629,436) 115,629,436
-------------
TOTAL INVESTMENTS--105.5%
(cost $1,080,670,868) 1,091,028,988
-------------
OUTSTANDING CALL OPTIONS WRITTEN--(0.4)%
Advanced Micro Devices, Inc. expiring
Nov 1994
@ $29.13 2,000 (175,000)
cisco Systems, Inc.
expiring Nov 1994
@ $26.00 2,000 (900,000)
expiring Dec 1994
@ $24.8 1,000 (562,500)
expiring Jan 1995
@ $30.17 1,000 (292,000)
Company Contracts (c) Value
DSC Communications Corp.
expiring Nov 1994
@ $28.63 2,000 $ (600,000)
expiring Dec 1994
@ $29.75 1,000 (262,500)
General Instrument Corp.
expiring Dec 1994
@ $30.25 1,000 (50,000)
Shawmut National Corp.
expiring Dec 1994
@ $22.50 1,000 (37,500)
expiring Nov 1994
@ $22.38 2,000 (60,000)
Texas Instruments, Inc.
expiring Dec 1994
@ $74.50 500 (206,250)
expiring Jan 1995
@ $75.00 500 (276,500)
United Healthcare, Inc.
expiring Nov 1994
@ $50.88 1,000 (320,000)
-------------
Total Outstanding Call
Options Written
(premiums received $4,049,495) (3,742,250)
-------------
TOTAL INVESTMENTS,
NET OF OUTSTANDING
CALL OPTIONS
WRITTEN--105.1% 1,087,286,738
Other assets less liabilities--(5.1)% (53,582,457)
-------------
NET ASSETS--100% $1,033,704,281
=============
- -----------------------------------------------------------------------------
* Non-income producing.
(a) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933.
The securities may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At October 31, 1994 these
securities amounted to $3,558,099 or 0.3% of net assets.
(b) Security on which options are written (shares subject to call have an
aggregate market value of $38,644,125).
(c) One contract relates to 100 shares.
See notes to financial statements.
<PAGE>
Statement Of Assets And Liabilities
October 31, 1994 Alliance Growth Fund
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $1,080,670,868) $1,091,028,988
Receivable for shares of beneficial interest sold 16,124,239
Receivable for investment securities sold 5,141,122
Dividends receivable 817,817
Deferred organization expenses 6,667
--------------
Total assets 1,113,118,833
--------------
LIABILITIES
Due to custodian 134,852
Payable for investment securities purchased 71,853,707
Outstanding call options written, at value (premiums received $4,049,495) 3,742,250
Payable for shares of beneficial interest redeemed 2,119,634
Distribution fee payable 738,406
Advisory fee payable 625,858
Accrued expenses 199,845
--------------
Total liabilities 79,414,552
--------------
NET ASSETS $1,033,704,281
==============
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 475
Additional paid-in capital 1,003,037,288
Undistributed net investment income 1,023,967
Accumulated net realized gain on investments 18,977,186
Net unrealized appreciation of investments and options 10,665,365
--------------
$1,033,704,281
==============
CALCULATION OF MAXIMUM OFFERING PRICE
Class A Shares
Net asset value and redemption price per share ($167,788,650 / 6,690,915 shares
of beneficial interest issued and outstanding) $25.08
Sales charge--4.25% of public offering price 1.11
--------------
Maximum offering price $26.19
==============
Class B Shares
Net asset value and offering price per share ($751,468,252 / 35,434,998 shares
of beneficial interest issued and outstanding) $21.21
==============
Class C Shares
Net asset value, redemption and offering price per share ($114,447,379 / 5,394,617 shares
of beneficial interest issued and outstanding) $21.22
==============
</TABLE>
See notes to financial statements.
<PAGE>
Statement Of Operations
Six Months Ended October 31, 1994* Alliance Growth Fund
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 6,843,726
Interest 1,770,572 $ 8,614,298
------------
EXPENSES
Advisory fee 2,953,562
Distribution fee-Class A 202,698
Distribution fee-Class B 2,817,067
Distribution fee-Class C 445,356
Transfer agency 635,343
Registration 237,797
Custodian 127,000
Printing 15,284
Audit and legal 52,032
Trustee's fees 10,568
Amortization of organization expenses 3,680
Miscellaneous 26,786
------------
Total expenses 7,527,173
------------
Net investment income 1,087,125
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on securities transactions 1,112,395
Net realized gain on options transactions 6,574,537
Net change in unrealized depreciation of securities 30,001,883
Net change in unrealized appreciation of options (725,190)
------------
Net gain on investments 36,963,625
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 38,050,750
============
</TABLE>
Statement Of Changes In Net Assets
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
May 1, 1994 Year Ended
to April 30,
October 31, 1994* 1994
----------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 1,087,125 $ (461,406)
Net realized gain on investments 7,686,932 22,485,200
Net change in unrealized appreciation of investments 29,276,693 (25,776,098)
--------------- --------------
Net increase (decrease) in net assets from operations 38,050,750 (3,752,304)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized gain on investments
Class A -0- (2,852,234)
Class B -0- (11,378,380)
Class C -0- (871,547)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 434,991,030 508,924,078
--------------- --------------
Total increase 473,041,780 490,069,613
NET ASSETS
Beginning of year 560,662,501 70,592,888
--------------- --------------
End of year $1,033,704,281 $560,662,501
=============== ==============
</TABLE>
* The Fund changed its fiscal year end from April 30 to October 31.
See notes to financial statements.
<PAGE>
Notes To Financial Statements
October 31, 1994 Alliance Growth Fund
- ------------------------------------------------------------------------------
NOTE A: Significant Accounting Policies
Alliance Growth Fund (the "Fund"), a series of The Alliance Portfolios (the
"Trust"), is registered under the Investment Company Act of 1940, as a
diversified, open-end investment company. Prior to August 2, 1993, the Trust
was known as The Equitable Funds, and the Fund was known as The Equitable
Growth Fund. Prior to August 2, 1993, the Fund offered two classes of shares,
Class A and Class B. On August 2, 1993, the Board of Trustees approved the
creation of a third class of shares, Class C shares. The Fund offers Class A,
Class B and Class C shares. Class A shares are sold with a front-end sales
charge of up to 4.25%. Class B shares are sold with a contingent deferred
sales charge which declines from 4.00% to zero depending on the period of
time the shares are held. Shares purchased before August 2, 1993 and redeemed
within six years of purchase are subject to different rates than shares
purchased after that date. Class B shares purchased on or after August 2,
1993 and held for a period ending eight years after the end of the calendar
month of purchase will convert to Class A shares. Class C shares are sold
without an initial or contingent deferred sales charge. All three classes of
shares have identical voting, dividend, liquidation and other rights, except
that each class bears different distribution expenses and has exclusive
voting rights with respect to its distribution plan. Distribution of Class C
shares commenced on August 2, 1993. The following is a summary of significant
accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities traded on national securities exchanges are valued at
the last sales price or, if no sale occurred, at the mean of the bid and
asked price at the regular close of the New York Stock Exchange. Securities
traded on the over-the-counter market are valued at the mean of the closing
bid and asked price. Securities for which current market quotations are not
readily available (including investments which are subject to limitations as
to their sale) are valued at their fair value as determined in good faith by
the Board of Trustees. The Board of Trustees has further determined that the
value of certain portfolio debt securities, other than temporary investments
in short-term securities, be determined by reference to valuations obtained
from a pricing service. Restricted securities are valued at fair value as
determined by the Board of Trustees. Securities which mature in 60 days or
less are valued at amortized cost, which approximates market value. The
ability of issuers of debt securities held by the Fund to meet their
obligations may be affected by economic developments in a specific industry
or region.
2. Organization Expenses
Organization expenses of approximately $30,000 has been deferred and is being
amortized on a straight-line basis through September, 1995.
3. Option Writing
When the Fund writes an option, an amount equal to the premium received by
the Fund is recorded as a liability and is subsequently adjusted to the
current market value of the option written. Premiums received from writing
options which expire unexercised are recorded by the Fund on the expiration
date as realized gains. The difference between the premium and the amount
paid on effecting a closing purchase transaction, including brokerage
commissions, is also treated as a realized gain, or if the premium is less
than the amount paid for the closing purchase transaction, as a realized
loss. If a call option is exercised, the premium is added to the proceeds
from the sale in determining whether the Fund has realized a gain or loss. As
a writer of options, the Fund bears the risk of unfavorable changes in the
price of the financial instruments underlying the options.
4. Taxes
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
5. Investment Income and Security Transactions
Dividend income is recorded on the ex-dividend date. Interest income is
accrued daily. Security transactions are accounted for on the date securities
are purchased or sold. Security gains and losses are determined on the
identified cost basis. The Fund accretes discounts and amortizes premiums as
adjustments to interest income.
6. Dividends and Distributions
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
7. Income and Expenses
All income earned and expenses incurred by the Fund are borne on a pro rata
basis by each outstanding class of shares, based on the proportionate
interest in the Fund represented by the shares on such class, except that the
Funds' Class B and Class C shares bear higher distribution and transfer agent
fees. Expenses attributable to the Fund are charged to the Fund. Expenses of
the Trust are charged to the Fund in proportion to net assets.
8. Change of Year End
The Fund changed its fiscal year end from April 30 to October 31.
Accordingly, the statement of operations, charges in net assets and per share
data and ratios reflect the period from May 1, 1994 to October 31, 1994.
<PAGE>
9. Change in Accounting for Distribution to Shareholders
Effective in 1993, the Fund adopted Statement of Position 93-2:
Determination, Disclosure, and Financial Statement Presentation of Income,
Capital Gain, and Return of Capital Distributions by Investment Companies. As
a result, the Fund changed the classification of distributions to
shareholders to better disclose the differences between financial statement
amounts and distributions determined in accordance with income tax regula-
tions. As of October 31, 1994, the cumulative effect of such differences
totaling $289,877 and ($401,536) were reclassified from undistributed net
investment income and undistributed net realized gains, respectively, to
additional paid in capital. Net investment income, net realized gains and net
assets were not affected by the change.
NOTE B: Advisory Fee and Other Transactions With Affiliates
Prior to July 22, 1993, Equitable Capital Management Corporation (Equitable
Capital) served as the investment adviser to the Trust. On July 22, 1993,
Alliance Capital Management, L.P. (Alliance) acquired the business and
substantially all of the assets of Equitable Capital and became the
investment adviser to the Trust.
Under the terms of an investment advisory agreement, the Fund pays Alliance
an advisory fee at an annual rate of .75% of the Fund's average daily net
assets. Such a fee is accrued daily and paid monthly. The Investment Adviser
has agreed, under the terms of the investment advisory agreement, to
voluntarily waive its fees and bear certain expenses so that total expenses
do not exceed on an annual basis 1.40%, 2.10% and 2.10% of average net
assets, respectively, for the Class A, Class B and Class C shares. Prior to
August 2, 1993, the rate for Class B shares was 2.15%. No reimbursement was
required for the period ending October 31, 1994. In addition to these
voluntary arrangements, the Investment Adviser will reduce its compensation,
to the extent that expenses of the Fund for any fiscal year (not including
any distribution expenses paid by the Fund) exceed the lowest applicable
expense limitation prescribed by any state in which the Fund's shares are
qualified for sale. The Fund believes that the most restrictive expense ratio
limitation imposed by any state in which the Fund has qualified its shares
for sale is 2.5% of the first $30 million of the Fund's average daily net
assets, 2% of the next $70 million of its average daily net assets and 1.5%
of its average daily net assets in excess of $100 million.
The Fund has a Services Agreement with Alliance Fund Services, Inc. (a
wholly-owned subsidiary of the Adviser) to provide personnel and facilities
to perform transfer agency services for the Fund. Compensation under this
agreement amounted to $619,141 for the period ended October 31, 1994.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received net
front-end sales charges of $89,423 from the sale of Class A shares and
$410,313 in contingent deferred sales charges imposed upon redemptions by
shareholders of Class B shares for the period ended October 31, 1994.
Brokerage commissions paid on securities transactions for the period ended
October 31, 1994 amounted to $909,509, none of which was paid to Donaldson,
Lufkin & Jenrette Securities Corp. ("DLJ"), an affiliate of the Adviser.
Trustees' fees and expenses payable include amounts owed to one of the
Trustees under a deferred compensation plan.
NOTE C: Distribution Services Agreement
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50 of 1% the Fund's average daily net assets attributable to
the Class A shares and 1% of the average daily net assets attributable to
both Class B and Class C shares. The Trustees currently limit payments under
the Class A plan to .30 of 1% the Fund's aggregate daily net assets
attributable to Class A shares. The Agreement provides that the Distributor
will use such payments in their entirety for distribution assistance and
promotional activities. The Distributor has incurred expenses in excess of
the distribution costs reimbursed by the Fund in the amount of $24,134,216,
and $529,804, for Class B and C shares, respectively; such costs may be
recovered from the Fund in future periods so long as the Agreement is in
effect. In accordance with the Agreement, there is no provision for recovery
of unreimbursed distribution costs incurred by the Distributor beyond the
current fiscal year for Class A shares. The Agreement also provides that the
Adviser may use its own resources to finance the distribution of the Fund's
shares.
<PAGE>
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short- term
investments) aggregated $565,692,680 and $163,847,299 respectively, for the
period ended October 31, 1994. There were purchases of $1,602,481,913 and
sales of $31,689,860 of U.S. Government and government agency obligations for
the period ended October 31, 1994. Transactions in call options written were
as follows:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
----------- ---------------
<S> <C> <C>
Options outstanding at beginning of year 20,995 $ 5,376,801
Options written 20,834 6,034,759
Option adjustment for splits 787 -0-
Options terminated in closing purchase transactions (1,650) (62,528)
Options expired (23,466) (6,574,537)
Options exercised (2,500) (725,000)
--------- -------------
Options outstanding at October 31, 1994 15,000 $ 4,049,495
========= =============
</TABLE>
At October 31, 1994, the cost of securities for federal income tax purposes
was $1,082,744,127. Accordingly gross unrealized appreciation of investments
was $56,979,210 and gross unrealized depreciation of investments was
$48,694,349 resulting in net unrealized appreciation of $8,284,861.
<PAGE>
NOTE E: Shares of Beneficial Interest
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized divided into three classes, designated Class A, Class B
and Class C shares. Transactions in shares of beneficial interest were as
follows:
<TABLE>
<CAPTION>
Shares Amount
----------------------------------- -------------------------------------
May 1, 1994* Year Ended May 1, 1994* Year Ended
to April 30, to April 30,
October 31, 1994 1994 October 31, 1994 1994
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class A
Shares sold 2,831,659 4,267,721 $ 68,901,177 $105,877,084
Shares issued in reinvestment of dividends
and distributions -0- 107,692 -0- 2,613,989
Shares redeemed (427,892) (700,973) (10,438,866) (17,042,677)
-------------- ------------- -------------- ---------------
Net increase 2,403,767 3,674,440 $ 58,462,311 $ 91,448,396
============== ============= ============== ===============
Class B
Shares sold 17,260,944 16,968,439 $356,698,970 $358,789,369
Shares issued in reinvestment of dividends
and distributions -0- 528,002 -0- 10,957,256
Shares redeemed (1,274,037) (929,651) (26,373,086) (19,361,143)
-------------- ------------- -------------- ---------------
Net increase 15,986,907 16,566,790 $330,325,884 $350,385,482
============== ============= ============== ===============
</TABLE>
<TABLE>
<CAPTION>
Shares Amount
----------------------------------- -------------------------------------
August 2,
May 1, 1994* 1993** May 1, 1994* August 2, 1993**
to to to to
October 31, 1994 April 30, 1994 October 31, 1994 April 30, 1994
---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Class C
Shares sold 2,792,380 3,658,224 $ 57,684,514 $ 77,567,639
Shares issued in reinvestment of dividends
and distributions -0- 24,351 -0- 500,962
Shares redeemed (554,996) (525,342) (11,481,679) (10,978,401)
-------------- ------------- -------------- ---------------
Net increase 2,237,384 3,157,233 $ 46,202,835 $ 67,090,200
============== ============= ============== ===============
</TABLE>
* The Fund changed its fiscal year end from April 30 to October 31.
** Commencement of distribution.
<PAGE>
Financial Highlights Alliance Growth Fund
- -------------------------------------------------------------------------------
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each
Period
<TABLE>
<CAPTION>
Class A
-------------------------------------------------------------------------
May 1, 1994
to Year Ended April 30,
---------------------------------------------------
October 31, 1994** 1994 1993 1992 1991(a)
------------------ ---------- --------- -------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 23.89 $ 22.67 $ 20.31 $17.94 $13.61
---------------- -------- ------- ------ ----------
Income From Investment Operations
- ---------------------------------
Net investment income (loss) .09 (.01)* .05* .29* .17*
Net realized and unrealized
gain on investments 1.10 3.55 3.68 3.95 4.22
---------------- -------- ------- ------ ----------
Net increase in net asset value
from operations 1.19 3.54 3.73 4.24 4.39
---------------- -------- ------- ------ ----------
Less: Distributions
- --------------------
Dividends from net investment
income -0- -0- (.14) (.26) (.06)
Distributions from net realized
gains -0- (2.32) (1.23) (1.61) -0-
---------------- -------- ------- ------ ----------
Total dividends and
distributions -0- (2.32) (1.37) (1.87) (.06)
---------------- -------- ------- ------ ----------
Net asset value, end of period $ 25.08 $ 23.89 $ 22.67 $20.31 $17.94
================ ======== ======= ====== ==========
Total Return
- ------------
Total investment return based
on net asset value (b) 4.98% 15.66% 18.89% 23.61% 32.40%
================ ======== ======= ====== ==========
Ratios/Supplemental Data
- ------------------------
Net assets, end of period
(000's omitted) $167,800 $102,406 $13,889 $8,228 $ 713
Ratios to average net assets
of:
Expenses, net of
waivers/reimbursements 1.35%(c) 1.40% 1.40% 1.40% 1.40%(c)
Expenses, before
waivers/reimbursements 1.35%(c) 1.46% 1.84% 1.94% 8.79%(c)
Net investment income .86%(c) .32% .20% 1.44% 1.99%(c)
Portfolio turnover rate 24% 87% 124% 137% 130%
</TABLE>
<PAGE>
Alliance Growth Fund
- -----------------------------------------------------------------------------
Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each
Period
<TABLE>
<CAPTION>
Class B
-----------------------------------------------------------------------
May 1, 1994
to Year Ended April 30,
-------------------------------------------------
October 31, 1994** 1994 1993 1992 1991
------------------ ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 20.27 $ 19.68 $ 18.16 $ 16.88 $ 14.38
---------------- --------- ------ ------ --------
Income From Investment Operations
- ---------------------------------
Net investment income (loss) .01 (.07)*(e) (.06)* .17* .08*
Net realized and unrealized gain
on investments .93 2.98 3.23 3.67 3.22
---------------- --------- ------ ------ --------
Net increase in net asset value
from operations .94 2.91 3.17 3.84 3.30
---------------- --------- ------ ------ --------
Less: Distributions
- -------------------
Dividends from net investment
income -0- -0- (.03) (.21) (.09)
Distributions from net realized
gains -0- (2.32) (1.62) (2.35) (.71)
---------------- --------- ------ ------ --------
Total dividends and distributions -0- (2.32) (1.65) (2.56) (.80)
---------------- --------- ------ ------ --------
Net asset value, end of period $ 21.21 $ 20.27 $ 19.68 $ 18.16 $ 16.88
================ ========= ====== ====== ========
Total Return
- ------------
Total investment return based on
net asset value (b) 4.64% 14.79% 18.16% 22.75% 24.72%
================ ========= ====== ====== ========
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000's
omitted) $751,521 $394,227 $56,704 $37,845 $22,710
Ratios to average net assets of:
Expenses, net of
waivers/reimbursements 2.05%(c) 2.10% 2.15% 2.15% 2.10%
Expenses, before
waivers/reimbursements 2.05%(c) 2.13% 2.52% 2.65% 3.06%
Net investment income (loss) .16%(c) (.36)% (.53)% .78% .56%
Portfolio turnover rate 24% 87% 124% 137% 130%
</TABLE>
<TABLE>
<CAPTION>
Class C
----------------------------------------
May 1, 1994 August 2, 1993(d)
to to April 30,
October 31, 1994** 1994
------------------ ------------------
<S> <C> <C>
Net asset value, beginning of period $ 20.28 $ 21.47
---------------- ----------------
Income From Investment Operations
- ---------------------------------
Net investment income (loss) .01 (.02)*
Net realized and unrealized gain on investments .93 1.15
---------------- ----------------
Net increase in net asset value from operations .94 1.13
---------------- ----------------
Less: Distributions
- -------------------
Dividends from net investment income -0- -0-
Distributions from net realized gains -0- (2.32)
---------------- ----------------
Total dividends and distributions -0- (2.32)
---------------- ----------------
Net asset value, end of period $ 21.22 $ 20.28
================ ================
Total Return
- ------------
Total investment return based on net asset value
(b) 4.64% 5.27%
================ ================
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (000's omitted) $114,455 $64,030
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.05%(c) 2.10%(c)
Expenses, before waivers/reimbursements 2.05%(c) 2.13%(c)
Net investment income (loss) .16%(c) (.31)%(c)
Portfolio turnover rate 24% 87%
</TABLE>
* Net of fee waived and expenses reimbursed by the Adviser.
** The Fund changed its fiscal year end from April 30 to October 31.
(a) For the period September 4, 1990 (commencement of distribution) to
April 30, 1991.
(b) Total investment return is calculated assuming an initial investment
made at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and redemption
on the last day of the period. Initial sales charges or contingent deferred
sales charges are not reflected in the calculation of total investment return.
Total investment return calculated for a period of less than one year is not
annualized.
(c) Annualized.
(d) Commencement of distribution.
(e) Per share data based upon average monthly shares outstanding.
<PAGE>
Report Of Independent Accountants Alliance Growth Fund
- -------------------------------------------------------------------------------
To the Board Of Directors and
Shareholders of Alliance Growth Fund
In our opinion, the accompanying statement of assets and liabilities,
including the portfolio of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Alliance Growth
Fund (one of the portfolios of The Alliance Portfolios, hereafter referred to
as "the "Fund") at October 31, 1994, the results of its operations for the
period May 1, 1994 to October 31, 1994, the changes in its net assets for the
period ended October 31, 1994 and for the year ended April 30, 1994 and the
financial highlights for the periods presented in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at October 31, 1994 by
correspondence with the custodian and brokers, and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 21, 1994
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
Description of the bond ratings of Moody's Investors
Services, Inc. are as follows:
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 bond 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
greater 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
<PAGE>
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa-- Bonds which are rated Caa are of poor standing.
Such issues may be in default of there may be present elements of
danger with respect to principal or interest.
Ca-- Bonds which are rated Ca represent obligations
which are speculative to a high degree. Such issues are often in
default or have other marked shortcomings.
C-- Bonds which are rated C are the lowest class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Moody's applies modifiers to each rating classification
from Aa through B to indicate relative ranking within its rating
categories. The modifier "1" indicates that a security ranks in
the higher end of its 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 rating category.
Descriptions of the bond ratings of Standard & Poor's
Ratings Services are as follows:
AAA-- Debt rated AAA has the highest rating assigned by
Standard & Poor's. 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 higher rated
issues only in small degree.
A-- Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB-- Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, or C -- Debt rated BB, B, CCC, CC or C
is regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While
such debt will likely have some quality and protective
2
<PAGE>
characteristics,these are outweighed by large uncertainties or
major risk exposures to adverse debt conditions.
C1-- The rating C1 is reserved for income bonds on which
no interest is being paid.
D-- Debt rated D is in default and payment of interest
and/or repayment of principal is in arrears.
The ratings from AAA to CC may be modified by the
addition of a plus (+) or minus (-) sign to show relative
standing within the major rating categories.
Descriptions of the bond ratings of Fitch Investors
Service, Inc. are as follows:
AAA-- Securities of this rating are regarded as strictly
high-grade, broadly marketable, suitable for investment by
trustees and fiduciary institutions, and liable to but slight
market fluctuation other than through changes in the money rate.
The factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of
earnings several times or many times interest requirements with
such stability of applicable earnings that safety is beyond
reasonable question whatever changes occur in conditions. Other
features may enter in, such stability of applicable earnings
conditions. Other features may enter in, such as a wide margin
of protection through collateral security or direct lien on
specific property as in the case of high class equipment
certificates or bonds that are first mortgages on valuable real
estate. Sinking funds or voluntary reduction of the debt by call
or purchase are often factors, while guarantee or assumption by
parties other than the original debtor may also influence the
rating.
AA-- Securities in this group are of safety virtually
beyond question, and as a class are readily salable while many
are highly active. Their merits are not greatly unlike those of
the AAA class, but a security so rated may be of junior though
strong lien -- in many cases directly following an AAA security
- -- or the margin of safety is less strikingly broad. The issue
may be the obligation of a small company, strongly secured but
influenced as to ratings by the lesser financial power of the
enterprise and more local type of market.
A-- A securities are strong investments and in many
cases of highly active market, but are not so heavily protected
as the two upper classes or possibly are of similar security but
3
<PAGE>
less quickly salable. As a class they are more sensitive in
standing and market to material changes in current earnings of
the company. With favoring conditions such securities are likely
to work into a high rating, but in occasional instances changes
cause the rating to be lowered.
BBB-- BBB rated bonds are considered to be investment
grade and of satisfactory 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 weaken this ability than bonds with
higher ratings.
BB-- BB rated 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-- B rated 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-- CCC rated bonds have certain identifiable
characteristics that, if not remedied, may lead to default. The
ability to meet obligations requires an advantageous business and
economic environment.
CC-- CC rated bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C-- C rated bonds are in imminent default in payment of
interest or principal.
DDD, DD and D-- These 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 (+) and minus (-) signs are used with a rating
symbol to indicate the relative position of a credit within the
rating agency. Plus and minus signs, however, are not used in
the 'AAA' and "D' categories.
Descriptions of the bond ratings of Duff & Phelps Credit
Rating Co. are as follows:
4
<PAGE>
AAA-- Highest credit quality. The risk factors are
negligible.
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.
5
00250184.ad9
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-12988 and 811-05088.
<PAGE>
[LOGO](R)
THE ALLIANCE PORTFOLIOS-
Alliance Short-Term U.S. Government Fund
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800) 227-4618
STATEMENT OF ADDITIONAL INFORMATION
November 1, 1995
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Fund's current Prospectus.
A copy of the Fund's Prospectus may be obtained by contacting
Alliance Fund Services, Inc. at the address or telephone numbers
shown above.
TABLE OF CONTENTS
INVESTMENT POLICIES AND RESTRICTIONS.......................2
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUND...............8
INVESTMENT RESTRICTIONS....................................24
MANAGEMENT OF THE FUND.....................................28
PORTFOLIO TRANSACTIONS.....................................34
EXPENSES OF THE FUND.......................................36
PURCHASE OF SHARES.........................................39
REDEMPTION AND REPURCHASE OF SHARES........................54
SHAREHOLDER SERVICES.......................................57
NET ASSET VALUE............................................63
DIVIDENDS, DISTRIBUTIONS AND TAXES.........................65
GENERAL INFORMATION........................................67
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE>
APPENDIX
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
INVESTMENT POLICIES AND RESTRICTIONS
The following investment policies and restrictions
supplement and should be read in conjunction with the information
set forth in the Prospectus of the Alliance Short-Term U.S.
Government Fund (the "Fund"), a series of The Alliance Portfolios
(the "Trust"), under the heading "Investment Objective and
Policies." In addition to the investment techniques described in
this section, the Fund may also engage in the investment
techniques described below under the sub-heading "Additional
Investment Techniques of the Fund."
Investment Objective and Policies of the Short-Term U.S.
Government Fund
General. The Fund seeks to provide high current income
consistent with preservation of capital by investing primarily in
a portfolio of U.S. Government Securities. Under normal
circumstances, the Fund will maintain an average dollar-weighted
portfolio maturity of not more than three years and will invest
at least 65% of its total assets in U.S. Government Securities
and repurchase agreements and forward commitments relating to
U.S. Government Securities. The Fund's investments may include
all types of U.S. Government Securities, including those backed
by the full faith and credit of the U.S. Government, 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. U.S. Government Securities include, without
limitation, the following:
U.S. Treasury Bills - Direct obligations of the U.S.
Treasury which are issued in maturities of one year or less. No
interest is paid on Treasury Bills; instead, they are issued at a
discount and repaid at full face value when they mature. They
are backed by the full faith and credit of the U.S. Government.
U.S. Treasury Notes - Direct obligations of the U.S.
Treasury issued in maturities which vary between one and ten
years, with interest payable every six months. They are backed
by the full faith and credit of the U.S. Government.
U.S. Treasury Bonds - These direct obligations of the
U.S. Treasury are issued in maturities more than ten years from
the date of issue, with interest payable every six months. They
are backed by the full faith and credit of the U.S. Government.
"Ginnie Maes" - Ginnie Maes are debt securities issued
by a mortgage banker or other mortgagee and represent an interest
2
<PAGE>
in a pool of mortgages insured by the Federal Housing
Administration or the Farmers' Home Administration or guaranteed
by the Veterans Administration. The Government National Mortgage
Association ("GNMA") guarantees the timely payment of the
principal and interest. The GNMA guarantee is backed by the full
faith and credit of the U.S. Government.
"Fannie Maes" - The Federal National Mortgage
Association ("FNMA") is a government-sponsored corporation owned
entirely by private stockholders that purchases residential
mortgages from a list of approved seller/servicers. 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 U.S. Government.
"Freddie Macs" - The Federal Home Loan Mortgage
Corporation ("FHLMC"), a corporate instrumentality of the U.S.
Government, issues participation certificates ("PCs") which
represent an interest in residential mortgages from FHLMC's
National Portfolio. FHLMC guarantees the timely payment of
interest and ultimate collection of principal, but PCs are not
backed by the full faith and credit of the U.S. Government.
Governmental Collateralized Mortgage Obligations
("CMOs") -Governmental CMOs are securities issued by a U.S.
Government instrumentality or agency which are backed by a
portfolio of mortgages or mortgage-backed securities held under
an indenture. The issuer's obligation to make interest and
principal payments is secured by the underlying portfolio of
mortgages or mortgage-backed securities. CMOs are issued with a
number of classes or series which have different maturities and
which may represent interests in some or all of the interest or
principal on the underlying collateral or a combination thereof.
CMOs of different classes are generally retired in sequence as
the underlying mortgage loans in the mortgage pool are repaid.
The Fund may invest in only those privately-issued CMOs which are
collateralized by mortgage-backed securities issued by GNMA,
FHLMC or FNMA, and in CMOs issued by a U.S. Government agency or
instrumentality. CMOs issued by entities other than U.S.
Government agencies or instrumentalities are not considered U.S.
Government Securities for purposes of the investment policies of
the Fund even though the CMOs may be collateralized by U.S.
Government Securities.
Ginnie Maes, Fannie Maes, Freddie Macs and CMOs are
mortgage-backed securities. Interest and principal payments
(including prepayments) on the mortgages underlying
mortgage-backed securities are passed through to the holders of
the mortgage-backed security. Prepayments occur when the
mortgagor on an individual mortgage prepays the remaining
principal before the mortgage's scheduled maturity date. As a
3
<PAGE>
result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated
maturity would indicate. Because the prepayment characteristics
of the underlying mortgages vary, it is not possible to predict
accurately the realized yield or average life of a particular
issue of pass-through certificates. Prepayments are important
because of their effect on the yield and price of the securities.
During periods of declining interest rates, such prepayments can
be expected to accelerate and the Fund would be required to
reinvest the proceeds at the lower interest rates then available.
In addition, prepayments of mortgages which underlie securities
purchased at a premium could result in capital losses. As a
result of these principal payment features, mortgage-backed
securities are generally more volatile investments than other
U.S. Government Securities.
The Fund may also invest in "zero-coupon" U.S.
Government Securities which have been stripped of their unmatured
interest coupons and receipts or in certificates representing an
undivided interest in such stripped U.S. Government Securities
and coupons. The Fund may also invest in certificates
representing rights to receive payments of the interest only or
principal only of mortgage-backed U.S. Government Securities
("IO/PO Strips"). These securities tend to be more volatile than
other types of U.S. Government Securities. IO Strips involve the
additional risk of loss of the entire remaining value of the
investment if the underlying mortgages are prepaid. See
"Stripped Mortgage-Related Securities" below.
Guarantees of the Fund's securities by the U.S.
Government or its agencies or instrumentalities guarantee only
the payment of principal and interest on the guaranteed
securities, and do not guarantee the securities' yield or value
or the yield or value of the Fund's shares.
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
corporate debt securities. As with other mutual funds, the value
of the Fund's shares will fluctuate with the value of its
investments. The value of the Fund's investments will change as
the general level of interest rates fluctuates. During periods
of falling interest rates, the values of U.S. Government
Securities generally rise. Conversely, during periods of rising
interest rates, the values of U.S. Government Securities
generally decline. In an effort to preserve the capital of the
Fund when interest rates are generally rising, the Adviser may
shorten the average maturity of the U.S. Government Securities in
the Fund's portfolio. Because the principal values of U.S.
Government Securities with shorter maturities are less affected
4
<PAGE>
by rising interest rates, a portfolio with a shorter average
maturity will generally diminish less in value during such
periods than a portfolio of longer average maturity. Because
U.S. Government Securities with shorter maturities, however,
generally have a lower yield to maturity, the Fund's current
return based on its net asset value will generally be lower as a
result of such action than it would have been had such action not
been taken.
In addition to investing in U.S. Government Securities,
the Fund may invest a portion of its assets in bank certificates
of deposit, corporate debt obligations, high quality money market
instruments and CMOs, IO/PO Strips and asset-backed securities of
non-governmental issuers. These investments generally involve
higher levels of credit risk than do U.S. Government Securities,
as well as the risk (present with all fixed-income securities) of
fluctuations in value as market rates of interest change. To
reduce these risks, however, the Fund's investments in
fixed-income securities will be rated at the time of purchase at
least AA by Standard & Poor's Ratings Services ("S&P") or Aa by
Moody's Investors Service, Inc. ("Moodys"), or if unrated will be
of comparable quality as determined by Alliance Capital
Management L.P. (the "Adviser"). In the event that the rating of
any security held by the Fund falls below Aa by Moody's and/or AA
by S&P (or, in the case of an unrated security, is determined by
the Adviser to no longer be of comparable quality to securities
rated below Aa or AA), the Fund will not be obligated to dispose
of such security and may continue to hold the obligation if, in
the opinion of the Adviser, such investment is considered
appropriate in the circumstances.
Stripped Mortgage-Related Securities. The Fund may
invest in stripped mortgage-related securities ("SMRS"). SMRS
are derivative multi-class mortgage-related securities. SMRS may
be issued by the United States Government, its agencies or
instrumentalities, or by private originators of, or investors in,
mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose
subsidiaries of the foregoing.
SMRS are usually structured with two classes that
receive different proportions of the interest and principal
distributions on a pool of GNMA, FNMA or FHLMC certificates,
whole loans or private pass-through mortgage-related securities
("Mortgage Assets"). A common type of SMRS will have one class
receiving some of the interest and most of the principal from the
Mortgage Assets, while the other class will receive most of the
interest and the remainder of the principal. In the most extreme
case, one class will receive all of the interest (the interest-
only or "IO" class), while the other class will receive all of
the principal (the principal-only or "PO" class). The yield to
5
<PAGE>
maturity on an IO class is extremely sensitive to the rate of
principal payments (including prepayments) on the related
underlying Mortgage Assets, and a rapid rate of principal
prepayments may have a material adverse effect on the yield to
maturity of the IO class. The rate of principal prepayment will
change as the general level of interest rates fluctuates. If the
underlying Mortgage Assets experience greater than anticipated
principal prepayments, the Fund may fail to fully recoup its
initial investment in these securities. Due to their structure
and underlying cash flows, SMRS may be more volatile than
mortgage-related securities that are not stripped.
Although SMRS 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.
Inverse Floating Rate Instruments. The Fund may seek to
increase yield by investing in leveraged inverse floating rate
debt instruments, known as inverse floaters. The interest rate
on an inverse floater resets in the opposite direction from the
market rate of interest to which the inverse floater is indexed.
An inverse floater may be considered to be leveraged to the
extent that its interest rate varies by a magnitude that exceeds
the magnitude of the change in the index rate of interest. The
higher degree of leverage inherent in inverse floaters is
associated with greater volatility in market value. Accordingly,
the duration of an inverse floater may exceed its stated final
maturity.
Short Sales Against-the-Box. The Fund may make short
sales against-the-box for the purpose of deferring realization of
gain or loss for Federal income tax purposes. A short sale
"against-the-box" is a short sale in which the Fund owns an equal
amount of the securities sold short or securities convertible
into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in
amount to, the securities sold short. The Fund may engage in
such short sales only to the extent that not more than 10% of the
Fund's total assets (determined at the time of the short sale) is
held as collateral for such sales.
Adjustable Rate Securities. The Fund may invest in
adjustable rate securities, which may be U.S. Government
Securities or securities of other issuer's. Adjustable rate
securities are securities that have interest rates that are reset
at periodic intervals, usually by reference to some interest rate
index or market interest rate. Some adjustable rate securities
are backed by pools of mortgage loans. Although the rate
adjustment feature may act as a buffer to reduce sharp changes in
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the value of adjustable rate securities, these securities are
still subject to changes in value based on changes in market
interest rates or changes in the issuers creditworthiness.
Because the interest rate is reset only periodically, changes in
the interest rate on adjustable rate securities may lag behind
changes in prevailing market interest rates. Also, some
adjustable rate securities (or the underlying mortgages) are
subject to caps or floors that limit the maximum change in
interest rate during a specified period or over the life of the
security.
Interest Rate Transactions. The Fund may seek to
protect the value of its investments from interest rate
fluctuations by entering into various hedging transactions, such
as interest rate swaps and the purchase or sale of 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 an increase
in the price of securities the Fund anticipates purchasing at a
later date. The Fund intends to use these transactions as a
hedge and not as speculative investment. 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 on a notional principal amount for the
party selling such interest rate cap. The purchase of an
interest rate floor entitles the purchaser, to the extent that a
specified index falls below a predetermined interest rate, to
receive payments of interest on a notional principal amount from
the party selling such interest rate floor.
The 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 only enter into such swaps, caps and floors 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, cap or floor will be accrued on a daily basis
and an amount of cash or liquid securities having an aggregate
value at least equal to the accrued excess will be maintained in
a segregated account by the custodian. The Fund will not enter
into any interest rate swap, cap or floor transaction unless the
unsecured senior debt or the claims-paying ability of the other
party thereto is rated in the highest rating category of at least
one nationally recognized rating organization at the time of
entering into such transaction. If there is a default by the
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other party to such transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction.
The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as
principals and agents. As a result, the swap market has become
well established and provides a degree of liquidity. Caps and
floors are more recent innovations which tend to be less liquid
than swaps.
Reverse Repurchase Agreements. In order to increase
income, the Fund may enter into reverse repurchase agreements
with commercial banks and registered broker-dealers in an amount
up to 33-1/3% of the Fund's total assets. Reverse repurchase
agreements involve sales by the 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. Reverse
repurchase agreements are considered borrowings by the Fund and
require the segregation of cash, U.S. Government Securities or
other liquid, high-grade debt obligations with the Funds
custodian in amount equal to the Funds obligation pending
completion of such transactions. Reverse repurchase agreements
involve the risk that the market value of the securities retained
by the Fund may decline below the price of the securities the
Fund has sold but is obligated to repurchase under the agreement.
In the event the buyer of securities under a reverse repurchase
agreement files for bankruptcy or becomes insolvent, the 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.
Options on Securities. The Fund may seek to increase
its current return by writing covered call and put options on
securities it owns or in which it may invest. For more
information on writing options on securities, see "Options -
Options on Securities".
Options on certain U.S. Government Securities are traded
in significant volume on securities exchanges. However, other
options which the Fund may purchase or sell are traded in the
"over-the-counter" market rather than on an exchange. This means
that the Fund will enter into such option contracts with
particular securities dealers who make markets in these options.
The Fund's ability to terminate option positions in the over-the-
counter market may be more limited than for exchange-traded
options and may also involve the risk that securities dealers
participating in such transactions might fail to meet their
obligations to the Fund.
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Portfolio Management
Alliance Capital Management L.P. (the "Adviser") manages
the Fund's portfolio by buying and selling securities to help
attain its investment objective. The portfolio turnover rate for
the Fund is included under "Financial Highlights" in the Fund's
Prospectus. A high portfolio turnover rate will involve greater
costs to the Fund (including brokerage commissions and
transaction costs) and may also result in the realization of
taxable capital gains, including short-term capital gains taxable
at ordinary income rates. See "Portfolio Transactions" and
"Dividends, Distributions and Taxes" below.
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUND
Repurchase Agreements
The repurchase agreements referred to in the Fund's
Prospectus are agreements by which the Fund purchases a security
and obtains a simultaneous commitment from the seller to
repurchase the security at an agreed upon price and date. The
resale price is in excess of the purchase price and reflects an
agreed upon market rate unrelated to the coupon rate on the
purchased security. The purchased security serves as collateral
for the obligation of the seller to repurchase the security and
the value of the purchased security is initially greater than or
equal to the amount of the repurchase obligation and the seller
is required to furnish additional collateral on a daily basis in
order to maintain with the purchaser securities with a value
greater than or equal to the amount of the repurchase obligation.
Such transactions afford the Fund the opportunity to earn a
return on temporarily available cash. While at times the
underlying security may be a bill, certificate of indebtedness,
note, or bond issued by an agency, authority or instrumentality
of the United States Government, the obligation of the seller is
not guaranteed by the U.S. Government and there is a risk that
the seller may fail to repurchase the underlying security,
whether because of the seller's bankruptcy or otherwise. In such
event, the Fund would attempt to exercise its rights with respect
to the underlying security, including possible disposition in the
market. However, the Fund may be subject to various delays and
risks of loss, including (a) possible declines in the value of
the underlying security during the period while the Fund seeks to
enforce its rights thereto, (b) possible reduced levels of income
and lack of access to income during this period and (c) inability
to enforce rights and the expenses involved in the attempted
enforcement.
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Non-Publicly Traded Securities
The Fund may invest in securities which are not publicly
traded, including securities sold pursuant to Rule 144A under the
Securities Act of 1933 ("Rule 144A Securities"). The sale of
these securities is usually restricted under Federal securities
laws, and market quotations may not be readily available. As a
result, the Fund may not be able to sell these securities (other
than Rule 144A Securities) unless they are registered under
applicable Federal and state securities laws, or may have to sell
such securities at less than fair market value. Investment in
these securities is restricted to 5% of the Fund's total assets
(excluding, to the extent permitted by applicable law, Rule 144A
Securities) and is also subject to the restriction against
investing more than 15% of total assets in "illiquid" securities.
To the extent permitted by applicable law, Rule 144A Securities
will not be treated as "illiquid" for purposes of the foregoing
restriction so long as such securities meet the liquidity
guidelines established by the Trust's Board of Trustees.
Pursuant to these guidelines, the Adviser will monitor the
liquidity of the Fund's investment in Rule 144A Securities and,
in reaching liquidity decisions, will consider: (1) the
frequency of trades and quotes for the security; (2) the number
of dealers wishing to purchase or sell the security and the
number of other potential purchasers; (3) dealer undertakings to
make a market in the security; and (4) the nature of the security
and the nature of the marketplace trades (e.g., the time needed
to dispose of the security, the method of soliciting offers and
the mechanics of the transfer).
Descriptions of Certain Money Market Securities in Which the Fund
May Invest
Certificates of Deposit, Bankers' Acceptances and Bank
Time Deposits. Certificates of deposit are receipts issued by a
bank in exchange for the deposit of funds. The issuer agrees to
pay the amount deposited plus interest to the bearer of the
receipt on the date specified on the certificate. The
certificate usually can be traded in the secondary market prior
to maturity.
Bankers' acceptances typically arise from short-term
credit arrangements designed to enable businesses to obtain funds
to finance commercial transactions. Generally, an acceptance is
a time draft drawn on a bank by an exporter or an importer to
obtain a stated amount of funds to pay for specific merchandise.
The draft is then "accepted" by another bank that, in effect,
unconditionally guarantees to pay the face value of the
instrument on its maturity date. The acceptance may then be held
by the accepting bank as an earning asset or it may be sold in
the secondary market at the going rate of discount for a specific
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maturity. Although maturities for acceptances can be as long as
270 days, most maturities are six months or less.
Bank time deposits are funds kept on deposit with a bank
for a stated period of time in an interest bearing account. At
present, bank time deposits maturing in more than seven days are
not considered by the Adviser to be readily marketable.
Commercial Paper. Commercial paper consists of
short-term (usually from 1 to 270 days) unsecured promissory
notes issued by entities in order to finance their current
operations.
Variable Notes. Variable amount master demand notes and
variable amount floating rate notes are obligations that permit
the investment of fluctuating amounts by the Fund at varying
rates of interest pursuant to direct arrangements between the
Fund, as lender, and the borrower. Master demand notes permit
daily fluctuations in the interest rate while the interest rate
under variable amount floating rate notes fluctuates on a weekly
basis. These notes permit daily changes in the amounts borrowed.
The Fund has the right to increase the amount under these notes
at any time up to the full amount provided by the note agreement,
or to decrease the amount, and the borrower may repay up to the
full amount of the note without penalty. Because these types of
notes are direct lending arrangements between the lender and the
borrower, it is not generally contemplated that such instruments
will be traded and there is no secondary market for these notes.
Master demand notes are redeemable (and, thus, immediately
repayable by the borrower) at face value, plus accrued interest,
at any time. Variable amount floating rate notes are subject to
next-day redemption 14 days after the initial investment therein.
With both types of notes, therefore, the Fund's right to redeem
depends on the ability of the borrower to pay principal and
interest on demand. In connection with both types of note
arrangements, the Fund considers earning power, cash flow and
other liquidity ratios of the issuer. These notes, as such, are
not typically rated by credit rating agencies. Unless they are
so rated, the Fund may invest in them only if at the time of an
investment the issuer has an outstanding issue of unsecured debt
rated Aa or better by Moody's or AA or better by S&P.
Asset-Backed Securities
The Fund may invest in asset-backed securities
(unrelated to first mortgage loans) which represent fractional
interests in pools of retail installment loans, leases or
revolving credit receivables, both secured (such as Certificates
for Automobile Receivables or "CARS") and unsecured (such as
Credit Card Receivable Securities or "CARDS"). These assets are
generally held by a trust and payments of principal and interest
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or interest only are passed through monthly or quarterly to
certificate holders and may be guaranteed up to certain amounts
by letters of credit issued by a financial institution affiliated
or unaffiliated with the trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities,
underlying automobile sales contracts or credit card receivables
are subject to prepayment, which may reduce the overall return to
certificate holders. Nevertheless, principal repayment rates
tend not to vary too much with interest rates, and the short-term
nature of the underlying car loans or receivables tends to dampen
the impact of any change in the prepayment level. Certificate
holders may also experience delays in payment if the full amounts
due on underlying sales contracts or receivables are not realized
by the trust holding the obligations because of unanticipated
legal or administrative costs of enforcing the contracts or
because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors. If
consistent with their investment objectives and policies, the
Fund may invest in other asset-backed securities that may be
developed in the future.
The staff of the Securities and Exchange Commission (the
"SEC") is of the view that certain asset-backed securities may
constitute investment companies under the Investment Company Act
of 1940 (the "1940 Act"). The Fund intends to conduct its
operations in a manner consistent with this view; therefore, the
Fund generally may not invest more than 10% of its total assets
in such securities without obtaining appropriate regulatory
relief.
Lending of Securities
The Fund may seek to increase its income by lending
portfolio securities. Under present regulatory policies,
including those of the Board of Governors of the Federal Reserve
System and the SEC, such loans may be made only to member firms
of the New York Stock Exchange (the "Exchange") and would be
required to be secured continuously by collateral in cash, cash
equivalents, or U.S. Treasury Bills maintained on a current basis
at an amount at least equal to the market value of the securities
loaned. The Fund would have the right to call a loan and obtain
the securities loaned at any time on five days' notice. During
the existence of a loan, the Fund would continue to receive the
equivalent of the interest or dividends paid by the issuer on the
securities loaned and would also receive compensation based on
investment of the collateral. The Fund would not, however, have
the right to vote any securities having voting rights during the
existence of the loan but would call the loan in anticipation of
an important vote to be taken among holders of the securities or
of the giving or withholding of their consent on a material
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matter affecting the investment. As with other extensions of
credit there are risks of delay in recovery or even loss of
rights in the collateral should the borrower of the securities
fail financially. However, the loans would be made only to firms
deemed by the Adviser to be of good standing, and when, in the
judgment of the Adviser, the consideration that can be earned
currently from securities loans of this type justifies the
attendant risk. If the Adviser determines that the Fund should
make securities loans, it is not intended that the value of the
securities loaned would exceed 25% of the value of the Fund's
total assets.
Forward Commitments and When-Issued and Delayed Delivery
Securities
The Fund may enter into forward commitments for the
purchase of securities and may purchase securities on a
"when-issued" or "delayed delivery" basis. Agreements for such
purchases might be entered into, for example, when the Fund
anticipates a decline in interest rates and is able to obtain a
more advantageous yield by committing currently to purchase
securities to be issued later. When the Fund purchases
securities in this manner (i.e., on a forward commitment,
"when-issued" or "delayed delivery" basis), it does not pay for
the securities until they are received, and the Fund is required
to create a segregated account with the Trust's custodian and to
maintain in that account cash, U.S. Government securities or
other liquid high-grade debt obligations in an amount equal to or
greater than, on a daily basis, the amount of the Fund's forward
commitments and "when-issued" or "delayed delivery" commitments.
The Fund will enter into forward commitments and make
commitments to purchase securities on a "when-issued" or "delayed
delivery" basis only with the intention of actually acquiring the
securities. However, the Fund may sell these securities before
the settlement date if it is deemed advisable as a matter of
investment strategy.
Although the Fund does not intend to make such purchases
for speculative purposes and does intend to adhere to the
provisions of SEC policies, purchases of securities on such bases
may involve more risk than other types of purchases. For
example, by committing to purchase securities in the future, the
Fund subjects itself to a risk of loss on such commitments as
well as on its portfolio securities. Also, the Fund may have to
sell assets which have been set aside in order to meet
redemptions. In addition, if the Fund determines it is advisable
as a matter of investment strategy to sell the forward commitment
or "when-issued" or "delayed delivery" securities before
delivery, the Fund may incur a gain or loss because of market
fluctuations since the time the commitment to purchase such
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securities was made. Any such gain or loss would be treated as a
capital gain or loss and would be treated for tax purposes as
such. When the time comes to pay for the securities to be
purchased under a forward commitment or on a "when-issued" or
"delayed delivery" basis, the Fund will meet its obligations from
the then available cash flow or the sale of securities, or,
although it would not normally expect to do so, from the sale of
the forward commitment or "when-issued" or "delayed delivery"
securities themselves (which may have a value greater or less
than the Fund's payment obligation).
Options
Options on Securities. In addition to the methods of
"cover" described in the Prospectus, the Fund may write call and
put options and may purchase call and put options on securities.
The Fund intends to write only covered options. This means that
so long as the Fund is obligated as the writer of a call option,
it will own the underlying securities subject to the option or
securities convertible into such securities without additional
consideration (or for additional cash consideration held in a
segregated account by the custodian). In the case of call
options on U.S. Treasury Bills, the Fund might own U.S. Treasury
Bills of a different series from those underlying the call
option, but with a principal amount and value corresponding to
the option contract amount and a maturity date no later than that
of the securities deliverable under the call option. The Fund
will be considered "covered" with respect to a put option it
writes, if, so long as it is obligated as the writer of a put
option, it deposits and maintains with its custodian in a
segregated account cash, U.S. Government securities or other
liquid high-grade debt obligations having a value equal to or
greater than the exercise price of the option.
Effecting a closing transaction in the case of a written
call option will permit the Fund to write another call option on
the underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. Such transactions permit the Fund to
generate additional premium income, which will partially offset
declines in the value of portfolio securities or increases in the
cost of securities to be acquired. Also, effecting a closing
transaction will permit the cash or proceeds from the concurrent
sale of any securities subject to the option to be used for other
investments by the Fund, provided that another option on such
security is not written. If the Fund desires to sell a
particular security from its portfolio on which it has written a
call option, it will effect a closing transaction in connection
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with the option prior to or concurrent with the sale of the
security.
The Fund will realize a profit from a closing
transaction if the premium paid in connection with the closing of
an option written by the Fund is less than the premium received
from writing the option, or if the premium received in connection
with the closing of an option purchased by the Fund is more than
the premium paid for the original purchase. Conversely, the Fund
will suffer a loss if the premium paid or received in connection
with a closing transaction is more or less, respectively, than
the premium received or paid in establishing the option position.
Because increases in the market price of a call option will
generally reflect increases in the market price of the underlying
security, any loss resulting from the repurchase of a call option
previously written by the Fund is likely to be offset in whole or
in part by appreciation of the underlying security owned by the
Fund.
The Fund may purchase a security and then write a call
option against that security or may purchase a security and
concurrently write an option on it. The exercise price of the
call the Fund determines to write will depend upon the expected
price movement of the underlying security. The exercise price of
a call option may be below ("in-the-money"), equal to
("at-the-money") or above ("out-of-the-money") the current value
of the underlying security at the time the option is written.
In-the-money call options may be used when it is expected that
the price of the underlying security will decline moderately
during the option period. Out-of-the-money call options may be
written when it is expected that the premiums received from
writing the call option plus the appreciation in the market price
of the underlying security up to the exercise price will be
greater than the appreciation in the price of the underlying
security alone. If the call options are exercised in such
transactions, the Fund's maximum gain will be the premium
received by it for writing the option, adjusted upwards or
downwards by the difference between the Fund's purchase price of
the security and the exercise price. If the options are not
exercised and the price of the underlying security declines, the
amount of such decline will be offset in part, or entirely, by
the premium received.
The writing of covered put options is similar in terms
of risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or retain the option until it is exercised, at which
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time the Fund will be required to take delivery of the security
at the exercise price; the Fund's return will be the premium
received from the put option minus the amount by which the market
price of the security is below the exercise price, which could
result in a loss. Out-of-the-money put options may be written
when it is expected that the price of the underlying security
will decline moderately during the option period. In-the-money
put options may be used when it is expected that the premiums
received from writing the put option plus the appreciation in the
market price of the underlying security up to the exercise price
will be greater than the appreciation in the price of the
underlying security alone.
The Fund may also write combinations of put and call
options on the same security, known as "straddles," with the same
exercise and expiration date. By writing a straddle, the Fund
undertakes a simultaneous obligation to sell and purchase the
same security in the event that one of the options is exercised.
If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Fund
will be required to sell the underlying security at a below
market price. This loss may be offset, however, in whole or
part, by the premiums received on the writing of the two options.
Conversely, if the price of the security declines by a sufficient
amount, the put will likely be exercised. The writing of
straddles will likely be effective, therefore, only where the
price of the security remains stable and neither the call nor the
put is exercised. In those instances where one of the options is
exercised, the loss on the purchase or sale of the underlying
security may exceed the amount of the premiums received.
By writing a call option, the Fund limits its
opportunity to profit from any increase in the market value of
the underlying security above the exercise price of the option.
By writing a put option, the Fund assumes the risk that it may be
required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital
loss unless the security subsequently appreciates in value.
Where options are written for hedging purposes, such transactions
constitute only a partial hedge against declines in the value of
portfolio securities or against increases in the value of
securities to be acquired, up to the amount of the premium.
The Fund may purchase put options to hedge against a
decline in the value of portfolio securities. If such decline
occurs, the put options will permit the Fund to sell the
securities at the exercise price or to close out the options at a
profit. By using put options in this way, the Fund will reduce
any profit it might otherwise have realized in the underlying
security by the amount of the premium paid for the put option and
by transaction costs.
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The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. If such increase occurs, the call
option will permit the Fund to purchase the securities at the
exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by a Fund upon exercise of
the option, and, unless the price of the underlying security
rises sufficiently, the option may expire worthless to the Fund
and the Fund will suffer a loss on the transaction to the extent
of the premium paid.
Futures Contracts and Options on Futures Contracts
Futures Contracts. The Fund may enter into interest
rate futures contracts ("Futures Contracts"). Such investment
strategies will be used as a hedge and not for speculation.
Interest rate futures contracts are purchased or sold
for hedging purposes to attempt to protect against the effects of
interest rate changes on the Fund's current or intended
investments in fixed income securities. For example, if the Fund
owned long-term bonds and interest rates were expected to
increase, the Fund might sell interest rate futures contracts.
Such a sale would have much the same effect as selling some of
the long-term bonds in the Fund's portfolio. However, since the
futures market is more liquid than the cash market, the use of
interest rate futures contracts as a hedging technique allows the
Fund to hedge its interest rate risk without having to sell its
portfolio securities. If interest rates did increase, the value
of the debt securities in the portfolio would decline, but the
value of the Fund's interest rate futures contracts would be
expected to increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as
it otherwise would have. On the other hand, if interest rates
were expected to decline, interest rate futures contracts could
be purchased to hedge in anticipation of subsequent purchases of
long-term bonds at higher prices. Because the fluctuations in
the value of the interest rate futures contracts should be
similar to those of long-term bonds, the Fund could protect
itself against the effects of the anticipated rise in the value
of long-term bonds without actually buying them until the
necessary cash became available or the market had stabilized. At
that time, the interest rate futures contracts could be
liquidated and the Fund's cash reserves could then be used to buy
long-term bonds on the cash market.
Options on Futures Contracts. The Fund may purchase and
write options on Futures Contracts. The writing of a call option
on a Futures Contract constitutes a partial hedge against
declining prices of the securities in the Fund's portfolio. If
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the futures price at expiration of the option is below the
exercise price, the Fund will retain the full amount of the
option premium, which provides a partial hedge against any
decline that may have occurred in the Fund's portfolio holdings.
The writing of a put option on a Futures Contract constitutes a
partial hedge against increasing prices of the securities or
other instruments required to be delivered under the terms of the
Futures Contract. If the futures price at expiration of the put
option is higher than the exercise price, the Fund will retain
the full amount of the option premium, which provides a partial
hedge against any increase in the price of securities which the
Fund intends to purchase. If a put or call option the Fund has
written is exercised, the Fund will incur a loss which will be
reduced by the amount of the premium it receives. Depending on
the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options on
futures positions, the Fund's losses from exercised options on
futures may to some extent be reduced or increased by changes in
the value of portfolio securities.
The Fund may purchase options on Futures Contracts for
hedging purposes instead of purchasing or selling the underlying
Futures Contracts. For example, where a decrease in the value of
portfolio securities is anticipated as a result of a projected
market-wide decline or changes in interest or exchange rates, a
Fund could, in lieu of selling Futures Contracts, purchase put
options thereon. In the event that such decrease occurs, it may
be offset, in whole or part, by a profit on the option. If the
market decline does not occur, the Fund will suffer a loss equal
to the price of the put. Where it is projected that the value of
securities to be acquired by the Fund will increase prior to
acquisition, due to a market advance or changes in interest or
exchange rates, the Fund could purchase call options on Futures
Contracts, rather than purchasing the underlying Futures
Contracts. If the market advances, the increased cost of
securities to be purchased may be offset by a profit on the call.
However, if the market declines, the Fund will suffer a loss
equal to the price of the call, but the securities which the Fund
intends to purchase may be less expensive.
Risk Factors in Options and Futures
Risk of Imperfect Correlation of Hedging Instruments
With a Fund's Portfolio. The Fund's ability effectively to hedge
all or a portion of its portfolio through transactions in
options, Futures Contracts and options on Futures Contracts,
depends on the degree to which price movements in the underlying
instrument correlate with price movements in the relevant portion
of the Fund's portfolio or securities the Fund intends to
purchase. In the case of futures and options on fixed income
securities, the portfolio securities which are being hedged may
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not be the same type of obligation underlying such contract. As
a result, the correlation, to the extent it exists, probably will
not be exact. Consequently, the Fund bears the risk that the
price of the portfolio securities being hedged will not move by
the same amount or in the same direction as the underlying
obligation.
The trading of futures and options entails the
additional risk of imperfect correlation between movements in the
futures or option price and the price of the underlying
obligation. The anticipated spread between the prices may be
distorted due to the differences in the nature of the markets,
such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures
market. In this regard, trading by speculators in futures and
options has in the past occasionally resulted in market
distortions, which may be difficult or impossible to predict,
particularly near the expiration of such contracts.
The trading of options on Futures Contracts also entails
the risk that changes in the value of the underlying Futures
Contract will not be fully reflected in the value of the option.
The risk of imperfect correlation, however, generally tends to
diminish as the maturity date of the Futures Contract or
expiration date of the option approaches.
Further, with respect to options on securities and
options on Futures Contracts, the Fund is subject to the risk of
market movements between the time that the option is exercised
and the time of performance thereunder. This could increase the
extent of any loss suffered by the Fund in connection with such
transactions.
If the Fund purchases futures or options in order to
hedge against a possible increase in the price of securities
before the Fund is able to invest its cash in such securities,
the Fund faces the risk that the market may instead decline. If
the Fund does not then invest in such securities because of
concern as to possible further market declines or for other
reasons, the Fund may realize a loss on the futures or option
contract that is not offset by a reduction in the price of
securities purchased.
In writing a call option on a security or Futures
Contract, the Fund also incurs the risk that changes in the value
of the assets used to cover the position will not correlate
closely with changes in the value of the option or underlying
instrument. As a result, the Fund could suffer a loss on the
call which is not entirely offset or offset at all by an increase
in the value of the Fund's portfolio securities.
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The writing of options on securities or options on
Futures Contracts constitutes only a partial hedge against
fluctuations in the value of the Fund's portfolio. When the Fund
writes an option, it will receive premium income in return for
the holder's purchase of the right to acquire or dispose of the
underlying security or future. In the event that the price of
such obligation does not rise sufficiently above the exercise
price of the option, in the case of a call, or fall below the
exercise price, in the case of a put, the option will not be
exercised and the Fund will retain the amount of the premium,
which will constitute a partial hedge against any decline that
may have occurred in the Fund's portfolio holdings, or against
the increase in the cost of the instruments to be acquired.
When the price of the underlying obligation moves
sufficiently in favor of the holder to warrant exercise of the
option, however, and the option is exercised, the Fund will incur
a loss which may only be partially offset by the amount of the
premium the Fund received. Moreover, by writing an option, the
Fund may be required to forgo the benefits which might otherwise
have been obtained from an increase in the value of portfolio
securities or a decline in the value of securities to be
acquired.
In the event of the occurrence of any of the foregoing
adverse market events, the Fund's overall return may be lower
than if it had not engaged in the transactions described above.
With respect to the writing of straddles on securities,
the Fund incurs the risk that the price of the underlying
security will not remain stable, that one of the options written
will be exercised and that the resulting loss will not be offset
by the amount of the premiums received. Such transactions,
therefore, while creating an opportunity for increased return by
providing the Fund with two simultaneous premiums on the same
security, nonetheless involve additional risk, because the Fund
may have an option exercised against it regardless of whether the
price of the security increases or decreases.
Potential Lack of a Liquid Secondary Market. Prior to
exercise or expiration, a futures or option position can be
terminated only by entering into a closing purchase or sale
transaction. This requires a secondary market for such
instruments on the exchange on which the initial transaction was
entered into. While the Fund will enter into options or futures
positions only if there appears to be a liquid secondary market
therefor, there can be no assurance that such a market will exist
for any particular contracts at any specific time. In that
event, it may not be possible to close out a position held by the
Fund, and the Fund could be required to purchase or sell the
instrument underlying an option, make or receive a cash
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<PAGE>
settlement or meet ongoing variation margin requirements. Under
such circumstances, if the Fund has insufficient cash available
to meet margin requirements, it may be necessary to liquidate
portfolio securities at a time when it is disadvantageous to do
so. The inability to close out options and futures positions,
therefore, could have an adverse impact on the Fund's ability to
effectively hedge its portfolio, and could result in trading
losses.
The liquidity of a secondary market in a Futures
Contract or option thereon may be adversely affected by "daily
price fluctuation limits," established by exchanges, which limit
the amount of fluctuation in the price of a contract during a
single trading day. Once the daily limit has been reached in the
contract, no trades may be entered into at a price beyond the
limit, thus preventing the liquidation of open futures or option
positions and requiring traders to make additional margin
deposits. Prices have in the past moved to the daily limit on a
number of consecutive trading days.
The trading of Futures Contracts and options (including
options on Futures Contracts) is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of a brokerage firm
or clearing house or other disruptions of normal trading
activity, which could at times make it difficult or impossible to
liquidate existing positions or to recover excess variation
margin payments.
The staff of the SEC has taken the position that
over-the-counter options and the assets used as cover for
over-the-counter options are illiquid securities, unless certain
arrangements are made with the other party to the option
contract, permitting the prompt liquidation of the option
position. The Fund will enter into those special arrangements
only with primary U.S. Government securities dealers recognized
by the Federal Reserve Bank of New York ("primary dealers").
Under these special arrangements, the Trust will enter into
contracts with primary dealers which provide that the Fund has
the absolute right to repurchase an option it writes at any time
at a repurchase price which represents fair market value, as
determined in good faith through negotiation between the parties,
but which in no event will exceed a price determined pursuant to
a formula contained in the contract. Although the specific
details of the formula may vary between contracts with different
primary dealers, the formula will generally be based on a
multiple of the premium received by the Fund for writing the
option, plus the amount, if any, by which the option is
"in-the-money." The formula will also include a factor to
account for the difference between the price of the security and
the strike price of the option if the option is written
21
<PAGE>
out-of-the-money. Under such circumstances the Fund only needs
to treat as illiquid that amount of the "cover" assets equal to
the amount by which (i) the formula price exceeds (ii) any amount
by which the market value of the security subject to the option
exceeds the exercise price of the option (the amount by which the
option is "in-the-money"). Although each agreement will provide
that the Fund's repurchase price shall be determined in good
faith (and that it shall not exceed the maximum determined
pursuant to the formula), the formula price will not necessarily
reflect the market value of the option written; therefore, the
Fund might pay more to repurchase the option contract than the
Fund would pay to close out a similar exchange-traded option.
Margin. Because of low initial margin deposits made
upon the opening of a futures position and the writing of an
option, such transactions involve substantial leverage. As a
result, relatively small movements in the price of the contract
can result in substantial unrealized gains or losses. However,
to the extent the Fund purchases or sells Futures Contracts and
options on Futures Contracts and purchase and write options on
securities for hedging purposes, any losses incurred in
connection therewith should, if the hedging strategy is
successful, be offset, in whole or in part, by increases in the
value of securities held by the Fund or decreases in the prices
of securities the Fund intends to acquire. When the Fund writes
options on securities for other than hedging purposes, the margin
requirements associated with side transactions could expose the
Fund to greater risk.
Trading and Position Limits. The exchanges on which
futures and options are traded may impose limitations governing
the maximum number of positions on the same side of the market
and involving the same underlying instrument which may be held by
a single investor, whether acting alone or in concert with others
(regardless of whether such contracts are held on the same or
different exchanges or held or written in one or more accounts or
through one or more brokers). In addition, the Commodity Futures
Trading Commission (the "CFTC") and the various contract markets
have established limits referred to as speculative position
limits on the maximum net long or net short position which any
person may hold or control in a particular futures or option
contract. An exchange may order the liquidation of positions
found to be in violation of these limits and may impose other
sanctions or restrictions. The Adviser does not believe that
these trading and position limits will have any adverse impact on
the strategies for hedging the portfolio of the Fund.
Risks of Options on Futures Contracts. The amount of
risk the Fund assumes when it purchases an option on a Futures
Contract is the premium paid for the option, plus related
transaction costs. In order to profit from an option purchased,
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<PAGE>
however, it may be necessary to exercise the option and to
liquidate the underlying Futures Contract, subject to the risks
of the availability of a liquid offset market described herein.
The writer of an option on a Futures Contract is subject to the
risks of commodity futures trading, including the requirement of
initial and variation margin payments, as well as the additional
risk that movements in the price of the option may not correlate
with movements in the price of the underlying security or Futures
Contract.
Risks of Over-the-Counter Options on Securities. Unlike
transactions entered into by the Fund in Futures Contracts and
exchange-traded options, over-the-counter options on securities
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) the SEC. Such
instruments are instead traded through financial institutions
acting as market-makers, although foreign currency options are
also traded on certain national securities exchanges, such as the
Philadelphia Stock Exchange and the Chicago Board Options
Exchange, subject to SEC regulation. In an over-the-counter
trading environment, many of the protections afforded to exchange
participants will not be available. For example, there are no
daily price fluctuation limits, and adverse market movements
could therefore continue to an unlimited extent over a period of
time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this
entire amount could be lost. Moreover, the option writer could
lose amounts substantially in excess of the initial investment,
due to the margin and collateral requirements associated with
such positions.
In addition, over-the-counter transactions can be
entered into only with a financial institution willing to take
the opposite side, as principal, of the Fund's position unless
the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Fund.
Where no such counterparty is available, it will not be possible
to enter into a desired transaction. There also may be no liquid
secondary market in the trading of over-the-counter contracts,
and the Fund could be required to retain options purchased or
written until exercise, expiration or maturity. This in turn
could limit the Fund's ability to profit from open positions or
to reduce losses experienced, and could result in greater losses.
Further, over-the-counter transactions are not subject
to the guarantee of an exchange clearing house, and the Fund will
therefore be subject to the risk of default by, or the bankruptcy
of, the financial institution serving as its counterparty. The
Fund will enter into an over-the-counter transaction only with
parties whose creditworthiness has been reviewed and found
satisfactory by the Adviser.
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<PAGE>
Restrictions on the Use of Futures and Option Contracts
Under applicable regulations, when the Fund enters into
transactions in Futures Contracts and options on Futures
Contracts other than for bona fide hedging purposes, the Fund
maintains with its custodian in a segregated account cash,
short-term U.S. Government securities or high quality United
States dollar denominated money market instruments, which,
together with any initial margin deposits, are equal to the
aggregate market value of the Futures Contracts and options on
Futures Contracts that it purchases. In addition, the Fund may
not purchase or sell such instruments for other than bona fide
hedging purposes if, immediately thereafter, the sum of the
amount of initial margin deposits on such futures and options
positions and premiums paid for options purchased would exceed 5%
of the market value of the Fund's total assets.
The Fund has adopted the additional restriction that it
will not enter into a Futures Contract if, immediately
thereafter, the value of securities and other obligations
underlying all such Futures Contracts would exceed 50% of the
value of the Fund's total assets. Moreover, the Fund will not
purchase put and call options if as a result more than 10% of its
total assets would be invested in such options.
Economic Effects and Limitations
Income earned by the Fund from its hedging activities
will be treated as capital gain and, if not offset by net
realized capital losses incurred by the Fund, will be distributed
to shareholders in taxable distributions. Although gain from
futures and options transactions may hedge against a decline in
the value of the Fund's portfolio securities, that gain, to the
extent not offset by losses, will be distributed in light of
certain tax considerations and will constitute a distribution of
that portion of the value preserved against decline.
The Fund will "over-hedge", that is, the Fund will not
maintain open short positions in futures or options contracts if,
in the aggregate, the market value of its open positions exceeds
the current market value of its securities portfolio plus or
minus the unrealized gain or loss on such open positions,
adjusted for the historical volatility relationship between the
portfolio and futures and options contracts.
The Fund's ability to employ the options and futures
strategies described above will depend on the availability of
liquid markets in such instruments. Markets in financial futures
and related options are still developing. It is impossible to
predict the amount of trading interest that may hereafter exist
in various types of options or futures. Therefore no assurance
24
<PAGE>
can be given that the Fund will be able to use these instruments
effectively for the purposes set forth above.
The Fund's ability to use options and futures may be
limited by tax considerations. In particular, tax rules might
affect the length of time for which the Fund can hold such
contracts and the character of the income earned on such
contracts. In addition, differences between the Fund's book
income (upon the basis of which distributions are generally made)
and taxable income arising from its hedging activities may result
in return of capital distributions, and in some circumstances,
distributions in excess of the Fund's book income may be required
in order to meet tax requirements.
Future Developments
The above discussion relates to the Fund's proposed use
of futures contracts, options and options on futures contracts
currently available. As noted above, the relevant markets and
related regulations are still in the developing stage. In the
event of future regulatory or market developments, the Fund may
also use additional types of futures contracts or options and
other investment techniques for the purposes set forth above.
INVESTMENT RESTRICTIONS
Except as described below and except as otherwise
specifically stated in the Fund's Prospectus or this Statement of
Additional Information, the investment policies of the Fund set
forth in the Prospectuses and in this Statement of Additional
Information are not fundamental and may be changed without
shareholder approval.
The following is a description of restrictions on the
investments to be made by the Fund, which restrictions may not be
changed without the approval of a majority of the outstanding
voting securities of the Fund.
The Fund will not:
(1) Borrow money in excess of 10% of the value (taken
at the lower of cost or current value) of its total
assets (not including the amount borrowed) at the
time the borrowing is made, and then only from
banks as a temporary measure to facilitate the
meeting of redemption requests (not for leverage)
which might otherwise require the untimely
disposition of portfolio investments or pending
25
<PAGE>
settlement of securities transactions or for
extraordinary or emergency purposes, except that
the Fund may enter into reverse repurchase
agreements to the maximum extent permitted by law.
(2) Underwrite securities issued by other persons
except to the extent that, in connection with the
disposition of its portfolio investments, it may be
deemed to be an underwriter under certain federal
securities laws.
(3) Purchase or retain real estate or interests in real
estate, although the Fund may purchase securities
which are secured by real estate and securities of
companies which invest in or deal in real estate.
(4) Make loans to other persons except by the purchase
of obligations in which the Fund may invest
consistent with its investment policies and by
entering into repurchase agreements, or by lending
its portfolio securities representing not more than
25% of its total assets.
(5) Issue any senior security (as that term is defined
in the 1940 Act), if such issuance is specifically
prohibited by the 1940 Act or the rules and
regulations promulgated thereunder. For the
purposes of this restriction, collateral
arrangements with respect to options, Futures
Contracts and Options on Futures Contracts and
collateral arrangements with respect to initial and
variation margins are not deemed to be the issuance
of a senior security. (There is no intention to
issue senior securities except as set forth in
paragraph 1 above.)
It is also a fundamental policy of the Fund that it may
purchase and sell futures contracts and related options and it is
a fundamental policy of the Fund that it may enter into reverse
repurchase agreements and interest rate swaps to the maximum
extent permitted by law.
In addition, the following is a description of operating
policies which the Trust has adopted on behalf of the Fund but
which are not fundamental and are subject to change without
shareholder approval.
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<PAGE>
The Fund will not:
(a) Pledge, mortgage, hypothecate or otherwise encumber
an amount of its assets taken at current value in
excess of 15% of its total assets (taken at the
lower of cost or current value) and then only to
secure borrowings permitted by Restriction No. 1
above. For the purpose of this restriction, the
deposit of securities and other collateral
arrangements with respect to reverse repurchase
agreements, options, Futures Contracts, and
payments of initial and variation margin in
connection therewith are not considered pledges or
other encumbrances.
(b) Purchase securities on margin, except that the Fund
may obtain such short-term credits as may be
necessary for the clearance of purchases and sales
of securities, and except that the Fund may make
margin payments in connection with Futures
Contracts, options on Futures Contracts or options.
(c) Make short sales of securities or maintain a short
position for the account of the Fund unless at all
times when a short position is open it owns an
equal amount of such securities or unless by virtue
of its ownership of other securities it has at all
such times a right to obtain securities (without
payment of further consideration) equivalent in
kind and amount to the securities sold, provided
that if such right is conditional the sale is made
upon equivalent conditions.
(d) Write, purchase or sell any put or call option or
any combination thereof, provided that this shall
not prevent the Fund from writing, purchasing and
selling puts, calls or combinations thereof with
respect to securities and with respect to Futures
Contracts.
(e) Purchase voting securities of any issuer if such
purchase, at the time thereof, would cause more
than 10% of the outstanding voting securities of
such issuer to be held by the Fund; or purchase
securities of any issuer if such purchase at the
time thereof would cause more than 10% of any class
of securities of such issuer to be held by the
Fund. For this purpose all indebtedness of an
issuer shall be deemed a single class and all
preferred stock of an issuer shall be deemed a
single class.
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(f) Invest in securities of any issuer if, to the
knowledge of the Trust, officers and Trustees of
the Trust and officers and directors of the Adviser
who beneficially own more than 0.5% of the shares
of securities of that issuer together own more than
5%.
(g) Purchase securities issued by any other registered
investment company or investment trust except (A)
by purchase in the open market where no commission
or profit to a sponsor or dealer results from such
purchase other than the customary broker's
commission, or (B) where no commission or profit to
a sponsor or dealer results from such purchase, or
(C) when such purchase, though not made in the open
market, is part of a plan of merger or
consolidation; provided, however, that the Fund
will not purchase such securities if such purchase
at the time thereof would cause more than 5% of its
total assets (taken at market value) to be invested
in the securities of such issuers; and, provided
further, that the Fund's purchases of securities
issued by an open-end investment company will be
consistent with the provisions of the 1940 Act.
(h) Make investments for the purpose of exercising
control or management.
(i) Participate on a joint or joint and several basis
in any trading account in securities.
(j) Invest in interests in oil, gas, or other mineral
exploration or development programs, although each
Fund may purchase securities which are secured by
such interests and may purchase securities of
issuers which invest in or deal in oil, gas or
other mineral exploration or development programs.
(k) Purchase warrants, if, as a result, the Fund would
have more than 5% of its total assets invested in
warrants or more than 2% of its total assets
invested in warrants which are not listed on the
New York Stock Exchange or the American Stock
Exchange.
(l) Purchase commodities or commodity contracts,
provided that this shall not prevent the Fund from
entering into interest rate futures contracts,
securities index futures contracts, foreign
currency futures contracts, forward foreign
currency exchange contracts and options (including
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<PAGE>
options on any of the foregoing) to the extent such
action is consistent with such Funds investment
objective and policies.
(m) Purchase additional securities in excess of 5% of
the value of its total assets until all of the
Fund's outstanding borrowings (as permitted and
described in Restriction No. 1 above) have been
repaid.
Whenever any investment restriction states a maximum
percentage of the Fund's assets which may be invested in any
security or other asset, it is intended that such maximum
percentage limitation be determined immediately after and as a
result of the Fund's acquisition of such securities or other
assets. Accordingly, any later increase or decrease beyond the
specified limitation resulting from a change in value or net
asset value will not be considered a violation of such percentage
limitation.
MANAGEMENT OF THE FUND
Adviser
Alliance Capital Management L.P. (the "Adviser"), 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 "Investment
Advisory Contract") to provide investment advice and, in general,
to conduct the management and investment program of the Trust
under the supervision of the Trust's Board of Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of
September 30, 1995 totaling more than $140 billion (of which more
than $47 billion represented the assets of investment companies).
The Adviser's clients are primarily major corporate employee
benefit funds, public employee retirement systems, investment
companies, foundations and endowment funds and included, as of
September 30, 1995, 29 of the FORTUNE 100 Companies. As of that
date, the Adviser and its subsidiaries employed approximately
1,350 employees who operated out of domestic offices and the
overseas offices of subsidiaries in Bombay, Istanbul, London,
Sydney, Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The
50 registered investment companies comprising 104 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
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Alliance Capital Management Corporation, the sole
general partner of, and the owner of a 1% general partnership
interest in, the Adviser, is an indirect wholly-owned subsidiary
of The Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"), and approximately 33% and 8% of the Units were
owned by the public and employees of the Adviser and its
subsidiaries, respectively, calculated including employees of the
Adviser who serve as Trustees of the Fund.
AXA owns approximately 60% of the outstanding voting
shares of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of activities
in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial service activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the voting shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali"), one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%. As of January 1, 1995, 62.1%
of the voting shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the voting shares (representing 39.0% of the
voting power)), and 26.5% of the voting shares (representing
16.6% of the voting power) of Finaxa were owned by Banque
Paribas, a French bank ("Paribas"). Including the shares owned
by Midi Participations, as of January 1, 1995, the Mutuelles AXA
directly or indirectly owned 51.3% of the voting shares
(representing 65.8% of the voting power) of AXA. In addition,
certain subsidiaries of AXA own 0.4% of the shares of AXA which
are not entitled to be voted. Acting as a group, the Mutuelles
AXA control AXA, Midi Participations and Finaxa.
30
<PAGE>
Investment Advisory Contract and Expenses
The Adviser serves as investment manager and adviser of
the Fund, furnishes continuously an investment program for the
Fund and manages, supervises and conducts the affairs of the
Fund. The Investment Advisory Contract also provides that the
Adviser will furnish or pay the expenses of the Trust for office
space, facilities and equipment, services of executive and other
personnel of the Trust and certain administrative services. The
Adviser is compensated for its services to the Fund at an annual
rate equal to .55% of the Funds average daily net assets. The
Adviser has voluntarily undertaken until further notice to waive
its fees in respect of the Fund and has agreed to bear certain
expenses of the Class A, Class B and Class C shares of the Fund
to the extent that expenses exceed an annual rate of 1.40% for
Class A shares and 2.10% for Class B shares and Class C shares.
The Investment Advisory Contract became effective on
July 23, 1993. The Investment Advisory Contract replaced two
earlier agreements (collectively, the "First Investment Advisory
Contract") between the Trust and Equitable Capital Management
Corporation ("Equitable Capital") or Equitable, as the case may
be, with respect to the Fund. The First Investment Advisory
Contract terminated because of its technical assignment in
connection with the transfer of substantially all of the assets
comprising Equitable Capital's business to the Adviser and
certain of its subsidiaries in exchange for newly issued limited
partnership interests in the Adviser and the assumption by the
Adviser and such subsidiaries of certain liabilities of Equitable
Capital. Equitable Capital was compensated for its services as
investment manager of the Fund at the same rate as is currently
paid by the Fund to the Adviser.
In anticipation of the assignment of the First
Investment Advisory Contract, the Investment Advisory Contract
was approved by the vote of the Trust's Trustees, including the
Trustees who are not parties to the Investment Advisory Contract
or interested persons of any such party, at meetings called for
the purpose and held on February 16, 1993 and March 31, 1993. At
a meeting held on April 8, 1993, a majority of the outstanding
voting securities of the Fund approved the Investment Advisory
Contract. Most recently, the continuance of the Investment
Advisory Contract until July 31, 1996 was approved by a vote,
cast in person, of the Board of Trustees, including a majority of
the Trustees who are not parties to the Investment Advisory
Contract or interested persons of any such party, at their
Regular Meeting held on July 19, 1995.
During the fiscal year ended August 31, 1995, Alliance
earned $76,173 in advisory fees from the Fund (all of which was
waived and an additional $229,782 in expenses were waived and
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reimbursed by the Fund). During the period May 1, 1994 through
August 31, 1994, Alliance earned $30,004 in advisory fees from
the Fund (all of which was waived and an additional $53,146 in
expenses were waived and reimbursed by the Fund). During the
period July 23, 1993 through the fiscal year ended April 30,
1994, Alliance earned $52,323 from the Fund (an additional
$114,354 in fees were waived). Prior to July 23, 1993, Equitable
Capital served as investment adviser to the Fund since its
inception. During the period May 1, 1993 to July 22, 1993,
Equitable Capital earned $10,557 from the Fund (an additional
$10,672 in fees were waived). During the fiscal year ended April
30, 1993, Equitable Capital earned $1,293 in management fees from
the Fund (an additional $52,054 in fees were waived).
The Investment Advisory Contract provides that it will
continue in effect for two years from its date of execution and
thereafter from year to year if its continuance is approved at
least annually (i) by the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund, and
(ii) by vote of a majority of the Trustees who are not interested
persons of the Adviser cast in person at a meeting called for the
purpose of voting on such approval. Any amendment to the
Investment Advisory Contract must be approved by vote of a
majority of the outstanding voting securities of the Fund and by
vote of a majority of the Trustees who are not such interested
persons, cast in person at a meeting called for the purpose of
voting on such approval. The Investment Advisory Contract may be
terminated without penalty by the Adviser, by vote of the
Trustees or by vote of a majority of the outstanding voting
securities of the Fund upon sixty days' written notice, and it
terminates automatically in the event of its assignment. The
Adviser controls the word "Alliance" in the names of the Trust
and the Fund, and if Alliance should cease to be the investment
manager of the Fund, the Trust and the Fund may be required to
change its name and delete that word.
The Investment Advisory Contract provides that the
Adviser shall not be subject to any liability in connection with
the performance of its services thereunder in the absence of
willful misfeasance, bad faith, gross negligence or reckless
disregard of its obligations and duties.
Trustees and Officers
The Trustees and principal officers of the Trust, their
ages as of the date of this Statement of Additional Information
and their primary occupations during the past five years are set
forth below.
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<PAGE>
Trustees
*John D. Carifa, 50, Chairman of the Board and
President, is the President, Chief Operating Officer, and a
Director of Alliance Capital Management Corporation, the general
partner of the Adviser. His address is 1345 Avenue of the
Americas, New York, New York 10105.
Alberta B. Arthurs, 62, is the Director for Arts and
Humanities for The Rockefeller Foundation. Her address is 1133
Avenue of the Americas, New York, New York 10036.
Ruth Block, 64, was formerly an Executive Vice President
and the Chief Insurance Officer of The Equitable Life Assurance
Society of the United States. She is a Director of Ecolab
Incorporated (specialty chemicals) and Amoco Corporation (oil and
gas). Her address is Box 4653, Stamford, Connecticut 06903.
Richard W. Couper, 72, is President Emeritus and Trustee
of The Woodrow Wilson Fellowship Foundation and President
Emeritus of the New York Public Library. His address is Box 345,
Clinton, New York 13323-0345.
Brenton W. Harries, 67, is a Director of Enhance
Reinsurance Co. and was formerly the President and Chief
Executive of Global Electronic Markets Company. His address is
14 Point Road, Wilson Point, South Norwalk, Connecticut 06854.
Donald J. Robinson, 61, was formerly a partner at
Orrick, Herrington & Sutcliffe and is currently of counsel to
that firm. His address is 599 Lexington Avenue, 26th Floor, New
York, New York 10022.
Officers
*John D. Carifa, President, see biography above.
___________________
* An "interested person" of the Trust, as defined by the 1940
Act.
33
<PAGE>
Edmund P. Bergan, Jr., 45, Clerk, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
His address is 1345 Avenue of the Americas, New York, New York
10105.
Mark D. Gersten, 45, Treasurer and Chief Financial
Officer, is a Senior Vice President of Alliance Fund Services,
Inc. His address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Patrick J. Farrell, 35, Controller and Chief Accounting
Officer, is a Vice President of Alliance Fund Services, Inc. His
address is 500 Plaza Drive, Secaucus, New Jersey 07094.
Bruce W. Calvert, 48, Vice President, is the Vice
Chairman and Chief Investment Officer of Alliance Capital
Management Corporation, the general partner of Alliance Capital
Management L.P. His address is 1345 Avenue of the Americas, New
York, New York 10105.
Kathleen A. Corbet, 35, Vice President, is, since July
23, 1993, a Senior Vice President of Alliance Capital Management
Corporation, the general partner of Alliance Capital Management
L.P. She is also Vice President of The Hudson River Trust. She
was formerly Executive Vice President of Equitable Capital. Her
address is 1345 Avenue of the Americas, New York, New York 10105.
Franklin Kennedy III, 53, Vice President, is, since July
23, 1993, Senior Vice President of Alliance Capital Management
Corporation, the general partner of Alliance Capital Management
L.P. and Vice President of The Hudson River Trust. His address
is 1345 Avenue of the Americas, New York, New York 10105.
Barbara J. Krumsiek, 43, Vice President - Marketing, is,
since July 23, 1993, a Senior Vice President of Alliance Fund
Distributors, Inc. She was formerly an Investment Officer of
Equitable, Senior Vice President of Equitable Capital and Vice
President of Equitable Variable Life Insurance Company. Her
address is 1345 Avenue of the Americas, New York, New York 10105.
Wayne D. Lyski, 54, Vice President, is Executive Vice
President of Alliance Capital Management Corporation, the general
partner of Alliance Capital Management L.P. His address is 1345
Avenue of the Americas, New York, NY 10105.
The aggregate compensation paid to each of the Trustees
by the Fund during the fiscal year ended August 31, 1995 and the
aggregate compensation paid to each of the Trustees during
calendar year 1994 by the Trust and 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 in the
34
<PAGE>
Alliance Fund Complex with respect to which each Trustee serves
as a director or trustee, are set forth below. Neither the Fund
nor any Fund in the Alliance Fund Complex provides compensation
in the form of pension or retirement benefits to any of its
trustees or directors. Each of the Trustees is a trustee or
director of one or more other registered investment companies in
the Alliance Fund Complex.
Total Number
of Funds in
the Alliance
Total Fund Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Trustee Compensation Including the Director or
of the Fund From the Fund Fund* Trustee
________________ _____________ _____________ ______________
Alberta B. Arthurs $4,800 $25,000 5
Ruth Block $4,800 $157,000 31
John D. Carifa $ -- $ -- 42
Richard W. Couper $4,800 $26,000 5
Brenton W. Harries $4,800 $24,000 5
Donald J. Robinson $4,800 $26,000 5
_____________________
* There are 104 investment companies or portfolios thereof in the
Alliance Fund Complex.
As of October 13, 1995, the Trust believes that the
officers and Trustees of the Trust as a group owned beneficially
less than 1.00% of the outstanding shares of the Fund or of the
Trust as a whole.
The Trust undertakes to provide assistance to
shareholders in communications concerning the removal of any
Trustee of the Trust in accordance with Section 16 of the 1940
Act.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of
Trustees of the Trust, 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
35
<PAGE>
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.
The Adviser makes the decisions for the Fund and
determines the broker or dealer to be used in each specific
transaction. Most transactions for the Fund, 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 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 the Fund 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
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. There may be
occasions where the transaction cost charged by a broker may be
greater than that which another broker may charge if the Fund
determines in good faith that the amount of such transaction cost
is reasonable in relationship to the value of the brokerage and
research and statistical services provided by the executing
broker.
No transactions for the Fund are executed through any
broker or dealer affiliated with the Fund's Adviser, or with
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate
of the Adviser. During the fiscal years ended June 30, 1993,
1994 and 1995, the Fund incurred no brokerage commissions.
36
<PAGE>
EXPENSES OF THE FUND
In addition to the payments to the Adviser under the
Investment Advisory Contract described above, the Trust pays
certain other costs including (a) brokerage and commission
expenses, (b) Federal, state and local taxes, including issue and
transfer taxes incurred by or levied on Fund, (c) interest
charges on borrowing, (d) fees and expenses of registering the
shares of the Fund under the appropriate Federal securities laws
and of qualifying shares of the Fund under applicable state
securities laws including expenses attendant upon renewing and
increasing such registrations and qualifications, (e) expenses of
printing and distributing the Fund's prospectus and other reports
to shareholders, (f) costs of proxy solicitations, (g) transfer
agency fees described below, (h) charges and expenses of the
Trust's custodian, (i) compensation of the Trust's officers,
Trustees and employees who do not devote any part of their time
to the affairs of the Adviser or its affiliates, (j) costs of
stationery and supplies, and (k) such promotional expenses as may
be contemplated by the Distribution Services Agreement described
below.
Distribution Arrangements
Rule 12b-1 adopted by the SEC under the 1940 Act permits
an investment company to directly or indirectly pay expenses
associated with the distribution of its shares in accordance with
a duly adopted and approved plan. The Trust has adopted a plan
for each class of shares of the Fund pursuant to Rule 12b-1 (each
a "Plan" and collectively the "Plans"). Pursuant to the Plans,
the Fund pays Alliance Fund Distributors, Inc. (the "Principal
Underwriter") a Rule 12b-1 distribution services fee which may
not exceed an annual rate of .50% of the Funds aggregate average
daily net assets attributable to the Class A shares, 1.00% of the
Fund's aggregate average daily net assets attributable to the
Class B shares and 1.00% of the Funds aggregate average daily net
assets attributable to the Class C shares to compensate the
Principal Underwriter for distribution expenses. The Trustees
currently limit payments under the Class A Plan to .30% of the
Fund's aggregate average daily net assets attributable to the
Class A shares. The Plans provide that a portion of the
distribution services fee in an amount not to exceed .25% of the
aggregate average daily net assets of the Fund attributable to
each of the Class A shares, Class B shares and Class C shares
constitutes a service fee that the Principal Underwriter will use
for personal service and/or the maintenance of shareholder
accounts. The Plans also provide that the Adviser may use its
own resources, which may include management fees received by the
37
<PAGE>
Adviser from the Trust or other investment companies which it
manages and the Advisers past profits, to finance the
distribution of the Fund's shares.
Each Plan may be terminated with respect to the class of
shares of the Fund to which the Plan relates by vote of a
majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in
the operation of the Plans or in any agreement related to the
Plans (the "Qualified Trustees"), or by vote of a majority of the
outstanding voting securities of that class. Each Plan may be
amended by vote of the Trustees, including a majority of the
Qualified Trustees, cast in person at a meeting called for that
purpose. Any change in a Plan that would materially increase the
distribution costs to the class of shares of the Fund to which
the Plan relates requires approval by the affected class of
shareholders of the Fund. The Trustees review quarterly a
written report of such distribution costs and the purposes for
which such costs have been incurred with respect to the Fund's
Class A, Class B and Class C shares. For so long as the Plans
are in effect, selection and nomination of those Trustees who are
not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Plans may be terminated with respect to the Fund or
any class of shares thereof at any time on 60 days' written
notice without payment of any penalty by the Principal
Underwriter or by vote of a majority of the outstanding voting
securities of the Fund or that class (as appropriate) or by vote
of a majority of the Qualified Trustees.
The Plans will continue in effect with respect to the
Fund and each class of shares thereof for successive one-year
periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Qualified Trustees
and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
During the Fund's fiscal year ended August 31, 1995,
with respect to Class A shares, the distribution services fees
for expenditure payable to the Principal Underwriter amounted to
$5,589, which constituted .30 of 1% of the Fund's average daily
net assets during the period, and the Investment Adviser made
payments from its own resources aggregating $102,145. Of the
$107,734 paid by the Fund and the Adviser under the Plan with
respect to Class A shares, $14,042 was spent on advertising,
$2,379 on the printing and mailing of prospectuses for persons
other than current shareholders, $0 for compensation to broker-
dealers and other financial intermediaries, $33,148 for
compensation paid to wholesalers of the Principal Underwriter in
respect of sales of shares of the Fund, and $52,576 was spent on
38
<PAGE>
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended August 31, 1995,
with respect to Class B shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$14,461, which constituted 1% of the Fund's average daily net
assets during such period, and the Adviser made payments from its
own resources aggregating $259,218. Of the $273,679 paid by the
Fund and the Adviser under the Plan with respect to Class B
shares, $25,563 was spent on advertising, $2,616 on the printing
and mailing of prospectuses for persons other than current
shareholders, $56,236 for compensation to broker-dealers and
other financial intermediaries, $60,157 for compensation paid to
wholesalers of the Principal Underwriter in respect of sales of
shares of the Fund, and $90,513 was spent on printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses, and $24,133 was spent on financing of
interest relating to Class B shares.
During the Fund's fiscal year ended August 31, 1995,
with respect to Class C shares, distribution services fees for
expenditures payable to the Principal Underwriter amounted to
$53,785, which constituted 1% of the Fund's average daily net
assets during such period, and the Adviser made payments from its
own resources aggregating $146,240. Of the $200,025 paid by the
Fund and the Adviser under the Plan with respect to Class C
shares, $19,454 was spent on advertising, $3,056 on the printing
and mailing of prospectuses for persons other than current
shareholders, $0 for compensation to broker-dealers and other
financial intermediaries, $42,805 for compensation paid to
wholesalers of the Principal Underwriter in respect of sales of
shares of the Fund, and $80,925 was spent on printing of sales
literature, travel, entertainment, due diligence and other
promotional expenses.
Custodial Arrangements
State Street Bank and Trust Company, 225 Franklin
Street, Boston, MA, 02110 ("State Street Bank") is the Trust's
custodian.
Transfer Agency Arrangements
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Fund, plus reimbursement for out-of-pocket
expenses.
39
<PAGE>
PURCHASE OF SHARES
The following information supplements that set forth in
the Fund's Prospectus under the heading "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 (the "initial sales charge
alternative"), with a contingent deferred sales charge (the
"deferred sales charge alternative"), or without any initial or
contingent deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of the Fund are
offered on a continuous basis through (i) investment dealers that
are members of the National Association of Securities Dealers,
Inc. and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), or (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," the Fund offers an automatic investment program and a
403(b)(7) retirement plan which permit investments of $25 or
more. The subscriber may use the Subscription Application found
in the Prospectus for his or her initial investment. Sales
personnel of selected dealers and agents distributing the Fund's
shares may receive differing compensation for selling Class A,
Class B or Class C shares.
Investors may purchase shares of the Fund in the United
States either through selected dealers or agents or directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible. The Fund may refuse any
order for the purchase of shares. The Fund reserves the right to
suspend the sale of its shares to the public in response to
conditions in the securities markets or for other reasons.
The public offering price of shares of the Fund is their
net asset value, plus, in the case of most purchases of Class A
shares, a sales charge which will vary depending on the purchase
alternative chosen by the investor and the amount of the
purchase, as shown in the table in the Prospectus. On each Fund
business day on which a purchase or redemption order is received
40
<PAGE>
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
Trust's Agreement and Declaration of Trust and By-Laws as of the
next close of regular trading on the New York Stock Exchange (the
"Exchange") (currently 4:00 p.m. New York time) by dividing the
value of the total assets attributable to a class, less its
liabilities, by the total number of its shares then outstanding.
The respective per share net asset values of the Class A, Class B
and Class C shares are expected to be substantially the same.
Under certain circumstances, however, the per share net asset
values of the Class B shares and Class C shares may be lower than
the per share net asset value of the Class A shares as a result
of the daily expense accruals of the distribution and transfer
agency fees applicable with respect to the Class B shares and
Class C shares. Even under those circumstances, the per share
net asset values of the three classes eventually will tend to
converge immediately after the payment of dividends, which will
differ by approximately the amount of the expense accrual
differential among the classes. A Fund business day is any
weekday, exclusive of national holidays on which the Exchange is
closed and Good Friday. For purposes of this computation, the
securities in the Fund's portfolio are valued at their current
market value determined on the basis of market quotations or, if
such quotations are not readily available, such other methods as
the Trustees believe would accurately reflect fair market value.
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 share sales
charges). 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 share sales charges). In the
case of orders for purchase of shares placed through selected
dealers or agents, the applicable public offering price will be
the net asset value as so determined, but only if the selected
dealer or agent receives the order prior to the close of regular
trading on the Exchange and transmits it to the Principal
Underwriter prior to its close of business that same day
(normally 5:00 p.m. New York time). The selected dealer or agent
is responsible for transmitting such orders by 5:00 p.m. If the
selected dealer or agent fails to do so, the investor's right to
that day's closing price must be settled between the investor and
the selected dealer or agent. If the selected dealer or agent
receives the order after the close of regular trading on the
Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.
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<PAGE>
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application obtained by calling the "Literature" telephone number
shown on the cover of this Statement of Additional Information.
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. New York
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, share 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 amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., an affiliate of the
Principal Underwriter, in connection with the sale of shares of
the Fund. Such additional amounts may be utilized, in whole or
in part, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions,
such cash or other incentives will be conditioned upon the sale
of a specified minimum dollar amount of the shares of the Fund
and/or other Alliance Mutual Funds, as defined below, during a
specific period of time. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or
agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
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<PAGE>
Alternative Purchase Arrangements
The Fund issues three classes of shares: Class A shares
are sold to investors choosing the initial sales charge
alternative, Class B shares are sold to investors choosing the
deferred sales charge alternative, and Class C shares are sold to
investors choosing the asset-based sales charge alternative. The
three classes of shares each represent an interest in the same
portfolio of investments of the Fund, have the same rights and
are identical in all respects, except that (i) Class A shares
bear the expense of the initial sales charge (or contingent
deferred sales charge, when applicable) and Class B shares bear
the expense of the contingent deferred sales charge, (ii) Class B
shares and Class C shares each bear the expense of a higher
distribution services fee and in the case of Class B shares,
higher transfer agency costs, (iii) each class has exclusive
voting rights with respect to 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,
and (iv) only the Class B shares are subject to a conversion
feature. Each class has different exchange privileges and
certain different shareholder service options available.
The alternative purchase arrangements permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in a Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee on Class
C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on Class
A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans) for more than $250,000 for Class B shares.
Class C shares will normally not be suitable for the investor who
qualifies to purchase Class A shares at net asset value. For
this reason, the Principal Underwriter will reject any order for
more than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, most investors purchasing Class A shares would not
have all their funds invested initially and, therefore, would
43
<PAGE>
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge. For example, based on current fees and
expenses, an investor subject to the 4.25% initial sales charge
would have to hold his or her investment approximately seven
years for the Class C distribution services fee to exceed the
initial sales charge plus the accumulated distribution services
fee of Class A shares. In this example, an investor intending to
maintain his or her investment for a longer period might consider
purchasing Class A shares. This example does not take into
account the time value of money, which further reduces the impact
of the Class C distribution services fees on the investment,
fluctuations in net asset value or the effect of different
performance assumptions.
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
period during which Class B shares are subject to a contingent
deferred sales charge may find it more advantageous to purchase
Class C shares.
The Trustees of the Trust have determined that currently
no conflict of interest exists between or among the Class A,
Class B and Class C shares. On an ongoing basis, the Trustees of
the Trust, pursuant to their fiduciary duties under the 1940 Act
and state laws will seek to ensure that no such conflict arises.
Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for
purchasers choosing the initial sales charge alternative is the
net asset value plus a sales charge, as set forth below:
44
<PAGE>
Discount or
Commission
As % of to Dealers
As % of the Public or Agents
Amount of Net Amount Offering As % of
Purchase Invested Price Offering Price
_________ __________ __________ ______________
Less than
$100,000. . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000. . . 3.36 3.25 3.00
$250,000 but
less than
$500,000. . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . 1.78 1.75 1.50
________________
* There is no initial sales charge on transactions of $1,000,000
or more.
With respect to purchases of $1,000,000 or more, Class A
shares redeemed within one year of purchase will be subject to a
contingent deferred sales charge equal to 1% of the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, and such charge will be applied to
redemptions of shares by shareholders who hold both Class A
shares and Class B shares, as described below under "Deferred
Sales Charge Alternative -- Class B Shares." Proceeds from the
contingent deferred sales charge on Class A shares are paid to
the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sales of Class A shares, such as the payment
of compensation to selected dealers and agents for selling Class
A shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Adviser may, pursuant to
the Rule 12b-1 Plans 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.
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<PAGE>
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, or (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge. The Fund receives the entire net asset value of
its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown in the
Prospectus 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 in the Prospectus. The Principal
Underwriter, however, 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 a reallowance in excess of 90% of
such a sales charge may be deemed to be an "underwriter" under
the Securities Act of 1933, as amended.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth in
the Prospectus at a price based upon the net asset value of Class
A shares of the Fund on August 31, 1995.
Net Asset Value per Class A
Share at August 31, 1995 $ 9.70
Per Share Sales Charge - 4.25%
of offering price (4.46% of
net asset value per share) $ 0.43
Class A Per Share Offering Price
to the Public $10.13
An investor choosing the initial sales charge
alternative may under certain circumstances be entitled to pay a
reduced initial sales charge or no initial sales charge but
subject in most cases to a contingent deferred sales charge. The
circumstances under which such an investor may pay a reduced
initial sales charge or no initial sales charge are described
below.
Combined Purchase Privilege. Certain persons may
qualify for the sales charge reductions indicated in the schedule
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of such charges shown in the Prospectus 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 a 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 that 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 Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, 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
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-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 Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting Alliance Fund Services,
Inc. at the address or the "Literature" telephone number shown on
the front cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right of Accumulation).
An investor's purchase of additional Class A shares of the Fund
may qualify for a Cumulative Quantity Discount. The applicable
sales charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on
the previous day) of (a) all Class A, Class B and
Class C shares of the Fund held by the investor and
(b) all shares of any other Alliance Mutual Fund
held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
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
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<PAGE>
additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
Statement of Intention. Class A investors may also
obtain the reduced initial sales charge shown in the Prospectus
by means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and/or
Class C shares) of the Fund or any other Alliance Mutual Fund.
Each purchase of shares under a Statement of Intention will be
made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar
amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will be necessary to invest
only a total of $60,000 during the following 13 months in shares
of the Fund or any other Alliance Mutual Fund to qualify for the
initial sales charge on the total amount being invested, i.e.,
the initial sales charge applicable to an investment of $100,000.
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
of such amount. Shares purchased with the first 5% of such
amount will be held in escrow (while remaining registered in the
name of the investor) to secure payment of the higher initial
sales 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
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<PAGE>
in cash or reinvested in additional Fund shares, are not subject
to escrow. When the full amount indicated has been purchased, the
escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the initial sales charge will be adjusted for the entire amount
purchased at the end of the 13-month period. The difference in
the initial sales charge will be used to purchase additional
shares of the Fund subject to the rate of the initial sales
charge applicable to the actual amount of the aggregate
purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
a 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 a Fund or
any other Alliance Mutual Fund at a reduced initial sales charge
on a monthly basis during the 13-month period following such a
plan's initial purchase. The initial sales charge applicable to
such initial purchase of shares of a Fund will be that normally
applicable, under the schedule of the initial sales charges set
forth above, to an investment 13 times larger than such initial
purchase. The sales charge applicable to each succeeding monthly
purchase will be that normally applicable, under such schedule,
to an investment equal to the sum of (i) the current month's
purchase multiplied by the number of months (including the
current month) remaining in the 13-month period, and (ii) the
total purchase previously made during the 13-month period. Sales
charges previously paid during such period will not be
retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A shares of the Fund to be
redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that such
reinvestment is made within 120 calendar days after the
redemption or repurchase date. Shares are sold to a reinvesting
shareholder at the net asset value next determined as described
above. A reinstatement pursuant to this privilege will not
cancel the redemption or repurchase transaction; therefore, any
gain or loss so realized will be recognized for Federal tax
purposes except that no loss will be recognized to the extent
that the proceeds are reinvested in shares of the Fund. The
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<PAGE>
reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased,
except that the privilege may be used without limit in connection
with transactions whose sole purpose is to transfer a
shareholder's interest in the Fund to his or her individual
retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written
request sent to the Fund at the address shown on the cover of
this Statement of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales
charge) and without any contingent deferred sales charge to
certain categories of investors including: (i) investment
advisory clients of the Adviser or its affiliates; (ii) officers
and present or former Trustees of the Trust; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser; officers, directors and present or retired full-time
employees of Alliance Capital Management Corporation, 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) certain employee benefit
plans for employees of the Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their affiliates; (iv) persons
participating in a fee-based program, sponsored and maintained by
a registered broker-dealer and approved by the Principal
Underwriter, pursuant to which such persons pay an asset-based
fee to such broker-dealer, or its affiliate or agent, for service
in the nature of investment advisory or administrative services;
(v) persons who establish to the Principal Underwriter's
satisfaction that they are investing, within such time period as
may be designated by the Principal Underwriter, proceeds of
redemption of shares of such other registered investment
companies as may be designated from time to time by the Principal
Underwriter; and (vi) employer-sponsored qualified pension or
profit-sharing plans (including Section 401(k) plans), custodial
accounts maintained pursuant to Section 403(b)(7) retirement
plans and individual retirement accounts (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.
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Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Fund will receive the full amount of the
investor's purchase payment.
Proceeds from the contingent deferred sales charge on
the Class B shares are paid to the Principal Underwriter and are
used by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which
are redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100
Class B shares at $10 per share (at a cost of $1,000) and in the
second year after purchase the net asset value per share is $12
and, during such time, the investor has acquired 10 additional
Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares
(proceeds of $600), 10 Class B shares will not be subject to
charge because of dividend reinvestment. With respect to the
remaining 40 Class B shares, the charge is applied only to the
original cost of $10 per share and not to the increase in net
asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds will be charged at a rate of 3.0% (the
applicable rate in the second year after purchase, as set forth
below).
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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.
The contingent deferred sales charge for the Fund is
3.00% for the first year, 2.00% for the second year, 1.00% for
the third year and none thereafter.
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed that the
redemption is first of any shares in the shareholder's Fund
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for three years, and third
of Class A shares that are subject to a contingent deferred sales
charge held shortest during the one-year period. When Class B
shares acquired in an exchange are redeemed, the applicable
contingent deferred sales charge and conversion schedules will be
the schedules that applied to Class B shares of the Alliance
Mutual Fund originally purchased by the shareholder at the time
of their purchase.
The contingent deferred sales charges are waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former Trustees of the Trust, 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 (iv) pursuant to a systematic withdrawal plan (see
"Shareholder Services - Systematic Withdrawal Plan" below).
Conversion Feature. Class B shares will automatically
convert to Class A shares on the tenth Fund business day in the
month following the month in which the sixth anniversary date of
the acceptance of the purchase order for the Class B shares
occurs and such shares will no longer be subject to a higher
distribution services fee. Such conversions will be on the basis
of the relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose
of the conversion feature is to reduce the distribution services
fee paid by holders of Class B shares that have been outstanding
long enough for the Principal Underwriter to have been
compensated for distribution expenses incurred in the sale of
such shares. See "Shareholder Services -- Exchange Privilege."
For purposes of conversion to Class A shares, Class B
shares purchased through the reinvestment of dividends and
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<PAGE>
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
shares, an equal pro-rata portion of the Class B shares in the
sub-account will also convert to Class A shares.
The conversion of Class B shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and (ii)
the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The
conversion of Class B shares to Class A shares may be suspended
if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of
Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending six years after
the end of the calendar month in which the shareholder's purchase
order was accepted.
Asset-Based Sales Charge Alternative--Class C Shares
Investors choosing the asset-based sales charge
alternative purchase Class C shares at the public offering price
equal to the net asset value per share of the Class C shares on
the date of purchase without the imposition of a sales charge
either at the time of purchase or upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
will receive the full amount of the investor's purchase payment
and without a contingent deferred sales charge so that the
investor will receive as proceeds upon redemption the entire net
asset value of his or her Class C shares. The Class C
distribution services fee enables the Fund to sell Class C shares
without either an initial or contingent deferred sales charge.
Class C shares do not convert to any other class of shares and
incur higher distribution services fees than Class A shares, and
will thus have a higher expense ratio and pay correspondingly
lower dividends than Class A shares.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How to Sell Shares."
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Redemption
Subject only to the limitations described below, the
Fund will redeem the shares tendered to it, as described below,
at a redemption price equal to its net asset value as next
computed following the receipt of shares tendered for redemption
in proper form. Except for any contingent deferred sales charge
which may be applicable to Class A shares or Class B shares,
there is no redemption charge. Payment of the redemption price
will be made within seven days after the Fund's receipt of such
tender for redemption.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the SEC determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the SEC) 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 Securities and Exchange
Commission may by order permit for the protection of security
holders of the Fund.
Payment of the redemption price may be made in cash. The
value of a shareholder's shares on redemption or repurchase may
be more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio
securities at the time of such redemption or repurchase.
Redemption proceeds on Class A shares and Class B shares will
reflect the deduction of the contingent deferred sales charge, if
any. Payment received by a shareholder upon redemption or
repurchase of his shares, assuming the shares constitute capital
assets in his 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 institution that is an eligible guarantor as
defined in Rule 17Ad-15 under the Securities Exchange Act of
1934, as amended.
Telephone Redemption By Electronic Funds Transfer.
Requests for redemption of shares for which no share certificates
have been issued can also be made by telephone at (800) 221-5672
by a shareholder who has completed the appropriate portion of the
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Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption request must be for
at least $500 and may not exceed $100,000, and must be made
between 9:00 a.m. and 4:00 p.m. New York time on a Fund business
day as defined above. Proceeds of telephone redemptions will be
sent by Electronic Funds Transfer to a shareholder's designated
bank account at a bank selected by the shareholder that is a
member of the NACHA.
Telephone Redemption By Check. Except as noted below,
each Fund shareholder is eligible to request redemption, once in
any 30-day period, of Fund shares by telephone at (800) 221-5672
before 4:00 p.m. New York time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record.
Telephone redemption by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) purchased within 15
calendar days prior to the redemption request, (iv) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (v) held in any retirement plan
account. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
General. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate their telephone redemption service
at any time without notice. Neither the Fund nor the Adviser,
the Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
redemptions that the Fund reasonably believes to be genuine.
Alliance Fund Services, Inc. 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 Alliance Fund
Services, Inc. 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.
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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.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request (less the contingent deferred
sales charge, if any, with respect to the Class A shares and
Class B shares), except that requests placed through selected
dealers or agents before the close of regular trading on the
Exchange on any day will be executed at the net asset value
determined as of such close of regular trading on that day if
received by the Principal Underwriter prior to its close of
business on that day (normally 5:00 p.m. New York time). The
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Fund to the Principal Underwriter either directly
or through a selected dealer or agent. Neither the Fund nor the
Principal Underwriter charges a fee or commission in connection
with the repurchase of shares (except for the contingent deferred
sales charge, if any, with respect to Class A shares and Class B
shares). Normally, if shares of the Fund are offered through a
selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for at least 60 days
after at least 30 days' written notice to the shareholder
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subsequent to such period. No contingent deferred sales charge
will be deducted from the proceeds of this redemption. In the
case of a redemption or repurchase of shares of the Fund recently
purchased by check, redemption proceeds will not be made
available until the Fund is reasonably assured that the check has
cleared, normally up to 15 calendar days following the purchase
date.
SHAREHOLDER SERVICES
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to all three classes of shares of the
Fund.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
Exchange Privilege
Class A shareholders can exchange their Class A shares
for Class A shares of any other Alliance Mutual Fund that offers
Class A shares and for shares of Alliance World Income Trust,
Inc. without the payment of any sales or service charges. For
purposes of applying any applicable contingent deferred sales
charge upon the newly acquired Class A shares, the period of time
the Class A shares surrendered in the exchange have been held is
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added to the period of time the newly acquired shares have been
held. Prospectuses for each Alliance Mutual Fund and Alliance
Cash Management Fund (each, an "Alliance Fund") may be obtained
by contacting Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information or by
telephone at (800) 227-4618 or, in Illinois, (800) 227-4170.
Class B shareholders of the Fund can exchange their
Class B shares ("original Class B shares") for Class B shares of
any other Alliance Mutual Fund that offers Class B shares ("new
Class B shares") without the payment of any contingent deferred
sales or service charges. For purposes of computing both the
time remaining before the new Class B shares convert to Class A
shares of that fund and the contingent deferred sales charge
payable upon disposition of the new Class B shares, the period of
time for which the original Class B shares have been held is
added to the period of time for which the new Class B shares have
been held.
Class C shareholders of the Fund can exchange their
Class C shares for Class C shares of any other Alliance Mutual
Fund that offers Class C shares.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for Federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer or agent, are authorized to make telephone requests for
exchanges unless Alliance Fund Services, Inc. receives written
instruction to the contrary from the shareholder, or the
shareholder declines the privilege by checking the appropriate
box on the Subscription Application found in the Prospectus.
Such telephone requests cannot be accepted with respect to shares
then represented by share certificates. Shares acquired pursuant
to a telephone request for exchange will be held under the same
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account registration as the shares redeemed through such
exchange.
Eligible shareholders desiring to make an exchange
should telephone Alliance Fund Services, Inc. with their account
number and other details of the exchange at (800) 221-5672
between 9:00 a.m. and 4:00 p.m., New York time, on a Fund
business day as defined above. Telephone requests for exchange
received before 4:00 p.m. New York 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 amounts worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the following
Fund business day.
Neither the Alliance Mutual Funds nor the Adviser, the
Principal Underwriter or Alliance Fund Services, Inc. will be
responsible for the authenticity of telephone requests for
exchanges that a Fund reasonably believes to be genuine. Alliance
Fund Services, Inc. will employ reasonable procedures in order to
verify that telephone requests for exchanges are genuine,
including, among others, recording such telephone instructions
and causing written confirmations of the resulting transactions
to be sent to shareholders. If Alliance Fund Services, Inc. did
not employ such procedures, it could be liable for losses arising
from unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to modify, restrict or
terminate the exchange privilege.
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Retirement Plans
The Fund may be a suitable investment vehicle for part
or all of the assets held in various types of retirement plans,
such as those listed below. The Fund has available forms of such
plans pursuant to which investments can be made in the Fund and
other Alliance Mutual Funds. Persons desiring information
concerning these plans should contact Alliance Fund Services,
Inc. at the "Literature" telephone number on the cover of this
Statement of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 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 contribution 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.
If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan investing through
the Alliance Premier Retirement Program reaches $5 million on or
before December 15 in any year, all Class B shares or Class C
shares of the Fund held by such plan can be exchanged, without
any sales charge, for Class A shares of the Fund shortly before
the end of the calendar year in which the $5 million level is
attained. The Fund waives any contingent deferred sales charge
applicable to redemptions of Class B shares by qualified plans
investing through the Alliance Premier Retirement Program.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
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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
retirements 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 The Equitable Life Assurance Society of the United
States, 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.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B or Class C account, a Class A, Class B or
Class C account with one or more other Alliance Mutual Funds may
direct that income dividends and/or capital gains paid on his or
her Class A, Class B or Class C shares be automatically
reinvested, in any amount, without the payment of any sales or
service charges, in shares of the same class of such other
Alliance Mutual Fund(s). Further information can be obtained by
contacting Alliance Fund Services, Inc. at the address or the
"Literature" telephone number shown on the cover of this
Statement of Additional Information. Investors wishing to
establish a dividend direction plan in connection with their
initial investment should complete the appropriate section of the
Subscription Application found in the Prospectus. Current
shareholders should contact Alliance Fund Services, Inc. to
establish a dividend direction plan.
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
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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
withdrawal payments and such withdrawal 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 investors
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 "How to Sell
Shares -- General" in the Prospectus. Purchases of additional
shares concurrently with withdrawals are undesirable because of
sales charges when purchases are made. While an occasional lump-
sum investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made
by check or electronically via the Automated Clearing House
("ACH") network. Investors wishing to establish a systematic
withdrawal plan in conjunction with their initial investment in
shares of the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "Literature" telephone number shown on the cover of this
Statement of Additional Information.
Class B CDSC Waiver for shares acquired after July 1,
1995. Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B shares in a shareholder's account acquired after
July 1, 1995 may be redeemed free of any contingent deferred
sales charge. Class B shares acquired after July 1, 1995 that
are not subject to a contingent deferred sales charge (such as
shares acquired with reinvented dividends or distributions) will
be redeemed first and will count toward these limitations.
Remaining Class B shares acquired after July 1, 1995 that are
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held the longest will be redeemed next. Redemptions of Class B
shares acquired after July 1, 1995 in excess of the foregoing
limitations and redemptions of Class B shares acquired before
July 1, 1995 will be subject to any otherwise applicable
contingent deferred sales charge.
Statements and Reports
Each shareholder 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 Trust's
independent auditors, Price Waterhouse 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 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
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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 net asset value of each share of the Fund on which
the subscription and redemption prices are based is determined by
the market value of the securities and other assets owned by the
Fund less its liabilities, computed in accordance with the
Agreement and Declaration of Trust and By-Laws of the Trust on
each Fund business day as of the next close of trading on the
Exchange following receipt of a purchase or redemption order (and
on such other days as the Board of Trustees of the Trust deems
necessary in order to comply with Rule 22c-1 under the 1940 Act).
The net asset value of a share of each class is the quotient
obtained by dividing the value, as of such closing, of the net
assets of the Fund allocable to that class (i.e., the value of
the assets of the Fund allocable to that class less the
liabilities of the Fund allocable to that class, including
expenses payable or accrued) by the total number of shares then
outstanding at such closing.
For purposes of this computation, readily marketable
portfolio securities, including open short positions, listed on
the Exchange are valued at the last sale price reflected on the
consolidated tape at the close of the Exchange on the business
day as of which such value is being determined. If there has
been no sale on such day, then the security is valued at the mean
of the closing bid and asked prices on such day. If no bid and
asked prices are quoted on such day, then the security is valued
by such method as the Board of Trustees of the Trust shall
determine in good faith to reflect its fair market value.
Securities not listed on the Exchange but listed on other
national securities exchanges or admitted to trading on the
National Association of Securities Dealers Automatic Quotations,
Inc. ("Nasdaq") National List ("List") are valued in like manner.
Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the
business day as of which such value is being determined as
reflected on the tape at the close of the exchange representing
the principal market for such securities. Securities traded only
in the over-the-counter market, excluding those admitted to
trading on the List, are valued at the mean of the current bid
and asked prices therefor as reported by Nasdaq or, in the case
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of securities not quoted by Nasdaq, the National Quotation Bureau
or such other comparable sources as the Board of Trustees of the
Trust deems appropriate to reflect the fair market value thereof.
Call options written or purchased by the Fund are valued at the
last sale price and put options purchased by the Fund are valued
at the last sale price. Readily marketable fixed-income
securities may be valued on the basis of prices provided by a
pricing service when such prices are believed by the Adviser to
reflect the fair market value of such securities. The prices
provided by a pricing service take into account institutional
size trading in similar groups of securities and any developments
related to specific securities. U.S. Government Securities and
other debt instruments having 60 days or less remaining until
maturity are stated 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 Trustees of
the Trust determines that this method does not represent fair
value). All other assets, including restricted securities of the
Fund, are valued in such manner as the Board of Trustees of the
Trust in good faith deems appropriate to reflect their fair
market value.
The Trustees may suspend the determination of the Fund's
net asset value (and the offering and sales of shares), subject
to the rules of the SEC and other governmental rules and
regulations, at a time when: (1) the Exchange is closed, other
than customary weekend and holiday closings, (2) an emergency
exists as a result of which it is not reasonably practicable for
the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (3) for the protection of
shareholders, the SEC by order permits a suspension of the right
of redemption or a postponement of the date of payment on
redemption.
The assets belonging to the Class A shares, the Class B
shares and the Class C shares will be invested together in a
single portfolio.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code
for each taxable year. In order to qualify as a regulated
investment company, the Fund must, among other things, (1) derive
at least 90% of its gross income from dividends, interest,
payments with respect to securities loans, and gains from the
sale or other disposition of stock or securities, foreign
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currencies or other income (including gains from options, futures
or forward contracts) derived with respect to its business of
investing in stock, securities or currencies, (2) derive less
than 30% of its gross income from the sale or other disposition
of stock, securities, options, futures, forward contracts, and
certain foreign currencies (or options, futures, or forward
contracts on foreign currencies held for less than three months),
and (3) diversify its holdings so that at the end of each quarter
of its taxable year (i) at least 50% of the market value of the
Fund's assets is represented by cash or cash items, U.S.
Government Securities, securities of other regulated investment
companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the value of the
Fund's assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its
assets is invested in the securities of any one issuer (other
than U.S. Government Securities or the securities of other
regulated investment companies) or of two or more issuers that
the Fund controls and that are engaged in the same, similar, or
related trades or businesses. These requirements may restrict
the degree to which the Fund may engage in short-term trading and
limit the range of the Fund's investments. If a Fund qualifies
as a regulated investment company, it will not be subject to
federal income tax on the part of its income distributed to
shareholders, provided the Fund distributes during its taxable
year at least (a) 90% of its taxable net investment income
(generally, dividends, interest, certain other income, and the
excess, if any, of net short-term capital gain over net long-term
loss), and (b) 90% of the excess of (i) its tax-exempt interest
income less (ii) certain deductions attributable to that income.
The Fund intends to make sufficient distributions to shareholders
to meet this requirement. Investors should consult their own
counsel for a complete understanding of the requirements the
Funds 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.
Dividends out of net ordinary income and distributions
of net short-term capital gains are taxable to shareholders as
ordinary income. The dividends-received deduction for
corporations should also be applicable to the Fund's dividends of
net investment income. The amount of such dividends and
distributions eligible for the dividends-received deduction is
limited to the amount of dividends from domestic corporations
received by the Fund during the fiscal year. Furthermore,
provisions of the tax law disallow the dividends-received
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deduction to the extent a corporations investment in shares of
the Fund is financed with indebtedness.
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by a Fund to
its shareholders as capital gains distributions will not be
taxable to the Fund but will be taxable to the shareholders as
long-term capital gains, irrespective of the length of time a
shareholder may have held his Fund shares. Capital gains
distributions are not eligible for the dividends-received
deduction referred to above. Any dividend or distribution
received by a shareholder on shares of the Fund shortly after the
purchase of such shares by him or her will have the effect of
reducing the net asset value of such shares by the amount of such
dividend or distribution. A loss on the sale of shares held for
less than six months will be treated as a long-term capital loss
for Federal income tax purposes to the extent of any capital gain
distribution made with respect to such shares.
Dividends and distributions are taxable in the manner
described above regardless of whether they are paid to the
shareholder in cash or are reinvested in additional shares of the
Fund.
For Federal income tax purposes, when equity call
options which the Fund has written expire unexercised, the
premiums received by the Fund give rise to short-term capital
gains at the time of expiration. When a call written by the Fund
is exercised, the selling price or purchase price of stock is
increased by the amount of the premium, and the gain or loss on
the sale of stock becomes long-term or short-term depending on
the holding period of the stock. There may be short-term gains
or losses associated with closing purchase transactions.
The Fund is required to withhold and remit to the U.S.
Treasury 31% of all dividend income paid to any shareholder
account for which an incorrect or no taxpayer identification
number has been provided or where the Fund is notified that the
shareholder has under-reported income in the past (or the
shareholder fails to certify that he or she is not subject to
such withholding). In addition, the Fund will be required to
withhold and remit to the U.S. Treasury 31% of the amount of the
proceeds of any redemption of shares of a shareholder account for
which an incorrect or no taxpayer identification number has been
provided.
The foregoing discussion relates only to U.S. Federal
income tax law as it affects U.S. shareholders. The effects of
Federal income tax law on non-U.S. shareholders may be
substantially different. Foreign investors should consult their
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counsel for further information as to the U.S. tax consequences
of receipt of income from the Fund.
GENERAL INFORMATION
Description of the Trust
The Trust is organized as a Massachusetts business trust
under the laws of The Commonwealth of Massachusetts by an
Agreement and Declaration of Trust ("Declaration of Trust") dated
March 26, 1987, a copy of which is on file with the Secretary of
State of The Commonwealth of Massachusetts. The Trust is a
"series" company as described in Rule 18f-2 under the 1940 Act,
having five separate portfolios, each of which is represented by
a separate series of shares. In addition to the Fund, the other
portfolios of the Trust are the Alliance Growth Fund, the
Alliance Strategic Balanced Fund, the Alliance Conservative
Investors Fund and the Alliance Growth Investors Fund.
The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of each series
and of each class of shares thereof. The shares of the Fund and
each class thereof do not have any preemptive rights. Upon
termination of the Fund or any class thereof, whether pursuant to
liquidation of the Trust or otherwise, shareholders of the Fund
or that class are entitled to share pro rata in the net assets of
the Fund or that class then available for distribution to such
shareholders.
The assets received by the Trust for the issue or sale
of the Class A, Class B and Class C shares of the Fund and all
income, earnings, profits, losses and proceeds therefrom, subject
only to the rights of creditors, are allocated to, and constitute
the underlying assets of, the appropriate class of that Fund.
The underlying assets of the Fund and each class of shares
thereof are segregated and are charged with the expenses with
respect to the Fund and that class and with a share of the
general expenses of the Trust. While the expenses of the Trust
are allocated to the separate books of account of each Fund and
each class of shares thereof, certain expenses may be legally
chargeable against the assets of the Fund or a particular class
of shares thereof.
The Declaration of Trust provides for the perpetual
existence of the Trust. The Trust or the Fund, however, may be
terminated at any time by vote of at least a majority of the
outstanding shares of the Fund. The Declaration of Trust further
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provides that the Trustees may also terminate the Trust upon
written notice to the shareholders.
Capitalization
Except as noted below under "Shareholder and Trustee
Liability", all shares of the Funds when duly issued will be
fully paid and non-assessable.
Set forth below is certain information as to all persons
who owned of record or beneficially 5% or more of any class of
the Fund's outstanding shares at October 13, 1995:
Names and Addresses % of Class
Short Term U.S. Government Fund - Class A
Merrill Lynch
Mutual Fund Operations 11.47%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Alliance Plans DIV/FTC
Albert A. C. Noakes IRA 13.59%
Hyde Cottage, E. Meon
Petersfield Hampshire
GU321NJ United Kingdom
Smith Barney Inc.
00162781577 10.41%
388 Greenwich St.
New York, NY 10013-2375
Barbara J. Goldstein 5.03%
25 Central Park West, Apt. 12T
New York, NY 10023-7211
Painewebber FBO
Assoc. Radiologists LTD
2nd PSP 6.91%
FBO Edward J. Wickman
450 West 5th Place
New York, NY
Class B
Merrill Lynch
Mutual Fund Operations 26.06%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
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Class C
Merrill Lynch
Mutual Fund Operations 38.26%
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6484
Steven Rowack 5.33%
PO Box 6532
East Brunswick, NJ 08816-6532
Marilyn Katherine Blake 10.47%
79 Willow Tree Place
Gross Pointe, MI 48236-1322
Voting Rights
As summarized in the Prospectus, shareholders are
entitled to one vote for each full share held (with fractional
votes for fractional shares held) and will vote (to the extent
provided herein) in the election of Trustees and the termination
of the Trust or the Fund and on other matters submitted to the
vote of shareholders.
The By-Laws of the Trust provide that the shareholders
of any particular series or class shall not be entitled to vote
on any matters as to which such series or class is not affected.
Except with respect to matters as to which the Trustees have
determined that only the interests of one or more particular
series or classes are affected or as required by law, all of the
shares of each series or class shall, on matters as to which such
series or class is entitled to vote, vote with other series or
classes so entitled as a single class. Notwithstanding the
foregoing, with respect to matters which would otherwise be voted
on by two or more series or classes as a single class, the
Trustees may, in their sole discretion, submit such matters to
the shareholders of any or all such series or classes,
separately. Rule 18f-2 under the 1940 Act provides in effect
that a series shall be deemed to be affected by a matter unless
it is clear that the interests of each series in the matter are
substantially identical or that the matter does not affect any
interest of such series. Although not governed by Rule 18f-2,
shares of each class of the Fund will vote separately with
respect to matters pertaining to the respective Distribution
Plans applicable to each class.
The terms "shareholder approval" and "majority of the
outstanding voting securities" as used in the Prospectus and this
Statement of Additional Information mean the lesser of (i) 67% or
more of the shares of the Fund or class thereof represented at a
meeting at which more than 50% of the outstanding shares of the
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Fund or such class are represented or (ii) more than 50% of the
outstanding shares of the Fund or such class.
There will normally be no meetings of shareholders for
the purpose of electing Trustees except that in accordance with
the 1940 Act (i) the Trust will hold a shareholders' meeting for
the election of Trustees at such time as less than a majority of
the Trustees holding office have been elected by shareholders,
and (ii) if, as a result of a vacancy on the Board of Trustees,
less than two-thirds of the Trustees holding office have been
elected by the shareholders, that vacancy may only be filled by a
vote of the shareholders. The Fund's shares have non-cumulative
voting rights, which means that the holders of more than 50% of
the shares voting for the election of Trustees can elect 100% of
the Trustees if they choose to do so, and in such event the
holders of the remaining less than 50% of the shares voting for
such election of Trustees will not be able to elect any person or
persons to the Board of Trustees. A special meeting of
shareholders for any purpose may be called by 10% of the Trust's
outstanding shareholders.
Except as set forth above, the Trustees shall continue
to hold office and may appoint successor Trustees.
No amendment may be made to the Declaration of Trust
without the affirmative vote of a majority of the outstanding
shares of the Trust except (i) to change the Trust's name, (ii)
to establish, change or eliminate the par value of shares or
(iii) to supply any omission, cure any ambiguity or cure, correct
or supplement any defective or inconsistent provision contained
in the Declaration of Trust.
Shareholder and Trustee Liability
Under Massachusetts law shareholders could, under
certain circumstances, be held personally liable for the
obligations of the Trust. However, the Declaration of Trust
disclaims shareholder liability for acts or obligations of the
Trust and requires that notice of such disclaimer be given in
each agreement, obligation, or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust
provides for indemnification out of the Fund's property for all
loss and expense of any shareholder of the Fund held liable on
account of being or having been a shareholder. Thus, the risk of
a shareholder incurring financial loss on account of shareholder
liability is limited to circumstances in which the Fund of which
he was a shareholder would be unable to meet its obligations.
The Declaration of Trust further provides that the
Trustees will not be liable for errors of judgment or mistakes of
fact or law. However, nothing in the Declaration of Trust
72
<PAGE>
protects a Trustee against any liability to which the Trustee
would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of his office. The By-Laws of the Trust
provide for indemnification by the Trust of the Trustees and the
officers of the Trust but no such person may be indemnified
against any liability to the Trust or the Trust's shareholders to
which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office.
Counsel
Legal matters in connection with the issuance of the
shares of the Fund offered hereby are passed upon by Ropes &
Gray, One International Place, Boston, Massachusetts 02110.
Independent Accountants
The financial statements of the Fund for the fiscal year
ended August 31, 1995 which are included in this Statement of
Additional Information, have been audited by Price Waterhouse
LLP, 1177 Avenue of the Americas, New York, New York 10036, the
Trust's independent auditors for such period, as stated in their
report appearing herein, and have been so included in reliance
upon such report given upon the authority of that firm as experts
in accounting and auditing.
Total Return and Yield Quotations
From time to time, the Fund advertises its "total
return". Total return is computed separately for Class A, Class B
and Class C shares. Such advertisements disclose the Fund's
average annual compounded total return for recent one-, five- and
ten-year periods (or the life of the Fund or class, if shorter).
Total return for each such period is computed by finding, through
the use of a formula prescribed by the SEC, the average annual
compounded rate of return over such period that would equate an
assumed initial amount invested to the value of such investment
at the end of the period. For purposes of computing total
return, income dividends and capital gains distributions paid on
shares of the Fund are assumed to have been reinvested when
received and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid. A Fund will include
performance data for each of the Class A, Class B and Class C
shares in any advertisement or information including performance
data of the Fund.
From time to time, the Fund may advertise the "yield" or
"actual distribution rate" of each class of shares. Yield for
any 30-day (or one month) period is computed by dividing the net
73
<PAGE>
investment income per share earned during such period by the
maximum public offering price per share on the last day of the
period, and then annualizing such 30-day (or one month) yield in
accordance with a formula prescribed by the SEC which provides
for compounding on a semi-annual basis. "Actual distribution
rate," which may be advertised in items of sales literature, is
computed in the same manner as yield except that actual income
dividends declared per share during the period in question is
substituted for net investment income per share.
The yield of Class A shares of the Short-Term U.S.
Government Fund was 4.22% for the 30-day period ended August 31,
1995. The yield of Class B shares of the Short-Term U.S.
Government Fund was 3.64% for the 30-day period ended August 31,
1995. The yield of Class C shares of the Short-Term U.S.
Government Fund was 3.63% for the 30-day period ended August 31,
1995.
The average annual compounded total return for Class A
shares of the Short-Term U.S. Government Fund was 0.66% for the
one-year period ended August 31, 1995 and 2.94% for the period
May 4, 1992 (commencement of distribution of Class A
shares)through August 31, 1995. The average annual compounded
total return for Class B shares of the Short-Term U.S. Government
Fund was (1.32)% for the one-year period ended August 31, 1995
and 3.52% for the period May 4, 1992 (commencement of
distribution of Class B shares) through August 31, 1995. The
average annual compounded total return for Class C shares of the
Short-Term U.S. Government Fund was 4.33% for the one-year period
ended August 31, 1995 and 1.42% for the period August 2, 1993
(commencement of distribution of Class C shares) through August
31, 1995.
The Fund's total return is 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 Funds portfolio and
the Fund's expenses. 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 return for a stated period of time.
An investor's principal invested in the Fund is not fixed and
will fluctuate in response to prevailing market conditions.
Advertisements quoting performance rankings of a Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc., and advertisements presenting the historical
performance of such Fund, may also from time to time be sent to
investors or placed in newspapers and magazines such as The
New York Times, The Wall Street Journal, Barrons, Investor's
74
<PAGE>
Daily, Money Magazine, Changing Times, Business Week and Forbes
or other media on behalf of such Fund.
Additional Information
This Statement of Additional Information does not
contain all the information set forth in the Registration
Statement filed by the Trust with the SEC under the Securities
Act of 1933. Copies of the Registration Statement may be
obtained at a reasonable charge from the SEC or may be examined,
without charge, at the offices of the SEC in Washington, D.C.
75
<PAGE>
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1995 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
Principal
Amount
(000) Value
- ----------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY OBLIGATIONS-82.8%
U.S. TREASURY NOTES-80.7%
7.875%, 2/15/96-7/15/96
(cost $11,722,712) $11,550 $11,745,961
FEDERAL AGENCY-2.1%
Federal Home Loan Bank
15.00%, 9/01/95 (cost $300,000) 300 300,000
Total U.S. Government and Agency Obligations
(cost $12,022,712) 12,045,961
COLLATERALIZED MORTGAGE OBLIGATIONS-5.3%
FIXED RATE-4.5%
Federal Home Loan Mortgage Corp. Series 1163 N
7.50%, 12/15/19 (cost $657,121) 652 656,613
ADJUSTABLE RATE-0.8%
Federal National Mortgage Association REMIC
Series 1993-89 F 6.49375%, 9/25/21
(cost $123,391) 123 123,308
Total Collateralized Mortgage Obligations
(cost $780,512) 779,921
REPURCHASE AGREEMENT-9.4%
Mortgage Repo (UBS)
5.85%, dated 8/31/95, due 9/01/95
collateralized by $1,428,000 FNMA FNR
93-168 Series P, 6.25%, 1/25/20, value:
$1,387,838; proceeds $1,361,221
(cost $1,361,000) 1,361 1,361,000
TOTAL INVESTMENTS-97.5%
(cost $14,164,224) 14,186,882
Other assets less liabilities-2.5% 370,070
NET ASSETS-100% $14,556,952
Glossary:
REMIC - Real Estate Mortgage Investment Conduit
See notes to financial statements.
5
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $14,164,224) $14,186,882
Cash 388
Receivable due from adviser 229,782
Receivable for shares of beneficial interest sold 176,221
Interest receivable 137,624
Deferred organization expense 15,710
Prepaid expenses and other assets 11,133
Total assets 14,757,740
LIABILITIES
Payable for shares of beneficial interest redeemed 92,107
Dividend payable 14,906
Distribution fee payable 10,247
Accrued expenses 83,528
Total liabilities 200,788
NET ASSETS $14,556,952
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 15
Additional paid-in capital 15,223,789
Distributions in excess of net investment income (44,525)
Accumulated net realized loss (645,627)
Net unrealized appreciation of investments and other assets 23,300
$14,556,952
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share ($2,997,333/308,945
shares of beneficial interest issued and outstanding) $ 9.70
Sales charge-4.25% of public offering price .43
Maximum offering price $10.13
CLASS B SHARES
Net asset value and offering price per share ($6,379,995/650,583
shares of beneficial interest issued and outstanding) $ 9.81
CLASS C SHARES
Net asset value, redemption and offering price per share($5,179,624/
528,730 shares of beneficial interest issued and outstanding) $ 9.80
See notes to financial statements.
6
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1995 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $819,775
EXPENSES
Advisory fee $ 76,173
Distribution fee - Class A 8,086
Distribution fee - Class B 57,770
Distribution fee - Class C 53,773
Audit and legal 99,773
Registration 77,061
Printing 53,359
Transfer agency 51,719
Custodian 47,318
Trustees' fees 28,543
Amortization of organization expenses 11,008
Miscellaneous 13,347
Total expenses 577,930
Less: expenses waived and reimbursed by adviser
(See Note B) (305,955)
Net expenses 271,975
Net investment income 547,800
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (26,997)
Net change in unrealized depreciation of investments 71,312
Net gain on investments 44,315
NET INCREASE IN NET ASSETS FROM OPERATIONS $592,115
See notes to financial statements.
7
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
YEAR ENDED MAY 1, 1994 YEAR ENDED
AUGUST 31, THROUGH APRIL 30,
1995 AUG. 31,1994* 1994
----------- ------------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM
OPERATIONS
Net investment income $ 547,800 $ 182,068 $ 398,559
Net realized loss on investments (26,997) (509,561) (29,976)
Net change in unrealized appreciation
(depreciation) of investments 71,312 366,675 (562,535)
Net increase (decrease) in net assets
from operations 592,115 39,182 (193,952)
DIVIDENDS AND DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
Class A (117,047) (23,466) (186,963)
Class B (210,021) (58,127) (92,418)
Class C (196,348) (67,817) (113,051)
Distributions in excess of net
investment income
Class A (9,973) (3,831) (15,558)
Class B (17,854) (9,485) (7,691)
Class C (16,698) (11,068) (9,409)
Return of capital
Class A -0- (6,485) (39,984)
Class B -0- (16,063) (19,765)
Class C -0- (18,742) (24,177)
TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
Net increase (decrease) (1,148,386) (2,093,364) 11,280,320
Total increase (decrease) (1,124,212) (2,269,266) 10,577,352
NET ASSETS
Beginning of period 15,681,164 17,950,430 7,373,078
End of period $14,556,952 $15,681,164 $17,950,430
* The Fund changed its fiscal year end from April 30 to August 31.
See notes to financial statements.
8
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term U.S. Government Fund (the 'Fund'), a series of The Alliance
Portfolios (the 'Trust') which was organized as a Massachusetts Business Trust
on March 29, 1987 is registered under the Investment Company Act of 1940, as a
diversified, open-end management investment company. The Fund offers Class A,
Class B and Class C shares. Class A shares are sold with a front-end sales
charge of up to 4.25%. Class B shares are sold with a contingent deferred sales
charge which declines from 3.0% to zero depending on the period of time the
shares are held. Class B shares purchased before August 2, 1993 and redeemed
within six years of purchase are subject to different rates than shares
purchased after that date. Class C shares are sold without an initial or
contingent deferred sales charge. All three classes of shares have identical
voting, dividend, liquidation and other rights with respect to its distribution
plan. The following is a summary of significant accounting policies followed by
the Fund.
1. SECURITY VALUATION
Portfolio securities traded on national securities exchanges are valued at the
last reported sales price on such exchange. Listed securities not traded and
securities traded in the over-the-counter market, including listed debt
securities whose primary market is believed to be over-the-counter, are valued
at the mean of the closing bid and asked price as obtained from a recognized
pricing service and brokers. Securities for which bid and asked price
quotations are not readily available are valued in good faith at fair value
using methods determined by the Board of Trustees. Securities which mature in
60 days or less are valued at amortized cost, which approximates market value.
2. ORGANIZATION EXPENSES
Organization expenses of approximately $50,000 have been deferred and are being
amortized on a straight-line basis through May, 1997.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Interest income is accrued daily. Security transactions are accounted for on
the date securities are purchased or sold. Security gains and losses are
determined on the identified cost basis. The Fund accretes discounts as
adjustments to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
6. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such Class, except that the Fund's Class
B and Class C shares bear higher distribution fees and, in the case of Class B
shares, higher transfer agent fees. Expenses of the Trust are charged to each
Fund in proportion to net assets.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Prior to July 22, 1993, Equitable Capital Management Corporation (Equitable
Capital) served as the investment adviser to the Trust. On July 22, 1993,
Alliance Capital Management, L.P. (Alliance) acquired the business and
substantially all of the assets of Equitable Capital and became the investment
adviser to the Trust. Under the terms of an investment advisory agreement, the
Fund pays Alliance an advisory fee at an annual rate of .55 of 1% of the Fund's
average daily net assets. Under the old agreement the fee charged was the same.
Such fee is accrued daily and paid monthly. The Investment Adviser has agreed,
under the terms of the investment advisory agreement, to voluntarily waive its
fees and bear certain expenses so that total expenses do not exceed on an
annual basis 1.40%, 2.10% and 2.10% of the daily average net assets for the
Class A, Class B and Class C shares, respectively. For the year ended August
31, 1995, such reimbursement amounted to
9
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
$305,955. In addition to these voluntary arrangements, the Investment Adviser
will reduce its compensation, to the extent that expenses of the Fund for any
fiscal year (not including any distribution expenses paid by the Fund) exceed
the lowest applicable expense limitation prescribed by any state in which the
Fund's shares are qualified for sale. The Adviser believes that the most
restrictive expense ratio limitation imposed by any state in which the Fund has
qualified its shares for sale is 2.5% of the first $30 million of the Fund's
average daily net assets, 2% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million. The
Fund has a Services Agreement with Alliance Fund Services, Inc. (a wholly-owned
subsidiary of the Adviser) to provide personnel and facilities to perform
transfer agency services for the Fund. Compensation under this agreement
amounted to $29,367 for the year ended August 31, 1995. Alliance Fund
Distributors, Inc. (a wholly-owned subsidiary of the Adviser) serves as the
Distributor of the Fund's shares. The Distributor received front-end sales
charges of $1,837 from the sale of Class A shares and $44,667 in contingent
deferred sales charges imposed upon redemptions by shareholders of Class B
shares for the year ended August 31, 1995. Accrued expenses includes an amount
owed to one of the Trustees under a deferred compensation plan of $13,015.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the 'Agreement')
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .50% of the Fund's average daily net assets attributable to Class
A shares and 1% of the average daily net assets attributable to both Class B
and Class C shares. For the year ended August 31, 1995 the Fund paid a
distribution fee to the distributor at an annual rate of .30% of the Fund's
average daily net assets attributable to Class A shares. The Trustees currently
limit payments under the Class A plan to .30% of the Fund's aggregate average
daily net assets attributable to Class A shares. The Agreement provides that
the Distributor will use such payments in their entirety for distribution
assistance and promotional activities. The Distributor has incurred since
inception expenses in excess of the distribution costs reimbursed by the Fund
in the amount of $348,789 and $500,617 for Class B and C shares, respectively;
such costs may be recovered from the Fund in future periods. In accordance with
the Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class A
shares. The Agreement also provides that the Adviser may use its own resources
to finance the distribution of the Fund's shares.
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $2,006,114 and $4,300,128, respectively, for the year ended August
31, 1995. At August 31, 1995 the cost of securities for federal income tax
purposes was the same as the cost for financial reporting purposes. Accordingly
gross unrealized appreciation of investments was $23,248 and gross unrealized
depreciation of investments was $590 resulting in net unrealized appreciation
of $22,658.
10
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE E: SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $0.00001 par value shares of beneficial
interest authorized divided into three classes, designated Class A, Class B and
Class C shares. Transactions in shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------------------------------------- -----------------------------------------
MAY 1,1994 MAY 1,1994
YEAR ENDED THROUGH YEAR ENDED YEAR ENDED THROUGH YEAR ENDED
AUGUST 31, AUGUST 31, APRIL 30, AUGUST 31, AUGUST 31, APRIL 30,
1995 1994* 1994 1995 1994* 1994
---------- ------------ ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 424,619 63,865 305,285 $ 4,020,889 $ 621,582 $ 3,088,288
Shares issued in reinvestment of
dividends and distributions 8,027 2,640 18,496 77,235 24,637 188,107
Shares redeemed (358,681) (36,470) (713,916) (3,383,335) (353,354) (7,238,334)
Net increase (decrease) 73,965 30,035 (390,135) $714,789 $292,865 $(3,961,939)
CLASS B
Shares sold 591,993 191,442 1,038,373 $5,759,616 $1,879,078 $10,509,198
Shares issued in reinvestment of
dividends and distributions 13,420 4,974 6,998 130,566 48,786 71,232
Shares redeemed (597,126) (281,109) (443,714) (5,807,282) (2,763,343) (4,491,840)
Net increase (decrease) 8,287 (84,693) 601,657 $ 82,900 $ (835,479) $6,088,590
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
--------------------------------------- -----------------------------------------
MAY 1,1994 AUGUST 2, MAY 1,1994 AUGUST 2,
YEAR ENDED THROUGH 1993** YEAR ENDED THROUGH 1993**
AUGUST 31, AUGUST 31, TO APRIL 30, AUGUST 31, AUGUST 31, TO APRIL 30,
1995 1994* 1994 1995 1994* 1994
---------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C
Shares sold 275,893 236,907 1,504,955 $ 2,678,828 $ 2,323,716 $15,510,590
Shares issued in reinvestment of
dividends and distributions 12,237 5,079 6,182 118,917 49,793 62,755
Shares redeemed (488,878) (400,146) (623,499) (4,743,820) (3,924,259) (6,419,676)
Net increase (decrease) (200,748) (158,160) 887,638 $(1,946,075) $(1,550,750) $ 9,153,669
</TABLE>
NOTE F: RECLASSIFICATION OF COMPONENTS OF NET ASSETS
In accordance with Statement of Position 93-2 Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of Capital
Distributions by Investment Companies, permanent book and tax differences
relating to shareholder distributions are reclassified to additional paid-in
capital. For the year ended August 31, 1995, there were no reclassifications
made.
* The Fund changed its fiscal year end from April 30 to August 31.
** Commencement of distribution.
11
NOTES TO FINANCIAL STATEMENTS (CONT.) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE G: FEDERAL INCOME TAX STATUS
At August 31, 1995, the Fund had net capital loss carryforward of $631,486 of
which $72,933 expires in the fiscal year ending 2001, $36,136 in the fiscal
year ending 2002, and $522,417 in the fiscal year ending 2003 to the extent
provided by the regulations. To the extent that this loss carryforward is used
to offset future capital gains, it is probable that the gains as offset will
not be distributed to the shareholders. Capital losses incurred after October
31, within the Funds fiscal year are deemed to arise on the first business day
of the following fiscal year. The Fund incurred and elected to defer a post
October net capital loss of $14,141.
12
FINANCIAL HIGHLIGHTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
CLASS A
-------------------------------------------------
YEAR ENDED MAY 1,1994 YEAR ENDED MAY 4,1992(A)
AUGUST 31, THROUGH APRIL 30, TO
1995 AUG.31,1994* 1994 APRIL 30,1993
--------- ------------ --------- -------------
Net asset value, beginning of
period $9.67 $9.77 $10.22 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .42** .14** .35** 46**
Net realized and unrealized gain
(loss) .05 (.09) (.29) .34
Net increase in net asset value
from operations .47 .05 .06 .80
LESS: DISTRIBUTIONS
Dividends from net investment
income (.41) (.12) (.42) (.46)
Dividends in excess of net
investment income (.03) -0- (.01) -0-
Return of capital -0- (.03) (.08) -0-
Distributions from net realized
gains -0- -0- -0- (.12)
Total dividends and distributions (.44) (.15) (.51) (.58)
Net asset value, end of period $9.70 $ 9.67 $ 9.77 $10.22
TOTAL RETURN
Total investment return based
on net asset value (b) 5.14% .53% .52% 8.20%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $2,997 $2,272 $2,003 $6,081
Ratio to average net assets of:
Expenses, net of waivers/
reimbursements 1.40% 1.40%(c) 1.27% 1.00%(c)
Expenses, before waivers/
reimbursements 3.71% 2.95%(c) 2.17% 2.20%(c)
Net investment income 4.56% 3.98%(c) 4.41% 4.38%(c)
Portfolio turnover rate 15% 144% 55% 294%
See footnotes on page 15.
13
FINANCIAL HIGHLIGHTS (CONT.) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
CLASS B
-------------------------------------------------
YEAR ENDED MAY 1,1994 YEAR ENDED MAY 4,1992(A)
AUGUST 31, THROUGH APRIL 30, TO
1995 AUG.31,1994* 1994 APRIL 30,1993
---------- ------------- --------- -------------
Net asset value, beginning of
period $9.78 $9.88 $10.31 $10.00
INCOME FROM INVESTMENT OPERATIONS
Net investment income .36** .10** .40** .38**
Net realized and unrealized gain
(loss) .04 (.07) (.39) .33
Net increase in net asset value
from operations .40 .03 .01 .71
LESS: DISTRIBUTIONS
Dividends from net investment
income (.34) (.11) (.35) (.38)
Dividends in excess of net
investment income (.03) -0- (.01) -0-
Return of capital -0- (.02) (.08) -0-
Distributions from net realized
gains -0- -0- -0- (.02)
Total dividends and distributions (.37) (.13) (.44) (.40)
Net asset value, end of period $9.81 $9.78 $9.88 $10.31
TOTAL RETURN
Total investment return based
on net asset value (b) 4.32% .28% .03% 7.22%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000's omitted) $6,380 $6,281 $7,184 $1,292
Ratios of average net assets of:
Expenses, net of waivers/
reimbursements 2.10% 2.10%(c) 2.05% 1.75%(c)
Expenses, before waivers/
reimbursements 4.33% 3.60%(c) 3.21% 4.81%(c)
Net investment income 3.82% 3.22%(c) 3.12% 3.36%(c)
Portfolio turnover rate 15% 144% 55% 294%
See footnotes on page 15.
14
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
CLASS C
-------------------------------------
YEAR ENDED MAY 1,1994 AUG.2,1993(D)
AUGUST 31, THROUGH TO
1995 AUG.31,1994* APR.30,1994
---------- ----------- -------------
Net asset value, beginning of period $9.77 $9.87 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income .34** .10** .26**
Net realized and unrealized gain (loss) .06 (.07) (.42)
Net increase (decrease) in net asset value
from operations .40 .03 (.16)
LESS: DISTRIBUTIONS
Dividends from net investment income (.34) (.11) (.25)
Dividends in excess of net investment income (.03) -0- (.01)
Return of capital -0- (.02) (.05)
Distributions from net realized gains -0- -0- -0-
Total dividends and distributions (.37) (.13) (.31)
Net asset value, end of period $9.80 $9.77 $ 9.87
TOTAL RETURN
Total investment return based on net
asset value (b) 4.33% .28% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,180 $7,128 $8,763
Ratios of average net assets of:
Expenses, net of waivers/reimbursements 2.10% 2.10%(c) 2.10%(c)
Expenses, before waivers/reimbursements 4.23% 3.64%(c) 3.10%(c)
Net investment income 3.80% 3.26%(c) 2.60%(c)
Portfolio turnover rate 15% 144% 55%
* The Fund changed its fiscal year end from April 30 to August 31.
** Net of fee waived and expenses reimbursed by Adviser.
(a) Commencement of operations.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(c) Annualized.
(d) Commencement of distribution.
Prior to July 22, 1993, Equitable Capital Management Corporation (Equitable
Capital) served as the investment adviser to the Trust. On July 22, 1993,
Alliance Capital Management L.P. acquired the business and substantially all of
the assets of Equitable Capital and became the investment adviser of the Trust.
15
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF ALLIANCE SHORT-TERM U.S.
GOVERNMENT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Short-Term U.S.
Government Fund (one of the portfolios of the Alliance Portfolios, hereafter
referred to as the 'Fund') at August 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for the year then ended,
for the period May 1, 1994 through August 31, 1994 and for the year ended April
30, 1994, and the financial highlights for each of the periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as 'financial
statements') are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall finan-cial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1995 by correspondence with the custodian and brokers
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 20, 1995
<PAGE>
APPENDIX A
DESCRIPTION OF CORPORATE BOND RATINGS
Description of the bond ratings of Moody's Investors
Service, Inc. are as follows:
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 bond 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
greater 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
A-1
<PAGE>
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
Caa-- Bonds which are rated Caa are of poor standing.
Such issues may be in default of there may be present elements of
danger with respect to principal or interest.
Ca-- Bonds which are rated Ca represent obligations
which are speculative to a high degree. Such issues are often in
default or have other marked shortcomings.
C-- Bonds which are rated C are the lowest class of
bonds and issues so rated can be regarded as having extremely
poor prospects of ever attaining any real investment standing.
Moody's applies modifiers to each rating classification from Aa
through B to indicate relative ranking within its rating
categories. The modifier "1" indicates that a security ranks in
the higher end of its 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 rating category.
Descriptions of the bond ratings of Standard & Poor's
Ratings Services are as follows:
AAA-- Debt rated AAA has the highest rating assigned by
Standard & Poor's. 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 higher rated
issues only in small degree.
A-- Debt rated A has a strong capacity to pay interest
and repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB-- Debt rated BBB is regarded as having an adequate
capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than for debt in higher rated
categories.
BB, B, CCC, CC, or C -- Debt rated BB, B, CCC, CC or C
is regarded, on balance, as predominantly speculative with
respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligation. While
such debt will likely have some quality and protective
A-2
<PAGE>
characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse debt conditions.
C1-- The rating C1 is reserved for income bonds on
which no interest is being paid.
D-- Debt rated D is in default and payment of interest
and/or repayment of principal is in arrears.
The ratings from AAA to CC may be modified by the addition of a
plus (+) or minus (-) sign to show relative standing within the
major rating categories.
A-3
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