<PAGE>
As filed with the Securities and Exchange Commission
on December 28, 1998
File No. 33-12988
811-05088
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 32
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 34
THE ALLIANCE PORTFOLIOS
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, N.Y. 10105
(800) 221-5672
(Registrant's Telephone Number, including Area Code)
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas, New York, N.Y. 10105
(Name and address of Agent for Service)
Copies of communications to:
Thomas G. MacDonald
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
X on March 1, 1999 pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectuses
(Caption)
PART A
Item 1. Front and Back Cover Pages..........Cover Pages
Item 2. Risk/Return Summary:
Investments, Risks, and
Performance.........................Risk/Return
Summary
Item 3. Risk/Return Summary:
Fee Table...........................Risk/Return
Summary
Item 4. Investment Objectives,
Principal Investment Strategies,
And Related Risks...................Other
Information
About the
Fund's
Objectives,
Strategies, and
Risks
Item 5. Management's Discussion of
Fund Performance....................Not Applicable
Item 6. Management, Organization,
And Capital Structure...............Management of
the Fund
Item 7. Shareholder Information.............Purchase and
Sale of Shares
Item 8. Distribution Arrangements...........Distribution
Arrangements
Item 9. Financial Highlights
Information.........................Financial
Highlights
PART B Location in Statements
Of Additional Information
(Caption)
Item 10. Cover Page and
Table of Contents...................Cover Page
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Item 11. Fund History........................Description of
the Fund;
General
Information
Item 12. Description of the Fund And
Its Investments and Risks...........Investment
Objectives and
Policies;
Investment
Restrictions
Item 13. Management of the Fund..............Management of
the Fund
Item 14. Control Persons and Principal
Holders of Securities ..............Management of
the Fund
Item 15. Investment Advisory and Other
Services............................Management of
the Fund
Item 16. Brokerage Allocation and
Other Practices.....................General
Information
Item 17. Capital Stock and Other
Securities..........................Daily
Dividends -
Determination
of Net Asset
Value; General
Information
Item 18. Purchase, Redemption and Pricing
of Shares...........................Purchase and
Redemption of
Shares; Daily
Dividends -
Determination
of Net Asset
Value
Item 19. Taxation of the Fund................Taxes
Item 20. Underwriters........................General
Information
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Item 21. Calculation of Performance Data.....General
Information
Item 22. Financial Statements................Financial
Statements
<PAGE>
THE ALLIANCE
BOND FUNDS
PROSPECTUS
March 1, 1999
U.S. GOVERNMENT FUNDS
--Alliance Short-Term U.S. Government Fund
--U.S. Government Portfolio
--Alliance Limited Maturity Government Fund
MORTGAGE FUND
--Alliance Mortgage Securities Income Fund
MULTI-MARKET FUND
--Multi-Market Strategy Trust
GLOBAL BOND FUNDS
--Alliance North American Government Income Trust
--Alliance Global Dollar Government Fund
--Alliance Global Strategic Income Trust
CORPORATE BOND FUNDS
--Corporate Bond Portfolio
--Alliance High Yield Fund
The Alliance Bond Funds provide a broad selection of investment
alternatives to investors seeking high current income.
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
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TABLE OF CONTENTS
PAGE
RISK/RETURN SUMMARY
GLOSSARY
DESCRIPTION OF THE FUNDS
Investment Objectives and Policies
Description of Investment Practices
Additional Risk Considerations
MANAGEMENT OF THE FUNDS
PURCHASE AND SALE OF SHARES
How The Funds Value Their Shares
How To Buy Shares
How to Exchange Shares
How To Sell Shares
DIVIDENDS, DISTRIBUTIONS AND TAXES
DISTRIBUTION ARRANGEMENTS
GENERAL INFORMATION
FINANCIAL HIGHLIGHTS
2
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The Funds' investment adviser is Alliance Capital Management
L.P., a global investment manager providing diversified services
to institutions and individuals through a broad line of
investments including more than 100 mutual funds. Since 1971,
Alliance has earned a reputation as a leader in the investment
world with over $___ billion in assets under management as of
December 31, 1998. Alliance provides investment management
services to employee benefit plans for ___ of the FORTUNE 100
companies.
RISK/RETURN SUMMARY
The following is a summary of certain key information about the
Alliance Bond Funds. You will find additional information about
each Fund, including a detailed description of the risks of an
investment in each Fund, after this summary.
The Risk/Return Summary describes the Funds' objectives,
principal investment strategies, risks, and fees. More detailed
descriptions of the Funds can be found further back in the
Prospectus. Please be sure to read the more complete
descriptions of the Funds following this summary, including the
risks associated with investing in the Funds, BEFORE you invest.
Each of the Funds also may at times use certain types of
investment derivatives such as options, futures, forwards, and
swaps. The use of these techniques involves special risks that
are discussed in this Prospectus.
The Risk/Return Summary includes a table for each Fund showing
its average annual returns and a bar chart showing its annual
returns. The table and the bar chart provide an indication of
the historical risk of an investment in each Fund by showing:
-- how the Fund's average annual returns for one, five, and
10 years (or, if less, the life of the Fund) compare to
those of a broad based securities market index; and
-- changes in the Fund's performance from year to year over
10 years or, if less, the life of the Fund.
A Fund's past performance, of course, does not necessarily
indicate how it will perform in the future.
Other important things for you to note:
-- You may gain or lose money by investing in a Fund.
-- An investment in a Fund is not a deposit in a bank and
is not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
3
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U.S. GOVERNMENT FUNDS
The U.S. Government Funds offer investors high current income
consistent with the preservation of capital by investing
primarily in U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
-- OBJECTIVE: The Fund's investment objective is high
current income consistent with the preservation of
capital by investing primarily in a portfolio of U.S.
Government securities.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests at
least 65% of its total assets in U.S. Government
securities, including repurchase agreements and forward
commitments relating to U.S. Government securities. The
Fund also may invest a portion of its assets in
securities of non-governmental issuers. The Fund
normally maintains an average dollar-weighted maturity
of not more than three years
PERFORMANCE INFORMATION AND BAR CHART
PERFORMANCE TABLE
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
4
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U.S. GOVERNMENT PORTFOLIO
-- OBJECTIVE: The Fund's investment objective is a high
level of current income that is consistent with prudent
investment risk.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests
primarily in U.S. Government securities, including
repurchase agreements and forward contracts relating to
U.S. Government securities. The Fund also may invest in
non-U.S. Government mortgage-related and asset-backed
securities. The average weighted maturity of the Fund's
investments varies between one year or less and 30
years.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
5
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ALLIANCE LIMITED MATURITY GOVERNMENT FUND
-- OBJECTIVE: The Fund's investment objective is the
highest level of current income consistent with low
volatility of net asset value.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests
primarily in U.S. Government securities, including
mortgage-related securities and repurchase agreements
relating to U.S. Government securities. The Fund takes
advantage of a wide range of maturities of debt
securities and adjusts the dollar-weighted average
maturity of its portfolio from time to time, depending
on Alliance's assessment of relative yields on
securities of different maturities and the expected
effect of changes in interest rates on the market value
of the Fund's portfolio. At all times, however, each of
the Fund's securities has either a remaining maturity of
not more than 10 years or a duration not exceeding that
of a ten-year Treasury note.
The Fund also may invest up to 35% of its total assets
in:
- high-quality asset-backed securities, including
mortgage-related securities that are not U.S.
Government securities;
- treasury securities issued by private issuers;
- certificates of deposit, bankers' acceptances, and
interest-bearing savings deposits of banks with
assets of more than $1 billion;
- higher quality commercial paper or, if unrated,
commercial paper issued by companies that have high
quality debt issues outstanding; and
- high-quality debt securities of corporate issuers.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
6
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[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
7
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MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
-- OBJECTIVE: The Fund's investment objective is a high
level of current income to the extent consistent with
prudent investment risk.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests
primarily in a diversified portfolio of mortgage-related
securities, including collateralized mortgage
obligations or CMO's. The Fund may invest up to 20% of
its total assets in lower-rated mortgage-related
securities. The average weighted maturity of the Fund's
portfolio of fixed-income securities is expected to vary
between two and ten years.
The Fund also may invest up to 35% of its total assets
in:
- U.S. Government securities;
- qualifying bank deposits;
- prime commercial paper or, if unrated, commercial
paper issued by companies that have high-quality
debt issues outstanding;
- high-grade debt securities secured by mortgages on
commercial real estate or residential rental
properties; and
- high-grade asset-backed securities.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
8
<PAGE>
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
9
<PAGE>
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
-- OBJECTIVE: The Fund's investment objective is the
highest level of current income that is available
consistent with what Alliance considers to be prudent
investment risk, from a portfolio of high-quality debt
securities.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund invests in
high-quality debt securities having remaining maturities
of not more than five years, with a high proportion of
investments in money market instruments. The Fund seeks
investment opportunities in foreign, as well as
domestic, securities markets. Normally, at least 70% of
the Fund's debt securities will be denominated in
foreign currencies.
The Fund concentrates at least 25% of its total assets
in debt instruments issued by domestic and foreign
banking companies. The Fund may use significant
borrowings for leverage. The Fund also may:
- use derivatives strategies;
- invest in prime commercial paper or unrated paper
of equivalent quality;
- enter into repurchase agreements; and
- invest in variable, floating, and inverse floating
rate securities.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
10
<PAGE>
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
11
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GLOBAL BOND FUNDS
The Global Bond Funds offer investors a high level of current
income through investments primarily in foreign government
securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
-- OBJECTIVE: The Fund's investment objective is the
highest level of current income, consistent with what
Alliance considers to be prudent investment risk, that
is available from a portfolio of debt securities issued
or guaranteed by the United States, Canada, or Mexico.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in debt securities issued or guaranteed by;
(i) the federal governments of the United States,
Canada, and Mexico; (ii) government-related entities in
the United States, Canada and Mexico; and (iii) the
provincial governments of Canada and Mexico. The Fund
also invests significantly in comparable Argentine debt
securities. The Fund also may invest in debt securities
of other Central and South American countries. These
investments are investment grade securities generally
denominated in each countries' currency, but at least
25% of the Fund's investments are in U.S.
Dollar-denominated securities. The average weighted
maturity of the Fund's portfolio is expected to vary
between one year or less and 30 years.
The Fund may use significant borrowings for leverage.
The Fund also may:
- use derivative strategies; and
- invest in variable, floating, and inverse floating
rate instruments.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
12
<PAGE>
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
13
<PAGE>
ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
-- OBJECTIVE: The Fund's investment objective is a high
level of current income and, secondarily, capital
appreciation.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in sovereign debt obligations. The Fund invests
substantially all of its assets in lower-rated
securities or unrated securities of equivalent quality.
The Fund limits its investments in sovereign debt
obligations of any one country to no more than 25% of
its total assets.
The Fund may invest up to 35% of its total assets in
U.S. and non-U.S. corporate fixed income securities.
All of the Fund's investments will be in U.S.
Dollar-denominated sovereign debt obligations and fixed
income securities. The Fund also may invest up to 30%
of its assets in emerging markets or developing
countries, including Argentina, Brazil, Mexico, Morocco,
the Philippines, Russia, and Venezuela.
The average weighted maturity of the Fund's investments
is:
- for U.S. fixed-income securities, nine to 15 years;
- for non-U.S. fixed-income securities, 15 to 25
years; and
- for sovereign debt obligations, longer than 25
years.
The Fund may use significant borrowings and reverse
repurchase agreements and dollar rolls for leverage.
The Fund also may:
- use derivatives strategies;
- invest in structured securities;
- invest in fixed and floating rate loans to
sovereign debt issuers;
- enter into repurchase agreements; and
- invest in variable, floating, and inverse floating
rate securities.
14
<PAGE>
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
15
<PAGE>
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
-- OBJECTIVE: The Fund's investment objective is primarily
a high level of current income and, secondarily, capital
appreciation.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in fixed-income securities of U.S. and non-U.S.
companies, U.S. Government and foreign government
securities, and supranational entities. The Fund's
foreign investments are generally denominated in foreign
currencies. The Fund, however, generally seeks to hedge
currency risk. The Fund normally invests at least 65%
of its total assets in fixed-income securities of
companies located in at least three countries, one of
which may be the United States. The Fund limits its
investments in any one foreign country to 25% of its
total assets.
The Fund invests at least 65% of its total assets in
investment grade securities, but also may invest up to
35% of its assets in lower-rated securities. The
average weighted maturity of the Fund's investments
varies between five and 30 years.
The Fund may use significant borrowings and reverse
repurchase agreements and dollar rolls for leverage.
The Fund also may:
- use derivatives strategies;
- invest in structured securities;
- invest in Eurodollar instruments and foreign
currencies;
- invest in asset-backed and mortgage-related
securities;
- enter into repurchase agreements; and
- invest in floating, variable, and inverse floating
rate securities.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
16
<PAGE>
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
17
<PAGE>
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
-- OBJECTIVE: The Fund's investment objective is primarily
to maximize income over the long term consistent with
providing reasonable safety in the value of each
shareholder's investment and secondarily to increase its
capital through appreciation of its investments in order
to preserve and, if possible, increase the purchasing
power of each shareholder's investment.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in investment grade corporate bonds. The Fund
may invest up to 50% of its total assets in U.S. Dollar-
denominated foreign debt securities, primarily corporate
fixed-income securities and sovereign debt obligations.
The Fund also may invest in income-producing equity
securities. The average weighted maturity of the Fund's
investments varies between one year or less and 30
years.
The Fund pursues a more aggressive investment strategy
than other corporate bond funds. The Fund's investments
tend to have a relatively long average weighted maturity
and duration. The Fund emphasizes both foreign
corporate and sovereign debt obligations, as well as
corporate bonds that are expected to benefit from
improvements in their issuers' credit fundamentals.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
18
<PAGE>
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
19
<PAGE>
ALLIANCE HIGH YIELD PORTFOLIO
-- OBJECTIVE: The Fund's investment objective is to
achieve a high total return by maximizing current income
and, to the extent consistent with that objective,
capital appreciation.
-- PRINCIPAL INVESTMENT STRATEGIES: The Fund primarily
invests in high yield, below investment grade fixed-
income securities, commonly known as "junk bonds." The
Fund seeks to maximize current income by taking
advantage of market developments, yield disparities, and
variations in the creditworthiness of issuers.
PERFORMANCE INFORMATION AND BAR CHART
Performance Table
1 Year 5 Years 10 Years
Class A
Class B
Class C
[Relevant Index]
Bar Chart
The annual returns in the bar chart are for the Fund's Class A
shares and do not reflect sales loads. If sales loads were
reflected, returns would be less than those shown.
[INSERT CHART]
You should consider an investment in the Fund as a long-term
investment. The Fund's returns will, however, fluctuate over
shorter periods. For example, during the period shown in the bar
chart, the Fund's:
BEST QUARTER was up ___%, ________ quarter, 19__; and
WORST QUARTER was down ___%, _________ quarter, 19__.
20
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of an investment in a Fund changes with the values of
that Fund's investments. Many factors can affect those values.
In this summary, we describe the principal risks that may affect
a particular Fund's investments as a whole. These risks and the
Funds subject to the risks appear in a chart at the end of this
section. All of the Funds could be subject to additional
principal risks because the types of investments made by each
Fund can change over time. This prospectus has additional
descriptions of investments that appear in bold type in the
discussions under "Description of Investment Practices" or
"Additional Risk Considerations." Those sections also include
more information about the Funds, their investments, and related
risks.
-- INTEREST RATE RISK This is the risk that changes in
interest rates will affect the value of a Fund's
investments in fixed-income debt securities, such as
bonds, notes, and asset-backed securities, or other
income-producing securities. All of the Funds have
interest rate risk. Increases in interest rates may
cause the value of a Fund's investments to decline.
Even Funds, such as the SHORT-TERM U.S. GOVERNMENT, U.S.
GOVERNMENT, and LIMITED MATURITY GOVERNMENT, that invest
a substantial portion of their assets in the highest
quality debt securities, including U.S. GOVERNMENT
SECURITIES, are subject to interest rate risk. Interest
rate risk generally is greater for those Funds that
invest a significant portion of their assets in LOWER-
RATED SECURITIES or comparable UNRATED SECURITIES such
as GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME,
CORPORATE BOND, and HIGH YIELD.
Interest rate risk is generally greater for Funds that
invest in debt securities with longer maturities, such
as NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, and CORPORATE BOND.
This risk is compounded for the Funds that invest a
substantial portion of their assets in MORTGAGE-RELATED
or OTHER ASSET-BACKED SECURITIES, such as SHORT-TERM
U.S. GOVERNMENT and MORTGAGE SECURITIES INCOME. The
value of these securities is affected more by changes in
interest rates because when interest rates rise, the
maturities of these type of securities tend to lengthen
and the value of the securities decreases more
significantly. In addition, these types of securities
are subject to prepayment when interest rates fall,
which generally results in lower returns because the
21
<PAGE>
Funds must reinvest their assets in debt securities with
lower interest rates. Increased interest rate risk also
is likely for GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC
INCOME, and CORPORATE BOND, which invest in debt
securities paying no current interest, such as ZERO
COUPON, PRINCIPAL-ONLY, and INTEREST-ONLY SECURITIES, or
paying non-cash interest in the form of other debt
securities (PAYMENT-IN-KIND SECURITIES).
-- CREDIT RISK This is the risk that the issuer or the
guarantor of a debt security, or the counterparty to a
DERIVATIVES contract, will be unable or unwilling to
make timely payments of interest or principal, or to
otherwise honor its obligations. The degree of risk for
a particular security may be reflected in its credit
rating. Credit risk is greater for the Funds such as
MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR GOVERNMENT,
GLOBAL STRATEGIC INCOME, CORPORATE BOND, and HIGH YIELD
that invest in LOWER-RATED SECURITIES. These debt
securities and similar UNRATED SECURITIES (commonly
known as "junk bonds") have speculative elements or are
predominantly speculative credit risks.
Funds such as GLOBAL DOLLAR GOVERNMENT and HIGH YIELD
may be subject to greater credit risk because they
invest in debt securities issued in connection with
corporate restructurings by highly leveraged issuers and
in debt securities not current in the payment of
interest or principal or are in default. Funds such as
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
and GLOBAL DOLLAR GOVERNMENT that invest in FOREIGN
SECURITIES also are subject to increased credit risk
because of the difficulties of requiring foreign
entities, including issuers of SOVEREIGN DEBT, to honor
their contractual commitments, and because a number of
foreign governments and other issuers are already in
default.
-- MARKET RISK This is the risk that the value of a Fund's
investments will fluctuate as the bond markets fluctuate
and that prices overall will decline over shorter or
longer-term periods. All of the Funds are subject to
this risk.
-- FOREIGN RISK This is the risk of investments in issuers
located in foreign countries. All Alliance Funds that
invest in FOREIGN SECURITIES are subject to this risk,
including LIMITED MATURITY GOVERNMENT, MULTI-MARKET
STRATEGY, NORTH AMERICAN GOVERNMENT INCOME, GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE
BOND, and HIGH YIELD. These Funds' investments in
22
<PAGE>
FOREIGN SECURITIES may experience more rapid and extreme
changes in value than if they invested solely in
securities of U.S. companies. The securities markets of
many foreign countries are relatively small, with a
limited number of companies representing a small number
of securities. In addition, foreign companies usually
are not subject to the same degree of regulation as U.S.
companies. Reporting, accounting, and auditing
standards of foreign countries differ, in some cases
significantly, from U.S. standards. Nationalization,
expropriation or confiscatory taxation, currency
blockage, political changes, or diplomatic developments
could adversely affect a Fund's investments in a foreign
country. In the event of nationalization,
expropriation, or other confiscation, a Fund could lose
its entire investment.
Political, social, and economic changes in a particular
country could result in increased risks for GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, which
invest a substantial portion of their assets in
SOVEREIGN DEBT OBLIGATIONS, including BRADY BONDS. The
investments in emerging market countries of NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT
are likely to involve significant risks. These
countries, such as Mexico, Argentina, Brazil, Morocco,
the Philippines, Russia, and Venezuela, have a history
of political and economic instability. Funds such as
MULTI-MARKET STRATEGY and NORTH AMERICAN GOVERNMENT
INCOME that invest a significant portion of their assets
in a specific geographic area like Europe or the
Americas generally have more exposure to regional
economic risks than Funds making foreign investments
throughout the world's economies.
-- CURRENCY RISK This is the risk that fluctuations in the
exchange rates between the U.S. Dollar and foreign
currencies may negatively affect the value of a Fund's
investments. Funds such as LIMITED MATURITY GOVERNMENT,
MULTI-MARKET STRATEGY, NORTH AMERICAN GOVERNMENT INCOME,
GLOBAL STRATEGIC INCOME and HIGH YIELD that invest in
securities denominated in, and receiving revenues in,
FOREIGN SECURITIES, are subject to currency risk.
-- DIVERSIFICATION RISK Most analysts believe that overall
risk can be reduced through diversification, while
concentration of investments in a small number of
securities increases risks. MULTI-MARKET STRATEGY,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, and GLOBAL STRATEGIC INCOME are not
"diversified." This means they can invest more of their
23
<PAGE>
assets in a relatively small number of issuers with
greater concentration of risk. Factors affecting these
issuers can have a more significant effect on the Fund's
net asset value. Similarly, a Fund that concentrates
its investments in a particular industry, such as MULTI-
MARKET STRATEGY, which invests at least 25% of its
assets in the banking industry, could have increased
risks because factors affecting that industry could have
a more significant effect on the value of the Fund's
investments.
-- LEVERAGING RISK. When a Fund borrows money or otherwise
leverages its Fund, the value of an investment in that
Fund will be more volatile and all other risks will tend
to be compounded. Each Fund may create leverage by
using REVERSE REPURCHASE AGREEMENTS, INVERSE FLOATING
RATE INSTRUMENTS or DERIVATIVES, or by borrowing money.
-- DERIVATIVES RISK. All Funds may use DERIVATIVES, which
are financial contracts whose value depends on, or is
derived from, the value of an underlying asset,
reference rate, or index. Alliance will sometimes use
derivatives as part of a strategy designed to reduce
other risks. Generally, however, the Funds use
derivatives as direct investments to earn income,
enhance yield, and broaden Fund diversification, which
entail greater risk than if used solely for hedging
purposes. In addition to other risks such as the credit
risk of the counterparty, derivatives involve the risk
of difficulties in pricing and valuation and the risk
that changes in the value of the derivative may not
correlate perfectly with relevant assets, rates, or
indices. Funds that invest in STRUCTURED SECURITIES,
such as GLOBAL DOLLAR GOVERNMENT, GLOBAL STRATEGIC
INCOME, and CORPORATE BOND, could have increased
derivatives risk.
-- LIQUIDITY RISK. Liquidity risk exists when particular
investments are difficult to purchase or sell, possibly
preventing a Fund from selling out of these ILLIQUID
SECURITIES at an advantageous price. All of the Funds
are subject to liquidity risk because DERIVATIVES and
securities involving substantial interest rate and
credit risk tend to involve greater liquidity risk. In
addition, liquidity risk tends to increase to the extent
a Fund invests in debt securities whose sale may be
restricted by law or by contract.
-- MANAGEMENT RISK. Each Fund is subject to management
risk because it is an actively managed investment Fund.
Alliance will apply its investment techniques and risk
24
<PAGE>
analyses in making investment decisions for the Funds,
but there can be no guarantee that they will produce the
desired results. In some cases, derivative and other
investment techniques may be unavailable or Alliance may
determine not to use them, possibly even under market
conditions where their use could benefit a Fund.
25
<PAGE>
PRINCIPAL RISKS BY FUND
The following chart summarizes the Principal Risks of each Fund.
Risks not marked for a particular Fund may, however, still apply
to some extent to that Fund at various times.
<TABLE>
<CAPTION>
FUND INTEREST CREDIT MARKET FOREIGN CURRENCY DIVERSIFICA- LEVERAGING DERIVATIVES LIQUIDITY MANAGE-
RATE RISK RISK RISK RISK TION RISK RISK RISK RISK MENT RISK
RISK
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Short-Term
U.S.
Government X X X X X
U.S.
Government X X X X X
Limited
Maturity
Government X X X X X X X
Mortgage
Securities
Income X X X X X X X
Multi-Market
Strategy X X X X X X X X X
North American
Government
Income X X X X X X X X X X
Global Dollar
Government X X X X X X X X X X
Global
Strategic
Income X X X X X X X X X X
Corporate
Bond X X X X X X X X X X
High Yield X X X X X X X X X X
</TABLE>
26
<PAGE>
EXPENSE INFORMATION
This table describes the fees and expenses that you may pay
if you buy and hold shares of the Funds.
SHAREHOLDER TRANSACTION EXPENSES (FEES PAID DIRECTLY FROM YOUR
INVESTMENT)
CLASS A CLASS B CLASS B CLASS C
SHARES SHARES(a) SHARES(b) SHARES
Maximum Sales Charge (Load)
Imposed on Purchases (as a
percentage of offering price) 4.25% None None None
Maximum Deferred Sales Charge None 3.0% 4.0% 1.0%
(Load) (as a percentage of during the during the during
original purchase price or 1st year, 1st year, the
redemption proceeds, whichever decreasing decreasing 1st
is lower) 1.0% 1.0% year,
annually annually 0%
to 0% to 0% there-
after the after the after
3rd year* 4th year**
Exchange Fee None None None None
(a) For all Funds except Global Strategic Income and High Yield.
(b) For Global Strategic Income and High Yield.
* Class B Shares automatically convert to Class A Shares after 6
years.
** Class B Shares automatically convert to Class A Shares after 8
years.
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM
FUND ASSETS) AND EXAMPLE
The examples are to help you compare the cost of investing in a
Fund with the cost of investing in other funds. It assumes that
you invest $10,000 in the Fund for the time periods indicated and
then redeem all of your shares at the end of those periods. It
also assumes that your investment has a 5% return each year and
that the Fund's operating expenses stay the same. Your actual
costs may be higher or lower.
<TABLE>
OPERATING EXPENSES EXAMPLES
SHORT-TERM U.S. CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT A B+ B++ C+ C++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
27
<PAGE>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
Waiver and/or Expense
Reimbursement +++
Net Expenses
</TABLE>
28
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
U.S. GOVERNMENT CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
A B+ B++ C+ C++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
LIMITED MATURITY CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
MORTGAGE SECURITIES CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
INCOME A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
MULTI-MARKET CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
STRATEGY A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
NORTH AMERICAN CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT INCOME A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
GLOBAL DOLLAR CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
29
<PAGE>
GOVERNMENT A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
GLOBAL STRATEGIC CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
INCOME A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
Waiver and/or Expense
Reimbursement +++
Net Expenses
CORPORATE BOND CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
A B+ B++ C+ C++
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
</TABLE>
30
<PAGE>
<TABLE>
OPERATING EXPENSES EXAMPLES
SHORT-TERM U.S. CLASS A CLASS B CLASS C CLASS CLASS CLASS CLASS CLASS
GOVERNMENT A B+ B++ C+ C++
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees % % % After 1st Yr. $ $ $ $ $
Rule 12b-1 Fees % % % After 3 Yrs. $ $ $ $ $
Other Expenses % % % After 5 Yrs. $ $(a) $(a) $ $
After 10 Yrs.
Total Fund Operating % % %
Expenses = = =
Waiver and/or Expense
Reimbursement +++
Net Expenses
<FN>
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
+++ Reflects Alliance's waiver of a portion of its advisory fee and/or reimbursement of a portion of the Fund's
operating expenses. The level of waiver or reimbursement may be changed upon 60 days' notice to the Fund.
(a) Assumes Class B shares convert to Class A shares after 6 years, or, for Global Strategic Income and High
Yield, 8 years.
</TABLE>
31
<PAGE>
GLOSSARY
This Prospectus uses the following terms.
TYPES OF SECURITIES
BONDS are fixed, floating, and variable rate debt obligations.
CONVERTIBLE SECURITIES are bonds, debentures, corporate notes,
and preferred stocks that are convertible into common and
preferred stock.
DEBT SECURITIES are bonds, debentures, notes, and bills.
EQUITY SECURITIES are common and preferred stocks, securities
convertible into common and preferred stocks, and rights and
warrants to subscribe for the purchase of common and preferred
stocks.
FIXED-INCOME SECURITIES are debt securities, convertible
securities, and preferred stocks, including floating rate and
variable rate instruments. Fixed-income securities may be rated
(or, if unrated, for purposes of the Funds' investment policies
may be determined by Alliance to be of equivalent quality to
those rated) triple-A (Aaa or AAA), high quality (Aa or AA or
above), high grade (A or above) or investment grade (Baa or BBB
or above) by, as the case may be, Moody's, S&P, Duff & Phelps or
Fitch, or may be lower-rated securities, as defined below. In
the case of "split-rated" fixed-income securities (i.e.,
securities assigned non-equivalent credit quality ratings, such
as Baa by Moody's but BB by S&P or Ba by Moody's and BB by S&P
but B by Fitch), a Fund will use the rating deemed by Alliance to
be the most appropriate under the circumstances.
FOREIGN GOVERNMENT SECURITIES are securities issued or
guaranteed, as to payment of principal and interest, by a
foreign government or any of its political subdivisions,
authorities, agencies or instrumentalities.
HIGHER QUALITY COMMERCIAL PAPER is commercial paper rated at
least Prime-2 by Moody's, A-2 by S&P, Fitch-2 by Fitch, or Duff 2
by Duff & Phelps.
INTEREST-ONLY OR IO SECURITIES are debt securities that receive
only the interest payments on an underlying debt that has been
structured to have two classes, one of which is the IO class and
the other of which is the PRINCIPAL-ONLY OR PO CLASS, that
receives only the principal payments on the underlying debt
obligation. POs are similar to, and are sometimes referred to as,
ZERO COUPON SECURITIES, which are debt securities issued without
interest coupons.
32
<PAGE>
LOWER-RATED SECURITIES are fixed-income securities rated Ba or BB
or below, or determined by Alliance to be of equivalent quality,
and are commonly referred to as "junk bonds."
MORTGAGE-RELATED SECURITIES are pools of mortgage loans that are
assembled for sale to investors (such as mutual funds) by various
governmental, government-related, and private organizations.
These securities include:
- ARMS, which are adjustable-rate mortgage securities;
- SMRS, which are stripped mortgage-related securities;
- CMOS, which are collateralized mortgage obligations;
- GNMA CERTIFICATES, which are securities issued by the
Government National Mortgage Association or GNMA;
- FNMA CERTIFICATES, which are securities issued by the
Federal National Mortgage Association or FNMA; and
- FHLMC certificates, which are securities issued by the
Federal Home Loan Mortgage Corporation or FHLMC.
QUALIFYING BANK DEPOSITS are certificates of deposit, bankers'
acceptances, and interest-bearing savings deposits of banks that
have total assets of more than $1 billion and are members of the
Federal Deposit Insurance Corporation.
PRIME COMMERCIAL PAPER is commercial paper rated Prime-1 or
higher by Moody's, A-1 or higher by S&P, Fitch-1 by Fitch, or
Duff 1 by Duff & Phelps.
RULE 144A SECURITIES are securities that may be resold under Rule
144A under the Securities Act.
SOVEREIGN DEBT OBLIGATIONS are foreign government debt
securities, loan participations between foreign governments
and financial institutions, and interests in entities organized
and operated for the purpose of restructuring the investment
characteristics of foreign government securities.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. These
securities include securities backed by the full faith and credit
of the United States, those supported by the right of the issuer
to borrow from the U.S. Treasury, and those backed only by the
credit of the issuing agency itself. The first category includes
U.S. Treasury securities (which are U.S. Treasury bills, notes
and bonds) and certificates issued by GNMA. U.S. Government
33
<PAGE>
securities not backed by the full faith and credit of the United
States include certificates issued by FNMA and FHLMC.
RATING AGENCIES
DUFF & PHELPS is Duff & Phelps Credit Rating Company.
FITCH is Fitch IBCA, Inc.
MOODY'S is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
S&P is Standard & Poor's Ratings Services.
OTHER
1940 ACT is the Investment Company Act of 1940, as amended.
CODE is the Internal Revenue Code of 1986, as amended.
COMMISSION is the Securities and Exchange Commission.
DURATION is a measure that relates the price volatility of a
security to changes in interest rates. The duration of a debt
security is the weighted average term to maturity, expressed in
years, of the present value of all future cash flows, including
coupon payments and principal repayments. Thus, by definition,
duration is always less than or equal to full maturity.
EXCHANGE is the New York Stock Exchange.
LIBOR is the London Interbank Offered Rate.
SECURITIES ACT is the Securities Act of 1933, as amended.
WORLD BANK is the commonly used name for the International Bank
for Reconstruction and Development.
34
<PAGE>
DESCRIPTION OF THE FUNDS
This section of the Prospectus provides a more complete
description of the principal investment objectives, strategies,
and risks of the Alliance Bond Funds. Of course, there can be no
assurance that any Fund will achieve its investment objective.
Please note:
- Additional discussion of the Funds' investments,
including the risks of the investments that appear in
bold type can be found in the discussion under
DESCRIPTION OF INVESTMENT PRACTICES following this
section.
- The description of a Fund's risks may include risks
defined in the SUMMARY OF PRINCIPAL RISKS above.
Additional information about risks of investing in a
Fund can be found in the discussions under ADDITIONAL
RISK CONSIDERATIONS.
- Additional descriptions of each Fund's strategies and
investments, as well as other strategies and investments
not described below, may be found in a Fund's Statement
of Additional Information or SAI.
- Except as noted, (i) the Fund's investment objectives
are fundamental and cannot be changed without a
shareholder vote and (ii) the Fund's investment policies
are not fundamental and thus can be changed without a
shareholder vote.
INVESTMENT OBJECTIVES AND POLICIES
U.S. GOVERNMENT FUNDS
The U.S. Government Funds offer investors high current income
consistent with preservation of capital by investing primarily in
U.S. Government securities.
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
Alliance Short-Term U.S. Government Fund seeks high current
income consistent with the preservation of capital by investing
primarily in a portfolio of U.S. Government securities. The
Fund's investment objective is not fundamental. The Fund
normally maintains an average dollar-weighted portfolio maturity
of not more than three years and invests at least 65% of its
total assets in U.S. Government securities, including repurchase
agreements and forward commitments relating to U.S. Government
securities.
35
<PAGE>
The Fund may invest a portion of its assets in securities of non-
governmental issuers. Although these investments will be of high
quality at the time of purchase, they may have higher levels of
credit risk than do U.S. Government securities. Under its
policies, the Fund is not obligated to dispose of any security
whose credit quality falls below high quality.
The Fund also may:
- invest in certain SMRS;
- invest in VARIABLE, FLOATING, and INVERSE FLOATING RATE
INSTRUMENTS;
- make SHORT SALES AGAINST THE BOX;
- enter into various hedging transactions, such as
INTEREST RATE SWAPS, CAPS, AND FLOORS;
- purchase and sell FUTURES CONTRACTS for hedging
purposes;
- purchase and sell call and put OPTIONS ON FUTURES
CONTRACTS or on SECURITIES, for hedging purposes or to
earn additional income;
- enter into REPURCHASE AGREEMENTS OR REVERSE REPURCHASE
AGREEMENTS; and
- purchase securities for future delivery; and
- make SECURED LOANS OF PORTFOLIO SECURITIES.
U.S. GOVERNMENT PORTFOLIO
U.S. Government Portfolio seeks a high level of current income
that is consistent with prudent investment risk. As a matter of
fundamental policy, the Fund pursues its objective by investing
at least 65% of the value of its total assets in U.S. Government
securities and repurchase agreements and forward contracts
relating to U.S. Government securities. The Fund may invest the
remaining 35% of its total assets in non-U.S. Government
mortgage-related and asset-backed securities.
The Fund will not invest in any security rated below BBB or Baa.
The Fund may invest in unrated securities of equivalent quality
to the rated securities in which it may invest, as determined by
Alliance. The Fund expects, but is not required, to dispose of
securities that are downgraded below BBB and Baa or, if unrated,
are determined by Alliance to have undergone similar credit
quality deterioration.
The Fund also may:
- enter into REPURCHASE AGREEMENTS and REVERSE REPURCHASE
AGREEMENTS, FORWARD CONTRACTS, and DOLLAR ROLLS;
- enter into various hedging transactions, such as
INTEREST RATE SWAPS, CAPS, AND FLOORS;
- purchase and sell FUTURES CONTRACTS for hedging
purposes; and
36
<PAGE>
- purchase call and put OPTIONS on FUTURES CONTRACTS or on
SECURITIES for hedging purposes.
ALLIANCE LIMITED MATURITY GOVERNMENT FUND
Alliance Limited Maturity Government Fund seeks the highest level
of current income, consistent with low volatility of net asset
value. As a matter of fundamental policy, the Fund normally has
at least 65% of its total assets invested in U.S. Government
securities, including mortgage-related securities and repurchase
agreements relating to U.S. Government securities.
In pursuing its investment objective and policies, the Fund takes
advantage of a wide range of maturities of debt securities and
adjusts the dollar-weighted average maturity of its portfolio
from time to time, depending on its assessment of relative yields
on securities of different maturities and the expected effect of
future changes in interest rates on the market value of the
Fund's portfolio. At all times, however, each security held by
the Fund has either a remaining maturity of not more than ten
years or a duration not exceeding that of a ten-year Treasury
note.
The Fund may invest up to 35% of its total assets in:
- high quality asset-backed securities, including
mortgage-related securities that are not U.S. Government
securities;
- treasury securities issued by private corporate issuers;
- qualifying bank deposits;
- higher quality commercial paper or, if unrated, issued
by companies that have high quality debt issues
outstanding; and
- high quality debt securities of corporate issuers.
The Fund may invest up to 15% of its total assets in high-quality
debt securities denominated in U.S. Dollars or in foreign
currencies and issued or guaranteed by foreign governments or
issued by foreign non-governmental issuers. The amount of Fund
investments in foreign debt securities will vary and may include
those of a number of foreign countries or, depending upon market
conditions, those of a single country.
The Fund also may:
- enter into FUTURES CONTRACTS and purchase and write
OPTIONS ON FUTURES CONTRACTS;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- invest in EURODOLLAR INSTRUMENTS;
37
<PAGE>
- purchase and write put and call OPTIONS on FOREIGN
CURRENCIES;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS;
- use REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
MORTGAGE FUND
ALLIANCE MORTGAGE SECURITIES INCOME FUND
Alliance Mortgage Securities Income Fund seeks a high level of
current income to the extent consistent with prudent investment
risk. The Fund invests at least 65% of its assets in mortgage-
related securities, including CMOs. The average weighted
maturity of the Fund's portfolio of fixed-income securities is
expected to vary between two and ten years.
The Fund expects that governmental, government-related, or
private entities may create mortgage loan pools offering pass-
through investments in addition to those described in this
Prospectus. The mortgages underlying these securities may be
instruments whose principal or interest payments may vary or
whose terms to maturity may differ from customary long-term
fixed-rate mortgages. As new types of mortgage-related
securities are developed and offered to investors, the Fund will
consider making investments in these new types of securities.
The Fund may invest up to 20% of its total assets in lower-rated
mortgage-related securities.
The Fund may invest up to 35% of the value of its total assets
in:
- U.S. Government securities;
- qualifying bank deposits;
- prime commercial paper or, if unrated, issued by
companies which have an outstanding high quality debt
issue;
- high grade debt securities secured by mortgages on
commercial real estate or residential rental properties;
and
- high grade asset-backed securities.
The Fund also may:
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- purchase put and call OPTIONS written by others and
write covered put and call OPTIONS for hedging purposes;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- enter into INTEREST RATE FUTURES CONTRACTS;
38
<PAGE>
- invest in VARIABLE FLOATING AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS;
- make LOANS OF PORTFOLIO SECURITIES.
MULTI-MARKET FUND
ALLIANCE MULTI-MARKET STRATEGY TRUST
Alliance Multi-Market Strategy Trust is a non-diversified
investment company that offers investors a higher yield than a
money market fund and less fluctuation in net asset value than a
longer-term bond fund. The Fund seeks the highest level of
current income, consistent with what Alliance considers to be
prudent investment risk, that is available from a portfolio of
high quality debt securities having remaining maturities of not
more than five years. The Fund invests in a portfolio of debt
securities denominated in the U.S. Dollar and selected foreign
currencies. The Fund seeks investment opportunities in foreign,
as well as domestic, securities markets. The Fund normally
expects to maintain at least 70% of its assets in debt securities
denominated in foreign currencies, but limits its investments in
a single currency other than the U.S. Dollar to 25% of its net
assets.
In pursuing its investment objective, the Fund seeks to minimize
credit risk and fluctuations in net asset value by investing only
in short-term debt securities. Normally, a high proportion of
the Fund's portfolio consists of money market instruments.
Alliance actively manages the Fund's portfolio in accordance with
a multi-market investment strategy, allocating the Fund's
investments among securities denominated in the U.S. Dollar and
the currencies of a number of foreign countries and, within each
such country, among different types of debt securities. Alliance
adjusts the Fund's exposure to each currency so that the
percentage of assets invested in securities of a particular
country or denominated in a particular currency varies in
accordance with Alliance's assessment of the relative yield and
appreciation potential of such securities and the relative
strength of a country's currency. Fundamental economic strength,
credit quality, and interest rate trends are the principal
factors considered by Alliance in determining whether to increase
or decrease the emphasis placed upon a particular type of
security or industry sector within a Fund's investment portfolio.
The returns available from short-term foreign currency-
denominated debt instruments can be adversely affected by changes
in exchange rates. Alliance believes that the use of foreign
currency hedging techniques, including "cross-hedges", can help
protect against declines in the U.S. Dollar value of income
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available for distribution to shareholders and declines in the
net asset value of the Fund's shares resulting from adverse
changes in currency exchange rates. The Fund invests in debt
securities denominated in the currencies of countries whose
governments are considered stable by Alliance.
The Fund expects to invest in debt securities denominated in the
Euro and the ECU, which is a "basket" consisting of specified
amounts of currencies of certain of the member states of the
European Union. An issuer of debt securities purchased by the
Fund may be domiciled in a country other than the country in
whose currency the instrument is denominated. In addition, the
Fund may purchase debt securities (sometimes referred to as
"linked" securities) that are denominated in one currency while
the principal amounts of, and value of interest payments on, such
securities are determined with reference to another currency.
The Fund maintains borrowings of approximately 25% of its net
assets.
The Fund seeks to minimize investment risk by limiting its
investments to debt securities of high quality and invests in:
- U.S. Government securities;
- high quality foreign government securities;
- obligations issued by supranational entities and
corporate debt securities having a high-quality rating;
- certificates of deposit and bankers' acceptances issued
or guaranteed by, or time deposits maintained at, banks
(including foreign branches of foreign banks) having
total assets of more than $500 million, and determined
by Alliance to be of high quality; and
- prime commercial paper or unrated commercial paper of
equivalent quality and issued by U.S. or foreign
companies having outstanding high quality debt
securities.
As a matter of fundamental policy, the Fund concentrates at least
25% of its total assets in debt instruments issued by domestic
and foreign companies engaged in the banking industry, including
bank holding companies. These investments may include
certificates of deposit, time deposits, bankers' acceptances, and
obligations issued by bank holding companies, as well as
repurchase agreements entered into with banks.
The Fund also may:
- invest in INDEXED COMMERCIAL PAPER;
- enter into FUTURES CONTRACTS and purchase and write
OPTIONS on FUTURES CONTRACTS;
- purchase and write put and call OPTIONS on FOREIGN
CURRENCIES;
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- purchase or sell FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
GLOBAL BOND FUNDS
The Global Bond Funds are non-diversified investment companies
that offer investors a high level of current income through
investments primarily in foreign government securities.
ALLIANCE NORTH AMERICAN GOVERNMENT INCOME TRUST
Alliance North American Government Income Trust seeks the highest
level of current income, consistent with what Alliance considers
to be prudent investment risk, that is available from a portfolio
of debt securities issued or guaranteed by the United States,
Canada, and Mexico, their political subdivisions (including
Canadian provinces but excluding states of the United States),
agencies, instrumentalities or authorities ("Government
securities"). The Fund invests in investment grade securities
denominated in the U.S. Dollar, the Canadian Dollar, and the
Mexican Peso and expects to maintain at least 25% of its assets
in securities denominated in the U.S. Dollar. In addition, the
Fund may invest up to 25% of its total assets in debt securities
issued by governmental entities of Argentina ("Argentine
Government securities").
The Fund invests at least 65%, and normally substantially more,
of its assets in Government securities and income-producing
securities. The average weighted maturity of the Fund's
portfolio of fixed-income securities is expected to vary between
one year or less and 30 years. The Fund maintains borrowings of
approximately one-third of its net assets.
The Fund expects that it will not retain a debt security which is
downgraded below BBB or Baa, or, if unrated, determined by
Alliance to have undergone similar credit quality deterioration.
The Fund may conclude, under certain circumstances, such as the
downgrading to below investment grade of all of the securities of
a governmental issuer in one of the countries in which the Fund
has substantial investments, that it is in the best interests of
the shareholders to retain its holdings in securities of that
issuer.
Alliance believes that the increasingly integrated economic
relationship among the United States, Canada and Mexico,
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characterized by the reduction and projected elimination of most
barriers to free trade among the three nations and the growing
coordination of their fiscal and monetary policies, will over the
long term benefit the economic performance of all three countries
and promote greater correlation of currency fluctuation among the
U.S. and Canadian Dollars and the Mexican Peso.
Alliance will actively manage the Fund's assets in relation to
market conditions and general economic conditions and adjust the
Fund's investments in an effort to best enable the Fund to
achieve its investment objective. Thus, the percentage of the
Fund's assets invested in a particular country or denominated in
a particular currency will vary in accordance with Alliance's
assessment of the relative yield and appreciation potential of
such securities and the relationship of the country's currency to
the U.S. Dollar. To the extent that its assets are not invested
in Government securities, however, the Fund may invest the
balance of its total assets in investment grade debt securities
issued by, and denominated in the local currencies of,
governments of countries located in Central and South America or
any of their political subdivisions, agencies, instrumentalities
or authorities, provided that such securities are denominated in
their local currencies. The Fund limits its investments in debt
securities issued by the governmental entities of any one
country, except for Argentine Government securities, to 10% of
its total assets.
The Fund also may:
- enter into FUTURES CONTRACTS and purchase and write
OPTIONS on FUTURES CONTRACTS for hedging purposes;
- purchase and write put and call OPTIONS on FOREIGN
CURRENCIES;
- purchase or sell FORWARD FOREIGN CURRENCY EXCHANGE
CONTRACTS;
- write covered put and call options and purchase put and
call options on U.S. Government and foreign government
securities traded on U.S. and foreign securities
exchanges, and write put and call options for cross-
hedging purposes;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- enter into REPURCHASE AGREEMENTS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
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ALLIANCE GLOBAL DOLLAR GOVERNMENT FUND
Alliance Global Dollar Government Fund seeks primarily a high
level of current income and secondarily capital appreciation. In
seeking to achieve these objectives, the Fund invests at least
65% of its total assets in sovereign debt obligations. The
Fund's investments in sovereign debt obligations will emphasize
obligations referred to as "Brady Bonds," which are issued as
part of debt restructurings and collateralized in full as to
principal due at maturity by zero coupon U.S. Government
securities.
The Fund also may invest up to 35% of its total assets in U.S.
and non-U.S. corporate fixed-income securities. The Fund will
limit its investments in sovereign debt obligations and U.S. and
non-U.S. corporate fixed-income securities to U.S. Dollar-
denominated securities. Alliance expects that, based upon
current market conditions, the Fund's portfolio of U.S.
fixed-income securities will have an average maturity range of
approximately nine to 15 years and the Fund's portfolio of non-
U.S. fixed-income securities will have an average maturity range
of approximately 15 to 25 years. Alliance anticipates that the
Fund's portfolio of sovereign debt obligations will have a longer
average maturity.
Substantially all of the Fund's assets will be invested in lower-
rated securities, which may include securities having the lowest
rating for non-subordinated debt instruments (i.e., rated C by
Moody's or CCC or lower by S&P, Duff & Phelps and Fitch) and
unrated securities of equivalent investment quality. These
securities may have extremely poor prospects of ever attaining
any real investment standing and a current identifiable
vulnerability to default, be unlikely to have the capacity to pay
interest and repay principal when due in the event of adverse
business, financial or economic conditions, and be in default or
not current in the payment of interest or principal.
The Fund may also invest in investment grade securities. Unrated
securities will be considered for investment by the Fund when
Alliance believes that the financial condition of the issuers of
such obligations and the protection afforded by the terms of the
obligations themselves limit the risk to the Fund to a degree
comparable to that of rated securities which are consistent with
the Fund's investment objectives and policies.
As of December 31, 1998, securities ratings (or equivalent
quality) of the Fund's securities were:
- A and above %
- Baa or BBB %
- Ba or BB %
- B %
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- CC %
- C %
- Non-rated %
The Fund's investments in sovereign debt obligations and non-U.S.
corporate fixed income securities emphasize countries that are
considered at the time of purchase to be emerging markets or
developing countries by the World Bank. The Fund may invest up
to 30% of its total assets in securities or obligations of
Argentina, Brazil, Mexico, Morocco, the Philippines, Russia and
Venezuela. Alliance expects that these countries are now, or are
expected at a future date to be, the principal participants in
debt restructuring programs (including, in the case of Argentina,
Mexico, the Philippines and Venezuela, issuers of currently
outstanding Brady Bonds) that, in Alliance's opinion, will
provide the most attractive investment opportunities for the
Fund. The Fund will limit investments in the sovereign debt
obligations of each country (or of any other single foreign
country) to less than 25% of its total assets.
Alliance anticipates that other countries that will provide
investment opportunities for the Fund include, among others,
Bolivia, Costa Rica, the Dominican Republic, Ecuador, Jordan,
Nigeria, Panama, Peru, Poland, Thailand, Turkey and Uruguay. The
Fund will limit its investments in the sovereign debt obligations
and corporate fixed-income securities of issuers in any other
single foreign country to not more than 10% of its total assets.
The Fund also may:
- invest in STRUCTURED SECURITIES;
- invest in fixed and floating rate loans that are
arranged through private negotiations between an issuer
of sovereign debt obligations and one or more financial
institutions and in participations in and assignments of
these types of loans;
- invest in OTHER INVESTMENT COMPANIES;
- invest in WARRANTS;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities;
- enter into STANDBY COMMITMENT AGREEMENTS;
- make SHORT SALES OF SECURITIES or maintain a short
position;
- write put and call OPTIONS on securities of the types in
which it is permitted to invest and write call options
for cross-hedging purposes;
- purchase and sell exchange-traded OPTIONS on any
securities index of the types of securities in which it
may invest;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
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- enter into REVERSE REPURCHASE AGREEMENTS and DOLLAR
ROLLS;
- enter into REPURCHASE AGREEMENTS; and
- make SECURED LOANS OF ITS PORTFOLIO SECURITIES.
While it does not currently intend to do so, the Fund reserves
the right to borrow an amount not to exceed one-third of the
Fund's net assets.
ALLIANCE GLOBAL STRATEGIC INCOME TRUST
Alliance Global Strategic Income Trust seeks primarily a high
level of current income and secondarily capital appreciation.
The Fund invests primarily in a portfolio of fixed-income
securities of U.S. and non-U.S. companies and U.S. Government and
foreign government securities and supranational entities,
including lower-rated securities. The Fund also may use
derivative instruments to attempt to enhance income. The average
weighted maturity of the Fund's portfolio of fixed-income
securities is expected to vary between five years and 30 years in
accordance with Alliance's changing perceptions of the relative
attractiveness of various maturity ranges.
The Fund normally invests at least 65% of its total assets in the
fixed-income securities of issuers located in at least three
countries, one of which may be the United States. The Fund
limits its investments in the securities of any one foreign
government to 25% of its total assets. The Fund's investments in
U.S. Government securities may include mortgage-related
securities and zero coupon securities. The Fund's investments in
fixed-income securities may include preferred stock, mortgage-
related and other asset-backed securities, and zero coupon
securities.
The Fund invests at least 65% of its total assets in investment
grade securities and may invest up to 35% of its total assets in
lower-rated securities. Unrated securities will be considered
for investment by the Fund when Alliance believes that the
financial condition of the issuers of such obligations and the
protection afforded by the terms of the obligations limit the
risk to the Fund to a degree comparable to that of rated
securities that are consistent with the Fund's investment
objectives and policies. Lower-rated securities in which the
Fund may invest include Brady Bonds and fixed-income securities
of issuers located in emerging markets.
The Fund also may:
- invest in RIGHTS AND WARRANTS;
- invest in LOAN PARTICIPATIONS and ASSIGNMENTS;
- invest in FOREIGN CURRENCIES;
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- purchase and write put and call OPTIONS on securities
and foreign currencies;
- purchase or sell FORWARD FOREIGN EXCHANGE CONTRACTS;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- invest in INDEXED COMMERCIAL PAPER;
- invest in STRUCTURED SECURITIES;
- purchase and sell securities on a FORWARD COMMITMENT
basis;
- enter into STANDBY COMMITMENTS;
- enter into contracts for the purchase or sale for future
delivery of fixed-income securities or foreign
currencies, or contracts based on financial indices,
including any index of U.S. Government securities,
foreign government securities or common stock, and
purchase and write options on futures contracts;
- invest in EURODOLLAR INSTRUMENTS;
- enter into INTEREST RATE SWAPS, CAPS, AND FLOORS; and
- make SHORT SALES of securities or maintain a short
position;
- enter into REVERSE REPURCHASE AGREEMENTS and DOLLAR
ROLLS;
- enter into REPURCHASE AGREEMENTS;
- make loans of PORTFOLIO SECURITIES.
The Fund may borrow in order to purchase securities or make other
investments, although it currently limits its borrowings to 25%
of its total assets.
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO
The Corporate Bond Portfolio seeks primarily to maximize income
over the long term consistent with providing reasonable safety in
the value of each shareholder's investment and secondarily to
increase its capital through appreciation of its investments in
order to preserve and, if possible, increase the purchasing power
of each shareholder's investment. In pursuing these objectives,
the Fund's policy is to invest in readily marketable securities
that give promise of relatively attractive yields but do not
involve substantial risk of loss of capital. The Fund invests at
least 65% of its net assets in debt securities. Although the
Fund invests at least 65% of its total assets in corporate bonds,
it also may invest in securities of non-corporate issuers. The
average weighted maturity of the Fund's portfolio of fixed-income
securities is expected to vary between one year or less and 30
years.
The Fund follows an investment strategy that in certain respects
can be regarded as more aggressive than the strategies of many
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other funds investing primarily in corporate bonds. The Fund's
investments normally tend to have a relatively long average
maturity and duration. The Fund places significant emphasis on
both foreign corporate and sovereign debt obligations and
corporate bonds that are expected to benefit from improvement in
their issuers' credit fundamentals. In recent years the Fund
frequently has experienced greater net asset value volatility
than most other corporate bond funds. Prospective investors in
the Fund should therefore be prepared to accept the degree of
volatility associated with its investment strategy.
The Fund's investments in fixed-income securities have no minimum
rating requirement, except the Fund expects that it will not
retain a security that is downgraded below B, or if unrated,
determined to have undergone similar credit quality deterioration
after purchase. Currently, the Fund believes its objectives and
policies may best be implemented by investing at least 65% of its
total assets in fixed-income securities considered investment
grade or higher. The Fund may invest the remainder of its assets
in lower-rated fixed-income securities. As of December 31, 1998,
the Fund's investments were rated (or equivalent quality):
- A or above %
- Baa or BBB %
- Ba or BB %
- B %
- CC %
- CCC %
- Unrated %
The Fund may invest up to 50% of the value of its total assets in
foreign debt securities, which will consist primarily of
corporate fixed-income securities and sovereign debt obligations.
The Fund invests no more than 15% of the its total assets in
sovereign debt obligations in the form of foreign government loan
participations and assignments, which may be lower rated and
considered to be predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. All of
the Fund's investments, whether foreign or domestic, are U.S.
Dollar-denominated.
Within these limitations, the Fund has complete flexibility as to
the types and relative proportions of securities in which it will
invest. The Fund plans to vary the proportions of its holdings
of long- and short-term fixed-income securities and of equity
securities in order to reflect its assessment of prospective
cyclical changes even if such action may adversely affect current
income. Substantially all of the Fund's investments, however,
will be income producing.
The Fund also may:
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- invest in STRUCTURED SECURITIES;
- invest in fixed and floating rate loans that are
arranged through private negotiations between an issuer
of sovereign debt obligations and one or more financial
institutions and in participations in and assignments of
these type of loans;
- for hedging purposes, purchase put and call OPTIONS
written by others and write covered put and call
OPTIONS;
- for hedging purposes, enter into various hedging
transactions, such as INTEREST RATE SWAPS, CAPS, AND
FLOORS;
- invest in VARIABLE, FLOATING, AND INVERSE FLOATING RATE
INSTRUMENTS;
- invest in ZERO COUPON and PAY-IN-KIND SECURITIES; and
- invest in CMOS and MULTI-CLASS PASS-THROUGH MORTGAGE-
RELATED SECURITIES.
ALLIANCE HIGH YIELD FUND
Alliance High Yield Fund seeks primarily to achieve high total
return by maximizing current income and, to the extent consistent
with that objective, capital appreciation. The Fund pursues this
objective by investing primarily in a diversified mix of high
yield, below investment grade fixed-income securities, known as
"junk bonds." These securities involve greater volatility of
price and risk of principal and income than higher quality fixed-
income securities. The Fund is managed to maximize current
income by taking advantage of market developments, yield
disparities, and variations in the creditworthiness of issuers.
The Fund uses various strategies in attempting to achieve its
objective.
The Fund normally invests at least 65% of its total assets in
high yield fixed-income securities rated below investment grade
by two or more NRSROs (i.e., rated lower than Baa by Moody's or
lower than BBB by S&P) or, if unrated, of equivalent quality.
The Fund may invest not more than 10% of its total assets in (i)
fixed-income securities which are rated lower than B3 or B- or
their equivalents by two or more NRSROs or, if unrated, of
equivalent quality, and (ii) money market instruments of any
entity which has an outstanding issue of unsecured debt that is
rated lower than B3 or B- or their equivalents by two or more
NRSROs or, if unrated, of equivalent quality.
As of December 31, 1998, the Fund's investments were rated (or
equivalent quality):
- A and above %
- Ba or BB %
- B %
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- CCC %
- Unrated %
The Fund may invest a portion of its assets in foreign
securities. The Fund may buy and sell foreign currencies
principally for the purpose of preserving the value of
foreign securities or in anticipation of purchasing foreign
securities.
The Fund also may invest in:
- U.S. Government securities;
- certificates of deposit, bankers' acceptances, bank
notes, time deposits and interest bearing savings
deposits issued or guaranteed by certain domestic and
foreign banks;
- commercial paper (rated at least A-1 by S&P or Prime-1
by Moody's or, if unrated, issued by domestic or foreign
companies having high quality outstanding debt
securities) and participation interests in loans
extended by banks to these companies;
- corporate debt obligations with remaining maturities of
less than one year rated at least high quality as well
as corporate debt obligations rated at least high grade
provided the corporation also has outstanding an issue
of commercial paper rated at least A-1 by S&P or Prime-1
Moody's; and
- floating rate or master demand notes.
The Fund also may:
- invest in MORTGAGE-BACKED and ASSET-BACKED securities;
- invest in loan participations and assignments of loans
to corporate, governmental, or other borrowers
originally made by institutional lenders or lending
syndicates;
- enter into FORWARD COMMITMENTS for the purchase or sale
of securities and purchase and sell securities on a
WHEN-ISSUED or DELAYED DELIVERY basis;
- write covered put and call OPTIONS on fixed-income
securities, securities indices and foreign currencies
and purchase put or call options on fixed-income
securities, securities indices and foreign currencies;
- purchase and sell FUTURES CONTRACTS and related OPTIONS
on debt securities and on indices of debt securities;
- enter into contracts for the purchase or sale of a
specific currency for hedging purposes only;
- enter into REPURCHASE AGREEMENTS; and
- make LOANS OF PORTFOLIO SECURITIES.
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DESCRIPTION OF INVESTMENT PRACTICES
This section describes the investment practices of the Funds and
risks associated with these practices. Unless otherwise noted, a
Fund's use of any of these practices was specified the previous
section.
DERIVATIVES. The Funds may use derivatives to achieve their
investment objectives. Derivatives are financial contracts whose
value depends on, or is derived from, the value of an underlying
asset, reference rate or index. These assets, rates, and indices
may include bonds, stocks, mortgages, commodities, interest
rates, currency exchange rates, bond indices, and stock indices.
Derivatives can be used to earn income or protect against risk,
or both. For example, one party with unwanted risk may agree to
pass that risk to another party who is willing to accept the
risk, the second party being motivated, for example, by the
desire either to earn income in the form of a fee or premium from
the first party, or to reduce its own unwanted risk by attempting
to pass all or part of that risk to the first party.
Derivatives can be used by investors such as the Funds to earn
income and enhance returns, to hedge or adjust the risk profile
of a portfolio, and either to replace more traditional direct
investments or to obtain exposure to otherwise inaccessible
markets. Each of the Funds is permitted to use derivatives for
one or more of these purposes, although most of the Funds
generally use derivatives primarily as direct investments in
order to enhance yields and broaden portfolio diversification.
Each of these uses entails greater risk than if derivatives were
used solely for hedging purposes. Derivatives are a valuable tool
which, when used properly, can provide significant benefit to
Fund shareholders. A Fund may take a significant position in
those derivatives that are within its investment policies if, in
Alliance's judgment, this represents the most effective response
to current or anticipated market conditions. MULTI-MARKET
STRATEGY, HIGH YIELD, and GLOBAL STRATEGIC INCOME, in particular,
generally make extensive use of carefully selected forwards and
other derivatives to achieve the currency hedging that is an
integral part of their investment strategy. Alliance's use of
derivatives is subject to continuous risk assessment and control
from the standpoint of each Fund's investment objectives and
policies.
Derivatives may be (i) standardized, exchange-traded contracts or
(ii) customized, privately negotiated contracts. Exchange-traded
derivatives tend to be more liquid and subject to less credit
risk than those that are privately negotiated.
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There are four principal types of derivative instruments-
- -options, futures, forwards, and swaps--from which virtually any
type of derivative transaction can be created.
- Options--An option, which may be standardized and
exchange-traded, or customized and privately negotiated,
is an agreement that, for a premium payment or fee,
gives the option holder (the buyer) the right but not
the obligation to buy or sell the underlying asset (or
settle for cash an amount based on an underlying asset,
rate or index) at a specified price (the exercise price)
during a period of time or on a specified date. A call
option entitles the holder to purchase, and a put option
entitles the holder to sell, the underlying asset (or
settle for cash an amount based on an underlying asset,
rate or index). Likewise, when an option is exercised
the writer of the option is obligated to sell (in the
case of a call option) or to purchase (in the case of a
put option) the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index).
- Futures--A futures contract is an agreement that
obligates the buyer to buy and the seller to sell a
specified quantity of an underlying asset (or settle for
cash the value of a contract based on an underlying
asset, rate or index) at a specific price on the
contract maturity date. Futures contracts are
standardized, exchange-traded instruments and are
fungible (i.e., considered to be perfect substitutes for
each other). This fungibility allows futures contracts
to be readily offset or cancelled through the
acquisition of equal but opposite positions, which is
the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not
require physical delivery of the underlying asset but
instead is settled for cash equal to the difference
between the values of the contract on the date it is
entered into and its maturity date.
- Forwards--A forward contract is an obligation by one
party to buy, and the other party to sell, a specific
quantity of an underlying commodity or other tangible
asset for an agreed upon price at a future date. Forward
contracts are customized, privately negotiated
agreements designed to satisfy the objectives of each
party. A forward contract usually results in the
delivery of the underlying asset upon maturity of the
contract in return for the agreed upon payment.
- Swaps--A swap is a customized, privately negotiated
agreement that obligates two parties to exchange a
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series of cash flows at specified intervals (payment
dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case
of interest rate swaps, currency exchange rates in the
case of currency swaps) for a specified amount of an
underlying asset (the "notional" principal amount). The
payment flows are netted against each other, with the
difference being paid by one party to the other. Except
for currency swaps, the notional principal amount is
used solely to calculate the payment streams but is not
exchanged. With respect to currency swaps, actual
principal amounts of currencies may be exchanged by the
counterparties at the initiation, and again upon the
termination, of the transaction.
Debt instruments that incorporate one or more of these building
blocks for the purpose of determining the principal amount of
and/or rate of interest payable on the debt instruments are often
referred to as "structured securities." An example of this type
of structured security is indexed commercial paper. The term is
also used to describe certain securities issued in connection
with the restructuring of certain foreign obligations. The term
"derivative" also is sometimes used to describe securities
involving rights to a portion of the cash flows from an
underlying pool of mortgages or other assets from which payments
are passed through to the owner of, or that collateralize, the
securities. These securities are described below under MORTGAGE-
RELATED SECURITIES and OTHER ASSET-BACKED SECURITIES.
While the judicious use of derivatives by highly-experienced
investment managers such as Alliance can be quite beneficial,
derivatives involve risks different from, and, in certain cases,
greater than, the risks presented by more traditional
investments. The following is a general discussion of important
risk factors and issues relating to the use of derivatives that
investors should understand before investing in a Fund.
- Market Risk--This is the general risk of all investments
that the value of a particular investment will change in
a way detrimental to the Fund's interest based on
changes in the bond market generally.
- Management Risk--Derivative products are highly
specialized instruments that require investment
techniques and risk analyses different from those
associated with stocks and bonds. The use of a
derivative requires an understanding not only of the
underlying instrument but also of the derivative itself,
without the benefit of observing the performance of the
derivative under all possible market conditions. In
particular, the use and complexity of derivatives
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require the maintenance of adequate controls to monitor
the transactions entered into, the ability to assess the
risk that a derivative adds to a Fund's portfolio, and
the ability to forecast price, interest rate, or
currency exchange rate movements correctly.
- Credit Risk--This is the risk that a loss may be
sustained by a Fund as a result of the failure of a
derivative counterparty to comply with the terms of the
derivative contract. The credit risk for exchange-traded
derivatives is generally less than for privately
negotiated derivatives, since the clearing house, which
is the issuer or counterparty to each exchange-traded
derivative, provides a guarantee of performance. This
guarantee is supported by a daily payment system (i.e.,
margin requirements) operated by the clearing house in
order to reduce overall credit risk. For privately
negotiated derivatives, there is no similar clearing
agency guarantee. Therefore, the Funds consider the
creditworthiness of each counterparty to a privately
negotiated derivative in evaluating potential credit
risk.
- Liquidity Risk--Liquidity risk exists when a particular
instrument is difficult to purchase or sell. If a
derivative transaction is particularly large or if the
relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be
possible to initiate a transaction or liquidate a
position at an advantageous price.
- Leverage Risk--Since many derivatives have a leverage
component, adverse changes in the value or level of the
underlying asset, rate or index can result in a loss
substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of
loss generally is related to a notional principal
amount, even if the parties have not made any initial
investment. Certain derivatives have the potential for
unlimited loss, regardless of the size of the initial
investment.
- Other Risks--Other risks in using derivatives include
the risk of mispricing or improper valuation of
derivatives and the inability of derivatives to
correlate perfectly with underlying assets, rates and
indices. Many derivatives, in particular privately
negotiated derivatives, are complex and often valued
subjectively. Improper valuations can result in
increased cash payment requirements to counterparties or
a loss of value to a Fund. Derivatives do not always
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perfectly or even highly correlate or track the value of
the assets, rates or indices they are designed to
closely track. Consequently, a Fund's use of derivatives
may not always be an effective means of, and sometimes
could be counterproductive to, furthering the Fund's
investment objective.
DERIVATIVES USED BY THE FUNDS. The following describes specific
derivatives that one or more of the Funds may use.
EURODOLLAR INSTRUMENTS. Eurodollar instruments are essentially
U.S. Dollar-denominated futures contracts or options that are
linked to LIBOR. Eurodollar futures contracts enable purchasers
to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings. LIMITED MATURITY GOVERNMENT
and GLOBAL STRATEGIC INCOME intend to use Eurodollar futures
contracts and options thereon to hedge against changes in LIBOR
(to which many short-term borrowings and floating rate securities
in which each Fund invests are linked).
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A Fund purchases or
sells forward foreign currency exchange contracts ("forward
contracts") to minimize the risk from adverse changes in the
relationship between the U.S. Dollar and other currencies. A Fund
may enter into a forward contract, for example, when it enters
into a contract for the purchase or sale of a security
denominated in a foreign currency in order to "lock in" the U.S.
Dollar price of the security (a "transaction hedge"). When a
Fund believes that a foreign currency may suffer a substantial
decline against the U.S. Dollar, it may enter into a forward sale
contract to sell an amount of that foreign currency approximating
the value of some or all of the Fund's portfolio securities
denominated in such foreign currency, or when the Fund believes
that the U.S. Dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract
to buy that foreign currency for a fixed dollar amount (a
"position hedge"). Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to
sell a different foreign currency for a fixed U.S. Dollar amount
where the Fund believes that the U.S. Dollar value of the
currency to be sold pursuant to the forward contract will fall
whenever there is a decline in the U.S. Dollar value of the
currency in which portfolio securities of the Fund are
denominated (a "cross-hedge").
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A Fund may
buy and sell futures contracts on fixed-income or other
securities or foreign currencies, and contracts based on interest
rates or financial indices, including any index of U.S.
Government securities, foreign government securities or corporate
debt securities.
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Options on futures contracts are options that call for the
delivery of futures contracts upon exercise. Options on futures
contracts written or purchased by a Fund will be traded on U.S.
or foreign exchanges and, except for SHORT-TERM U.S. GOVERNMENT
and GLOBAL STRATEGIC INCOME, will be used only for hedging
purposes.
LIMITED MATURITY GOVERNMENT, MULTI-MARKET STRATEGY, NORTH
AMERICAN GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME will not
enter into a futures contract or write or purchase an option on a
futures contract if immediately thereafter the market values of
the outstanding futures contracts of the Fund and the currencies
and futures contracts subject to outstanding options written by
the Fund would exceed 50% of its total assets. MORTGAGE
SECURITIES INCOME will not write or purchase options on futures
contracts. Nor will LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME or GLOBAL STRATEGIC INCOME enter into a futures
contract or, if otherwise permitted, write or purchase an option
on a futures contract, if immediately thereafter the aggregate of
initial margin deposits on all the outstanding futures contracts
of the Fund and premiums paid on outstanding options on futures
contracts would exceed 5% of the market value of the total assets
of the Fund. In addition, MORTGAGE SECURITIES INCOME and GLOBAL
STRATEGIC INCOME will not enter into any futures contract (i)
other than one on fixed-income securities or based on interest
rates, or (ii) if immediately thereafter the sum of the then
aggregate futures market prices of financial instruments required
to be delivered under open futures contract sales and the
aggregate futures market prices of instruments required to be
delivered under open futures contract purchases would exceed 30%
of the value of the Fund's total assets.
INTEREST RATE TRANSACTIONS (SWAPS, CAPS, AND FLOORS). Each Fund
that may enter into interest rate swap, cap, or floor
transactions expects to do so primarily for hedging purposes,
which may include preserving a return or spread on a particular
investment or portion of its portfolio or protecting against an
increase in the price of securities the Fund anticipates
purchasing at a later date. The Funds do not intend to use these
transactions in a speculative manner.
Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser,
to the extent that a specified index exceeds (in the case of a
cap) or falls below (in the case of a floor) a predetermined
interest rate, to receive payments of interest on a notional
amount from the party selling the interest rate cap or floor. A
Fund may enter into interest rate swaps, caps, and floors on
either an asset-based or liability-based basis, depending upon
whether it is hedging its assets or liabilities.
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There is no limit on the amount of interest rate transactions
that may be entered into by a Fund that is permitted to enter
into such transactions. MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL STRATEGIC INCOME may enter into
interest rate swaps involving payments in the same currency or in
different currencies. SHORT-TERM U.S. GOVERNMENT, LIMITED
MATURITY GOVERNMENT, MORTGAGE SECURITIES INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME and CORPORATE BOND will not
enter into an interest rate swap, cap, or floor transaction
unless the unsecured senior debt or the claims-paying ability of
the other party is then rated in the highest rating category of
at least one NRSRO. Each of MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME, and GLOBAL STRATEGIC INCOME will enter into
interest rate swap, cap or floor transactions with its respective
custodian, and with other counterparties, but only if: (i) for
transactions with maturities under one year, such other
counterparty has outstanding prime commercial paper; or (ii) for
transactions with maturities greater than one year, the
counterparty has high quality debt securities outstanding.
The swap market has grown substantially in recent years, with a
large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap
documentation. As a result, the swap market has become well
established and relatively liquid. Caps and floors are less
liquid than swaps. These transactions do not involve the delivery
of securities or other underlying assets or principal.
Accordingly, unless there is a counterparty default, the risk of
loss to a Fund from interest rate transactions is limited to the
net amount of interest payments that the Fund is contractually
obligated to make.
OPTIONS ON FOREIGN CURRENCIES. A Fund invests in options on
foreign currencies that are privately negotiated or traded on
U.S. or foreign exchanges for the purpose of protecting against
declines in the U.S. Dollar value of foreign currency denominated
securities held by a Fund and against increases in the U.S.
Dollar cost of securities to be acquired. The purchase of an
option on a foreign currency may constitute an effective hedge
against fluctuations in exchange rates, although if rates move
adversely, a Fund may forfeit the entire amount of the premium
plus related transaction costs.
OPTIONS ON SECURITIES. In purchasing an option on securities, a
Fund would be in a position to realize a gain if, during the
option period, the price of the underlying securities increased
(in the case of a call) or decreased (in the case of a put) by an
amount in excess of the premium paid; otherwise the Fund would
experience a loss not greater than the premium paid for the
option. Thus, a Fund would realize a loss if the price of the
underlying security declined or remained the same (in the case of
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a call) or increased or remained the same (in the case of a put)
or otherwise did not increase (in the case of a put) or decrease
(in the case of a call) by more than the amount of the premium.
If a put or call option purchased by a Fund were permitted to
expire without being sold or exercised, its premium would
represent a loss to the Fund.
A Fund may write a put or call option in return for a premium,
which is retained by the Fund whether or not the option is
exercised. Except with respect to uncovered call options written
for cross-hedging purposes, none of the Funds will write
uncovered call or put options on securities. A call option
written by a Fund is "covered" if the Fund owns the underlying
security, has an absolute and immediate right to acquire that
security upon conversion or exchange of another security it
holds, or holds a call option on the underlying security with an
exercise price equal to or less than that of the call option it
has written. A put option written by a Fund is covered if the
Fund holds a put option on the underlying securities with an
exercise price equal to or greater than that of the put option it
has written. The risk involved in writing an uncovered call
option is that there could be an increase in the market value of
the underlying security, and a Fund could be obligated to acquire
the underlying security at its current price and sell it at a
lower price. The risk of loss from writing an uncovered put
option is limited to the exercise price of the option.
A Fund may write a call option on a security that it does not own
in order to hedge against a decline in the value of a security
that it owns or has the right to acquire, a technique referred to
as "cross-hedging." A Fund would write a call option for cross-
hedging purposes, instead of writing a covered call option, when
the premium to be received from the cross-hedge transaction
exceeds that to be received from writing a covered call option,
while at the same time achieving the desired hedge. The
correlation risk involved in cross-hedging may be greater than
the correlation risk involved with other hedging strategies.
SHORT-TERM U.S. GOVERNMENT, MORTGAGE SECURITIES INCOME, NORTH
AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT, GLOBAL
STRATEGIC INCOME, CORPORATE BOND, and HIGH YIELD generally
purchase or write privately negotiated options on securities. A
Fund that does so will effect such transactions only with
investment dealers and other financial institutions (such as
commercial banks or savings and loan institutions) deemed
creditworthy by Alliance. Privately negotiated options purchased
or written by a Fund may be illiquid and it may not be possible
for the Fund to effect a closing transaction at an advantageous
time. Neither MORTGAGE SECURITIES INCOME nor CORPORATE BOND will
purchase an option on a security if, immediately thereafter, the
aggregate cost of all outstanding options purchased by the Fund
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would exceed 2% of the Fund's total assets. Nor will either Fund
write an option if, immediately thereafter, the aggregate value
of the Fund's portfolio securities subject to outstanding options
would exceed 15% of the Fund's total assets.
OPTIONS ON SECURITIES INDICES. An option on a securities index
is similar to an option on a security except that, rather than
taking or making delivery of a security at a specified price, an
option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of
a call) or less than (in the case of a put) the exercise price of
the option.
BRADY BONDS. Brady Bonds are created through the exchange of
existing commercial bank loans to foreign entities for new
obligations in connection with debt restructurings under a plan
introduced by former U.S. Secretary of the Treasury, Nicholas F.
Brady (the "Brady Plan"). Brady Bonds have been issued only
recently, and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in
various currencies (although most are U.S. Dollar-denominated)
and they are actively traded in the over-the-counter secondary
market.
U.S. Dollar-denominated, collateralized Brady Bonds, which may be
fixed-rate par bonds or floating rate discount bonds, are
generally collateralized in full as to principal due at maturity
by U.S. Treasury zero coupon obligations that have the same
maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an
amount that, in the case of fixed rate bonds, is equal to at
least one year of rolling interest payments based on the
applicable interest rate at that time and is adjusted at regular
intervals thereafter. Certain Brady Bonds are entitled to "value
recovery payments" in certain circumstances, which in effect
constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having up to four
valuation components: (i) collateralized repayment of principal
at final maturity, (ii) collateralized interest payments, (iii)
uncollateralized interest payments, and (iv) any uncollateralized
repayment of principal at maturity (these uncollateralized
amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of
which the payment obligations of the issuer are accelerated, the
U.S. Treasury zero coupon obligations held as collateral for the
payment of principal will not be distributed to investors, nor
will such obligations be sold and the proceeds distributed. The
collateral will be held by the collateral agent to the scheduled
maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will
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equal the principal payments that would have then been due on the
Brady Bonds in the normal course. In light of the residual risk
of Brady Bonds and, among other factors, the history of defaults
with respect to commercial bank loans by public and private
entities of countries issuing Brady Bonds, investments in Brady
Bonds are to be viewed as speculative.
CONVERTIBLE SECURITIES. Prior to conversion, convertible
securities have the same general characteristics as non-
convertible debt securities, which provide a stable stream of
income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a
convertible security will normally vary with changes in the price
of the underlying equity security, although the higher yield
tends to make the convertible security less volatile than the
underlying equity security. As with debt securities, the market
value of convertible securities tends to decrease as interest
rates rise and increase as interest rates decline. While
convertible securities generally offer lower interest or dividend
yields than non-convertible debt securities of similar quality,
they enable investors to benefit from increases in the market
price of the underlying common stock. Convertible debt securities
that are rated Baa or lower by Moody's or BBB or lower by S&P,
Duff & Phelps or Fitch and comparable unrated securities may
share some or all of the risks of debt securities with those
ratings.
FORWARD COMMITMENTS. Forward commitments for the purchase or
sale of securities may include purchases on a WHEN-ISSUED basis
or purchases or sales on a DELAYED DELIVERY basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring or approval of a
proposed financing by appropriate authorities (i.e., a "when, as
and if issued" trade).
When forward commitments with respect to fixed-income securities
are negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but payment
for and delivery of the securities take place at a later date.
Normally, the settlement date occurs within two months after the
transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are
subject to market fluctuation and no interest or dividends
accrues to the purchaser prior to the settlement date.
The use of forward commitments helps a Fund to protect against
anticipated changes in interest rates and prices. For instance,
in periods of rising interest rates and falling bond prices, a
Fund might sell securities in its portfolio on a forward
commitment basis to limit its exposure to falling bond prices. In
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periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a
similar security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash yields. No
forward commitments will be made by LIMITED MATURITY GOVERNMENT,
NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR GOVERNMENT or
GLOBAL STRATEGIC INCOME if, as a result, the Fund's aggregate
forward commitments under such transactions would be more than
25% of the total assets of GLOBAL STRATEGIC INCOME and 30% of the
total assets of each of the other Funds.
A Fund's right to receive or deliver a security under a forward
commitment may be sold prior to the settlement date. The Funds
enter into forward commitments, however, only with the intention
of actually receiving securities or delivering them, as the case
may be. If a Fund, however, chooses to dispose of the right to
acquire a when-issued security prior to its acquisition or
dispose of its right to deliver or receive against a forward
commitment, it may realize a gain or incur a loss.
ILLIQUID SECURITIES. The Funds will limit their investments in
illiquid securities to 15% of their net assets, except that the
limit is 10% for MORTGAGE SECURITIES INCOME, MULTI-MARKET
STRATEGY, AND NORTH AMERICAN GOVERNMENT INCOME, and 5% for SHORT-
TERM U.S. GOVERNMENT. As a matter of fundamental policy,
CORPORATE BOND cannot purchase illiquid securities. Illiquid
securities generally include (i) direct placements or other
securities that are subject to legal or contractual restrictions
on resale or for which there is no readily available market
(e.g., when trading in the security is suspended or, in the case
of unlisted securities, when market makers do not exist or will
not entertain bids or offers), including many currency swaps and
any assets used to cover currency swaps, (ii) over-the-counter
options and assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven days.
A Fund that invests in illiquid securities may not be able to
sell such securities and may not be able to realize their full
value upon sale. Alliance will monitor each Fund's investments
in illiquid securities. Rule 144A securities will not be treated
as "illiquid" for the purposes of the limit on investments so
long as the securities meet liquidity guidelines established by
the Board of Directors.
INDEXED COMMERCIAL PAPER. Indexed commercial paper may have its
principal linked to changes in foreign currency exchange rates
whereby its principal amount is adjusted upwards or downwards
(but not below zero) at maturity to reflect changes in the
referenced exchange rate. Each Fund that invests in indexed
commercial paper may do so without limitation. A Fund will
receive interest and principal payments on such commercial paper
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in the currency in which such commercial paper is denominated,
but the amount of principal payable by the issuer at maturity
will change in proportion to the change (if any) in the exchange
rate between the two specified currencies between the date the
instrument is issued and the date the instrument matures. While
such commercial paper entails the risk of loss of principal, the
potential for realizing gains as a result of changes in foreign
currency exchange rates enables a Fund to hedge (or cross-hedge)
against a decline in the U.S. Dollar value of investments
denominated in foreign currencies while providing an attractive
money market rate of return. A Fund will purchase such
commercial paper for hedging purposes only, not for speculation.
INVESTMENT IN OTHER INVESTMENT COMPANIES. GLOBAL DOLLAR
GOVERNMENT may invest in other investment companies whose
investment objectives and policies are consistent with those of
the Fund. If the Fund acquires shares in investment companies,
shareholders would bear both their proportionate share of
expenses in the Fund (including management and advisory fees)
and, indirectly, the expenses of such investment companies
(including management and advisory fees).
LOANS OF PORTFOLIO SECURITIES. A Fund may make secured loans of
portfolio securities to brokers, dealers and financial
institutions, provided that cash, liquid high grade debt
securities or bank letters of credit equal to at least 100% of
the market value of the securities loaned is deposited and
maintained by the borrower with the Fund. The risks in lending
portfolio securities, as with other secured extensions of credit,
consist of possible loss of rights in the collateral should the
borrower fail financially. In determining whether to lend
securities to a particular borrower, Alliance will consider all
relevant facts and circumstances, including the creditworthiness
of the borrower. While securities are on loan, the borrower will
pay the Fund any income earned from the securities. The Fund may
invest any cash collateral in portfolio securities and earn
additional income or receive an agreed-upon amount of income from
a borrower who has delivered equivalent collateral. Lending of
portfolio securities is limited to 50% of net assets for HIGH
YIELD, 25% for SHORT-TERM U.S. GOVERNMENT and GLOBAL STRATEGIC
INCOME, and 20% for LIMITED MATURITY GOVERNMENT, MORTGAGE
SECURITIES INCOME, MULTI-MARKET STRATEGY, NORTH AMERICAN
GOVERNMENT INCOME and GLOBAL DOLLAR GOVERNMENT.
LOAN PARTICIPATIONS AND ASSIGNMENTS. A Fund's investments in
loans are expected in most instances to be in the form of
participations in loans and assignments of all or a portion of
loans from third parties. A Fund's investment in loan
participations typically will result in the Fund having a
contractual relationship only with the lender and not with the
borrower. A Fund will acquire participations only if the lender
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interpositioned between the Fund and the borrower is a lender
having total assets of more than $25 billion and whose senior
unsecured debt is rated investment grade or higher. When a Fund
purchases a loan assignment from a lender it will acquire direct
rights against the borrower on the loan. Because loan assignments
are arranged through private negotiations between potential
assignees and potential assignors, however, the rights and
obligations acquired by a Fund as the purchaser of an assignment
may differ from, and be more limited than, those held by the
assigning lender.
The assignability of certain sovereign debt obligations, with
respect to GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME,
or foreign government securities, with respect to CORPORATE BOND
and HIGH YIELD, is restricted by the governing documentation as
to the nature of the assignee such that the only way in which the
Fund may acquire an interest in a loan is through a participation
and not an assignment. A Fund may have difficulty disposing of
assignments and participations because to do so it will have to
assign such securities to a third party. Because there may not be
a liquid market for such investments, they can probably be sold
only to a limited number of institutional investors. The lack of
a liquid secondary market may have an adverse effect on the value
of such investments and a Fund's ability to dispose of particular
participations and assignments when necessary to meet its
liquidity needs in response to a specific economic event such as
a deterioration in the creditworthiness of the borrower. The lack
of a liquid secondary market for participations and assignments
also may make it more difficult for the Fund to assign a value to
these investments for purposes of valuing the Fund's portfolio
and calculating its net asset value.
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME may invest
up to 25%, and CORPORATE BOND may invest up to 15%, of their
total assets, in loan participations and assignments.
MORTGAGE-RELATED SECURITIES. The Funds' investments in mortgage-
related securities typically are securities representing
interests in pools of mortgage loans made to home owners. The
mortgage loan pools may be assembled for sale to investors (such
as a Fund) by governmental or private organizations. Mortgage-
related securities bear interest at either a fixed rate or an
adjustable rate determined by reference to an index rate.
Mortgage-related securities frequently provide for monthly
payments that consist of both interest and principal, unlike more
traditional debt securities, which normally do not provide for
periodic repayments of principal.
Securities representing interests in pools created by private
issuers generally offer a higher rate of interest than securities
representing interests in pools created by governmental issuers
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because there are no direct or indirect governmental guarantees
of the underlying mortgage payments. Private issuers sometimes
obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit
enhancement to support the timely payment of interest and
principal with respect to their securities if the borrowers on
the underlying mortgages fail to make their mortgage payments.
The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating of
such an enhancer were downgraded. A Fund may buy mortgage-related
securities without credit enhancement if the securities meet the
Fund's investment standards.
One type of mortgage-related security is of the "pass-through"
variety. The holder of a pass-through security is considered to
own an undivided beneficial interest in the underlying pool of
mortgage loans and receives a pro rata share of the monthly
payments made by the borrowers on their mortgage loans, net of
any fees paid to the issuer or guarantor of the securities.
Prepayments of mortgages resulting from the sale, refinancing, or
foreclosure of the underlying properties are also paid to the
holders of these securities, which, as discussed below,
frequently causes these securities to experience significantly
greater price and yield volatility than experienced by
traditional fixed-income securities. Some mortgage-related
securities, such as securities issued by GNMA, are referred to as
"modified pass-through" securities. The holders of these
securities are entitled to the full and timely payment of
principal and interest, net of certain fees, regardless of
whether payments are actually made on the underlying mortgages.
Another form of mortgage-related security is a "pay-through"
security, which is a debt obligation of the issuer secured by a
pool of mortgage loans pledged as collateral that is legally
required to be paid by the issuer, regardless of whether payments
are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a
CMO, a series of bonds or certificates is issued in multiple
classes. Each class of a CMO, often referred to as a "tranche,"
is issued at a specific coupon rate and has a stated maturity or
final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be
retired substantially earlier than the stated maturities or final
distribution dates of the collateral. The principal and interest
on the underlying mortgages may be allocated among several
classes of a series of a CMO in many ways. CMOs may be issued by
a U.S. Government instrumentality or agency or by a private
issuer. Although payment of the principal of, and interest on,
the underlying collateral securing privately issued CMOs may be
guaranteed by GNMA, FNMA or FHLMC, these CMOs represent
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obligations solely of the private issuer and are not insured or
guaranteed by GNMA, FNMA, FHLMC, any other governmental agency or
any other person or entity.
Another type of mortgage-related security, known as ARMS, bears
interest at a rate determined by reference to a predetermined
interest rate or index. There are two main categories of rates or
indices: (i) rates based on the yield on U.S. Treasury securities
and (ii) indices derived from a calculated measure such as a cost
of funds index or a moving average of mortgage rates. Some rates
and indices closely mirror changes in market interest rate
levels, while others tend to lag changes in market rate levels
and tend to be somewhat less volatile.
ARMS may be secured by fixed-rate mortgages or adjustable-rate
mortgages. ARMS secured by fixed-rate mortgages generally have
lifetime caps on the coupon rates of the securities. To the
extent that general interest rates increase faster than the
interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have
caps that limit the maximum amount by which the interest rate or
the monthly principal and interest payments on the mortgages may
increase. These payment caps can result in negative amortization
(i.e., an increase in the balance of the mortgage loan). Since
many adjustable-rate mortgages only reset on an annual basis, the
values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the
interest rates payable on the underlying adjustable-rate
mortgages.
SMRS are mortgage-related securities that are usually structured
with two classes of securities collateralized by a pool of
mortgages or a pool of mortgaged-backed bonds or pass-through
securities, with each class receiving different proportions of
the principal and interest payments from the underlying assets. A
common type of SMRS has one class of interest-only securities or
IOs receiving all of the interest payments from the underlying
assets; while the other class of securities, principal-only
securities or POs, receives all of the principal payments from
the underlying assets. IOs and POs are extremely sensitive to
interest rate changes and are more volatile than mortgage-related
securities that are not stripped. IOs tend to decrease in value
as interest rates decrease, while POs generally increase in value
as interest rates decrease. If prepayments of the underlying
mortgages are greater than anticipated, the amount of interest
earned on the overall pool will decrease due to the decreasing
principal balance of the assets. Changes in the values of IOs and
POs can be substantial and occur quickly, such as occurred in the
first half of 1994 when the value of many POs dropped
precipitously due to increases in interest rates. For this
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reason, none of the Funds relies on IOs and POs as the principal
means of furthering its investment objective.
The value of mortgage-related securities is affected by a number
of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier
than expected as a result of prepayments of underlying mortgages.
Such prepayments generally occur during periods of falling
mortgage interest rates. If property owners make unscheduled
prepayments of their mortgage loans, these prepayments will
result in the early payment of the applicable mortgage-related
securities. In that event, a Fund may be unable to invest the
proceeds from the early payment of the mortgage-related
securities in investments that provide as high a yield as the
mortgage-related securities. Early payments associated with
mortgage-related securities cause these securities to experience
significantly greater price and yield volatility than is
experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by the level of
general interest rates, general economic conditions, and other
social and demographic factors. During periods of falling
interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-
related securities. Conversely, during periods of rising
interest rates, a reduction in prepayments may increase the
effective life of mortgage-related securities, subjecting them to
greater risk of decline in market value in response to rising
interest rates. If the life of a mortgage-related security is
inaccurately predicted, a Fund may not be able to realize the
rate of return it expected.
Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private
organizations may not be readily marketable. In particular, the
secondary markets for CMOs, IOs, and POs may be more volatile and
less liquid than those for other mortgage-related securities,
thereby potentially limiting a Fund's ability to buy or sell
those securities at any particular time.
As with fixed-income securities generally, the value of mortgage-
related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such
securities. Such an adverse effect is especially possible with
fixed-rate mortgage securities. If the yield available on other
investments rises above the yield of the fixed-rate mortgage
securities as a result of general increases in interest rate
levels, the value of the mortgage-related securities will
decline. Although the negative effect could be lessened if the
mortgage-related securities were to be paid earlier (thus
permitting a Fund to reinvest the prepayment proceeds in
investments yielding the higher current interest rate), as
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described above the rates of mortgage prepayments and early
payments of mortgage-related securities generally tend to decline
during a period of rising interest rates. Although the values of
ARMS may not be affected as much as the values of fixed-rate
mortgage securities by rising interest rates, ARMS may still
decline in value as a result of rising interest rates. Although,
as described above, the yields on ARMS vary with changes in the
applicable interest rate or index, there is often a lag between
increases in general interest rates and increases in the yield on
ARMS as a result of relatively infrequent interest rate reset
dates. In addition, adjustable-rate mortgages and ARMS often
have interest rate or payment caps that limit the ability of the
adjustable-rate mortgages or ARMS to fully reflect increases in
the general level of interest rates.
OTHER ASSET-BACKED SECURITIES. The securitization techniques
used to develop mortgage-related securities are being applied to
a broad range of financial assets. Through the use of trusts and
special purpose corporations, various types of assets, including
automobile loans and leases, credit card receivables, home equity
loans, equipment leases and trade receivables, are being
securitized in structures similar to the structures used in
mortgage securitizations. These asset-backed securities are
subject to risks associated with changes in interest rates and
prepayment of underlying obligations similar to the risks of
investment in mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks
depending on the type of assets involved and the legal structure
used. For example, credit card receivables are generally
unsecured obligations of the credit card holder and the debtors
are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right
to set off certain amounts owed on the credit cards, thereby
reducing the balance due. In some transactions, the value of the
asset-backed security is dependent on the performance of a third
party acting as credit enhancer or servicer. In some
transactions (such as those involving the securitization of
vehicle loans or leases) it may be administratively burdensome to
perfect the interest of the security issuer in the underlying
collateral and the underlying collateral may become damaged or
stolen.
REPURCHASE AGREEMENTS. A repurchase agreement arises when a
buyer purchases a security and simultaneously agrees to resell it
to the vendor at an agreed-upon future date, normally a day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate for the period the
buyer's money is invested in the security. Such agreements permit
a Fund to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a longer-
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term nature. A Fund requires continual maintenance of collateral
in an amount equal to, or in excess of, the resale price. If a
vendor defaults on its repurchase obligation, a Fund would suffer
a loss to the extent that the proceeds from the sale of the
collateral were less than the repurchase price. If a vendor goes
bankrupt, a Fund might be delayed in, or prevented from, selling
the collateral for its benefit.
REVERSE REPURCHASE AGREEMENTS and DOLLAR ROLLS. Reverse
repurchase agreements involve sales by a Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same
assets at a later date at a fixed price. During the reverse
repurchase agreement period, the Fund continues to receive
principal and interest payments on these securities. Generally,
the effect of such a transaction is that a Fund can recover all
or most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while it
will be able to keep the interest income associated with those
portfolio securities. Such transactions are advantageous only if
the interest cost to a Fund of the reverse repurchase transaction
is less than the cost of otherwise obtaining the cash.
Dollar rolls involve sales by a Fund of securities for delivery
in the current month and the Fund's simultaneously contracting to
repurchase substantially similar (same type and coupon)
securities on a specified future date. During the roll period, a
Fund forgoes principal and interest paid on the securities. A
Fund is compensated by the difference between the current sales
price and the lower forward price for the future purchase (often
referred to as the "drop") as well as by the interest earned on
the cash proceeds of the initial sale.
Reverse repurchase agreements and dollar rolls involve the risk
that the market value of the securities a Fund is obligated to
repurchase under the agreement may decline below the repurchase
price. In the event the buyer of securities under a reverse
repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or
its trustee or receiver, whether to enforce the Fund's obligation
to repurchase the securities.
Reverse repurchase agreements and dollar rolls are speculative
techniques and are considered borrowings by the Funds. SHORT-
TERM U.S. GOVERNMENT may enter into reverse repurchase agreements
with commercial banks and registered broker-dealers in order to
increase income, in an amount up to 33-1/3% of its total assets.
Under normal circumstances, LIMITED MATURITY GOVERNMENT does not
expect to engage in reverse repurchase agreements and dollar
rolls with respect to greater than 50% of its total assets.
Reverse repurchase agreements and dollar rolls together with any
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borrowings by GLOBAL DOLLAR GOVERNMENT will not exceed 33% of its
total assets less liabilities (other than amounts borrowed).
GLOBAL STRATEGIC INCOME may enter into reverse repurchase
agreements with commercial banks and registered broker-dealers in
order to increase income, in an amount up to 25% of its total
assets. Reverse repurchase agreements and dollar rolls together
with any borrowings by GLOBAL STRATEGIC INCOME will not exceed
25% of its total assets.
RIGHTS AND WARRANTS. GLOBAL DOLLAR GOVERNMENT may invest in
warrants, and GLOBAL STRATEGIC INCOME may invest in rights and
warrants, which are option securities permitting their holders to
subscribe for other securities. GLOBAL DOLLAR GOVERNMENT may
invest in warrants, and Global Strategic Income may invest in
rights and warrants, for debt securities or for equity securities
that are acquired in connection with debt instruments. Rights
are similar to warrants except that they have a substantially
shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying
securities, or any rights in the assets of the issuer. As a
result, an investment in rights and warrants may be considered
more speculative than certain other types of investments. In
addition, the value of a right or a warrant does not necessarily
change with the value of the underlying securities, and a right
or a warrant ceases to have value if it is not exercised prior to
its expiration date. GLOBAL STRATEGIC INCOME may invest up to 20%
of its total assets in rights and warrants.
SHORT SALES. A short sale is effected by selling a security that
a Fund does not own, or if the Fund owns the security, is not to
be delivered upon consummation of the sale. A short sale is
"against the box" if a Fund owns or has the right to obtain
without payment securities identical to those sold short. SHORT-
TERM U.S. GOVERNMENT and GLOBAL DOLLAR GOVERNMENT each may make
short sales only against the box and only for the purpose of
deferring realization of gain or loss for U.S. federal income tax
purposes. In addition, each of these Funds may not make a short
sale if, as a result, more than 10% of net assets (taken at
market value), with respect to GLOBAL DOLLAR GOVERNMENT, and 10%
of total assets, with respect to SHORT-TERM U.S. GOVERNMENT,
would be held as collateral for short sales.
GLOBAL STRATEGIC INCOME may make a short sale in anticipation
that the market price of that security will decline. When the
Fund makes a short sale of a security that it does not own, it
must borrow from a broker-dealer the security sold short and
deliver the security to the broker-dealer upon conclusion of the
short sale. The Fund may be required to pay a fee to borrow
particular securities and is often obligated to pay over any
payments received on such borrowed securities. The Fund's
obligation to replace the borrowed security will be secured by
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collateral deposited with a broker-dealer qualified as a
custodian. Depending on the arrangements the Fund makes with the
broker-dealer from which it borrowed the security regarding
remittance of any payments received by the Fund on such security,
the Fund may or may not receive any payments (e.g., dividends or
interest) on its collateral deposited with the broker-dealer.
In order to defer realization of gain or loss for U.S. federal
income tax purposes, GLOBAL STRATEGIC INCOME may also make short
sales "against the box" of securities which are eligible for such
deferral. The Fund may not make a short sale, if as a result,
more than 25% of its total assets would be held as collateral for
short sales.
If the price of the security sold short increases between the
time of the short sale and the time a Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price
declines, the Fund will realize a short-term capital gain. Any
gain will be decreased, and any loss increased, by the
transaction costs described above. Although a Fund's gain is
limited to the price at which it sold the security short, its
potential loss is theoretically unlimited.
STANDBY COMMITMENT AGREEMENTS. Standby commitment agreements are
similar to put options that commit a Fund, for a stated period of
time, to purchase a stated amount of a security that may be
issued and sold to the Fund at the option of the issuer. The
price and coupon of the security are fixed at the time of the
commitment. At the time of entering into the agreement, the Fund
is paid a commitment fee regardless of whether the security
ultimately is issued. The Funds will enter into such agreements
only for the purpose of investing in the security underlying the
commitment at a yield and price considered advantageous and
unavailable on a firm commitment basis. No Fund will enter into
a standby commitment with a remaining term in excess of 45 days.
The Funds will limit their investments in standby commitments so
that the aggregate purchase price of the securities subject to
the commitments does not exceed 20%, or 25% with respect to
GLOBAL STRATEGIC INCOME, of their assets.
There is no guarantee that the security subject to a standby
commitment will be issued. In addition, the value of the
security, if issued, on the delivery date may be more or less
than its purchase price. Since the issuance of the security is
at the option of the issuer, a Fund will bear the risk of capital
loss in the event the value of the security declines and may not
benefit from an appreciation in the value of the security during
the commitment period if the issuer decides not to issue and sell
the security to the Fund.
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STRUCTURED SECURITIES. Structured securities in which GLOBAL
DOLLAR GOVERNMENT, GLOBAL STRATEGIC INCOME and CORPORATE BOND may
invest represent interests in entities organized and operated
solely for the purpose of restructuring the investment
characteristics of sovereign debt obligations, with respect to
GLOBAL DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME, or foreign
government securities, with respect to CORPORATE BOND. This type
of restructuring involves the deposit with or purchase by an
entity, such as a corporation or trust, of specified instruments
(such as commercial bank loans or Brady Bonds) and the issuance
by that entity of one or more classes of structured securities
backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to
create securities with different investment characteristics such
as varying maturities, payment priorities and interest rate
provisions, and the extent of the payments made with respect to
structured securities is dependent on the extent of the cash flow
on the underlying instruments. Because structured securities
typically involve no credit enhancement, their credit risk
generally will be equivalent to that of the underlying
instruments. Structured securities of a given class may be
either subordinated or unsubordinated to the right of payment of
another class. Subordinated structured securities typically have
higher yields and present greater risks than unsubordinated
structured securities. GLOBAL DOLLAR GOVERNMENT may invest up to
25% of its total assets, and GLOBAL STRATEGIC INCOME and
CORPORATE BOND may invest without limit, in these types of
structured securities.
VARIABLE, FLOATING AND INVERSE FLOATING RATE INSTRUMENTS. Fixed-
income securities may have fixed, variable or floating rates of
interest. Variable and floating rate securities pay interest at
rates that are adjusted periodically, according to a specified
formula. A "variable" interest rate adjusts at predetermined
intervals (e.g., daily, weekly or monthly), while a "floating"
interest rate adjusts whenever a specified benchmark rate (such
as the bank prime lending rate) changes.
A Fund may invest in fixed-income securities that pay interest at
a coupon rate equal to a base rate, plus additional interest for
a certain period of time if short-term interest rates rise above
a predetermined level or "cap." The amount of such an additional
interest payment typically is calculated under a formula based on
a short-term interest rate index multiplied by a designated
factor.
Leveraged inverse floating rate debt instruments are sometimes
known as inverse floaters. The interest rate on an inverse
floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse
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floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of
the change in the index rate of interest. The higher degree of
leverage inherent in inverse floaters is associated with greater
volatility in market value, such that, during periods of rising
interest rates, the market values of inverse floaters will tend
to decrease more rapidly than those of fixed rate securities.
ZERO COUPON AND PRINCIPAL-ONLY SECURITIES. Zero coupon
securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of
their unmatured interest coupons, and include receipts or
certificates representing interests in such stripped debt
obligations and coupons. Such a security pays no interest to its
holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the
price for which it was acquired, which is generally an amount
significantly less than its face value. Such securities usually
trade at a deep discount from their face or par value and are
subject to greater fluctuations in market value in response to
changing interest rates than debt obligations of comparable
maturities and credit quality that make current distributions of
interest. On the other hand, because there are no periodic
interest payments to be reinvested prior to maturity, these
securities eliminate reinvestment risk and "lock in" a rate of
return to maturity.
Zero coupon Treasury securities are U.S. Treasury bills issued
without interest coupons. Principal-only Treasury securities are
U.S. Treasury notes and bonds that have been stripped of their
unmatured interest coupons, and receipts or certificates
representing interests in such stripped debt obligations.
Currently the only U.S. Treasury security issued without coupons
is the Treasury bill. Although the U.S. Treasury does not itself
issue Treasury notes and bonds without coupons, under the U.S.
Treasury STRIPS program interest and principal payments on
certain long-term Treasury securities may be maintained
separately in the Federal Reserve book entry system and may be
separately traded and owned. In addition, in the last few years
a number of banks and brokerage firms have separated ("stripped")
the principal portions from the coupon portions of U.S. Treasury
bonds and notes and sold them separately in the form of receipts
or certificates representing undivided interests in these
instruments (which are generally held by a bank in a custodial or
trust account).
GLOBAL STRATEGIC INCOME and CORPORATE BOND also may invest in
"pay-in-kind" debentures (i.e., debt obligations the interest on
which may be paid in the form of obligations of the same type
rather than cash), which have characteristics similar to zero
coupon securities.
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FUTURE DEVELOPMENTS. A Fund may, following written notice to its
shareholders, take advantage of other investment practices that
are not currently contemplated for use by the Fund, or are not
available but may yet be developed, to the extent such investment
practices are consistent with the Fund's investment objective and
legally permissible for the Fund. Such investment practices, if
they arise, may involve risks that are different from or exceed
those involved in the practices described above.
PORTFOLIO TURNOVER. The portfolio turnover rate for each Fund is
included in the FINANCIAL HIGHLIGHTS section. The Funds are
actively managed and, in some cases in response to market
conditions, a Fund's portfolio turnover may exceed 100%. A
higher rate of portfolio turnover increases brokerage and other
expenses, which must be borne by the Fund and its shareholders.
High portfolio turnover also may result in the realization of
substantial net short-term capital gains, which, when
distributed, are taxable to shareholders.
TEMPORARY DEFENSIVE POSITION. For temporary defensive purposes,
each Fund may invest in certain types of short-term, liquid, high
grade or high quality (depending on the Fund) debt securities.
These securities may include U.S. Government securities,
qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities,
including notes and bonds. For Funds that may invest in foreign
countries, such securities may also include short-term, foreign-
currency denominated securities of the type mentioned above
issued by foreign governmental entities, companies and
supranational organizations.
ADDITIONAL RISK CONSIDERATIONS
CURRENCY CONSIDERATIONS. Those Funds that invest some portion of
their assets in securities denominated in, and receive revenues
in, foreign currencies will be adversely affected by reductions
in the value of those currencies relative to the U.S. Dollar.
These changes will affect a Fund's net assets, distributions and
income. If the value of the foreign currencies in which a Fund
receives income falls relative to the U.S. Dollar between receipt
of the income and the making of Fund distributions, a Fund may be
required to liquidate securities in order to make distributions
if the Fund has insufficient cash in U.S. Dollars to meet the
distribution requirements that the Fund must satisfy to qualify
as a regulated investment company for federal income tax
purposes. Similarly, if an exchange rate declines between the
time a Fund incurs expenses in U.S. Dollars and the time cash
expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S.
Dollars could be greater than the equivalent amount of such
expenses in the currency at the time they were incurred. In
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light of these risks, a Fund may engage in certain currency
hedging transactions, as described above, which involve certain
special risks.
EFFECTS OF BORROWING. A Fund's loan agreements provide for
additional borrowings and for repayments and reborrowings from
time to time, and each Fund that may borrow expects to effect
borrowings and repayments at such times and in such amounts as
will maintain investment leverage in an amount approximately
equal to its borrowing target. The loan agreements provide for a
selection of interest rates that are based on the bank's short-
term funding costs in the U.S. and London markets.
Borrowings by a Fund result in leveraging of the Fund's shares.
Utilization of leverage, which is usually considered speculative,
involves certain risks to a Fund's shareholders. These include a
higher volatility of the net asset value of a Fund's shares and
the relatively greater effect on the net asset value of the
shares. So long as a Fund is able to realize a net return on its
investment portfolio that is higher than the interest expense
paid on borrowings, the effect of leverage will be to cause the
Fund's shareholders to realize a higher current net investment
income than if the Fund were not leveraged. On the other
hand, interest rates on U.S. Dollar-denominated and foreign
currency-denominated obligations change from time to time as does
their relationship to each other, depending upon such factors as
supply and demand forces, monetary and tax policies within each
country and investor expectations. Changes in such factors could
cause the relationship between such rates to change so that rates
on U.S. Dollar-denominated obligations may substantially increase
relative to the foreign currency-denominated obligations of a
Fund's investments. If the interest expense on borrowings
approaches the net return on a Fund's investment portfolio, the
benefit of leverage to the Fund's shareholders will be reduced.
If the interest expense on borrowings were to exceed the net
return to shareholders, a Fund's use of leverage would result in
a lower rate of return. Similarly, the effect of leverage in a
declining market could be a greater decrease in net asset
value per share. In an extreme case, if a Fund's current
investment income were not sufficient to meet the interest
expense on borrowings, it could be necessary for the Fund to
liquidate certain of its investments and reduce the net asset
value of a Fund's shares.
In the event of an increase in rates on U.S. Government
securities or other changed market conditions, to the point where
leverage by MULTI-MARKET STRATEGY, GLOBAL STRATEGIC INCOME or
NORTH AMERICAN GOVERNMENT INCOME could adversely affect the
Funds' shareholders, as noted above, or in anticipation of such
changes, each Fund may increase the percentage of its investment
portfolio invested in U.S. Government securities, which would
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tend to offset the negative impact of leverage on Fund
shareholders. Each Fund may also reduce the degree to which it
is leveraged by repaying amounts borrowed.
FIXED-INCOME SECURITIES. The value of each Fund's shares will
fluctuate with the value of its investments. The value of each
Fund's investments will change as the general level of interest
rates fluctuates. During periods of falling interest rates, the
values of a Fund's securities will generally rise, although if
falling interest rates are viewed as a precursor to a recession,
the values of a Fund's securities may fall along with interest
rates. Conversely, during periods of rising interest rates, the
values of a Fund's securities will generally decline. Changes in
interest rates have a greater effect on fixed-income securities
with longer maturities and durations than those with shorter
maturities and durations.
In seeking to achieve a Fund's investment objective, there will
be times, such as during periods of rising interest rates, when
depreciation and realization of capital losses on securities in a
Fund's portfolio will be unavoidable. Moreover, medium- and
lower-rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but will
be reflected in the net asset value of a Fund.
FOREIGN SECURITIES. The securities markets of many foreign
countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited
number of companies representing a small number of industries.
Consequently, a Fund whose investment portfolio includes foreign
securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in
securities of U.S. companies. These markets may be subject to
greater influence by adverse events generally affecting the
market, and by large investors trading significant blocks of
securities, than is usual in the United States.
Securities registration, custody and settlements may in some
instances be subject to delays and legal and administrative
uncertainties. Furthermore, foreign investment in the securities
markets of certain foreign countries is restricted or controlled
to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may
increase the cost and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of
sales of securities from certain of the countries is controlled
under regulations, including in some cases the need for certain
advance government notification or authority, and if a
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deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances.
A Fund also could also be adversely affected by delays in, or a
refusal to grant, any required governmental approval for
repatriation, as well as by the application to it of other
restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve
additional costs to a Fund. These factors may affect the
liquidity of a Fund's investments in any country and Alliance
will monitor the effect of any such factor or factors on a Fund's
investments. Furthermore, transaction costs including brokerage
commissions for transactions both on and off the securities
exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not
subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, restrictions on
market manipulation, shareholder proxy requirements, and timely
disclosure of information. The reporting, accounting, and
auditing standards of foreign countries may differ, in some cases
significantly, from U.S. standards in important respects, and
less information may be available to investors in foreign
securities than to investors in U.S. securities. Substantially
less information is publicly available about certain non-U.S.
issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ
favorably or unfavorably from the U.S. economy in such respects
as growth of gross domestic product or gross national product,
rate of inflation, capital reinvestment, resource self-
sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social
instability, or diplomatic developments could affect adversely
the economy of a foreign country. In the event of
nationalization, expropriation or other confiscation, a Fund
could lose its entire investment in securities in the country
involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may provide
less protection to security holders such as the Fund than that
provided by U.S. laws.
Alliance believes that, except for currency fluctuations between
the U.S. Dollar and the Canadian Dollar, the matters described
above are not likely to have a material adverse effect on NORTH
AMERICAN GOVERNMENT INCOME'S investments in the securities of
Canadian issuers or investments denominated in Canadian Dollars.
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The factors described above are more likely to have a material
adverse effect on the Fund's investments in the securities of
Mexican and other non-Canadian foreign issuers, including
investments in securities denominated in Mexican Pesos or other
non-Canadian foreign currencies. If not hedged, however,
currency fluctuations could affect the unrealized appreciation
and depreciation of Canadian Government securities as expressed
in U.S. Dollars.
INVESTMENT IN THE BANKING INDUSTRY. Due to its investment
policies with respect to investments in the banking industry,
MULTI-MARKET STRATEGY will have greater exposure to the risk
factors which are characteristic of such investments. In
particular, the value of and investment return on the Fund's
shares will be affected by economic or regulatory developments in
or related to the banking industry. Sustained increases in
interest rates can adversely affect the availability and cost of
funds for a bank's lending activities, and a deterioration in
general economic conditions could increase the exposure to credit
losses. The banking industry is also subject to the effects of
the concentration of loan portfolios in particular businesses
such as real estate, energy, agriculture or high technology-
related companies; competition within those industries as well as
with other types of financial institutions; and national and
local governmental regulation. In addition, the Fund's
investments in commercial banks located in several foreign
countries are subject to additional risks due to the combination
in such banks of commercial banking and diversified securities
activities. As discussed above, however, the Fund will seek to
minimize their exposure to such risks by investing only in debt
securities which are determined to be of high quality.
INVESTMENT IN FIXED-INCOME SECURITIES RATED BAA AND BBB.
Securities rated Baa or BBB are considered to have speculative
characteristics and share some of the same characteristics as
lower-rated securities, as described below. Sustained periods of
deteriorating economic conditions or of rising interest rates are
more likely to lead to a weakening in the issuer's capacity to
pay interest and repay principal than in the case of higher-rated
securities.
INVESTMENT IN LOWER-RATED FIXED-INCOME SECURITIES. Lower-rated
securities are subject to greater risk of loss of principal and
interest than higher-rated securities. They are also generally
considered to be subject to greater market risk than higher-rated
securities, and the capacity of issuers of lower-rated securities
to pay interest and repay principal is more likely to weaken than
is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In
addition, lower-rated securities may be more susceptible to real
or perceived adverse economic conditions than investment grade
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securities. Securities rated Ba or BB are judged to have
speculative elements or to be predominantly speculative with
respect to the issuer's ability to pay interest and repay
principal. Securities rated B are judged to have highly
speculative elements or to be predominantly speculative. Such
securities may have small assurance of interest and principal
payments. Securities rated Baa by Moody's are also judged to have
speculative characteristics.
The market for lower-rated securities may be thinner and less
active than that for higher-rated securities, which can adversely
affect the prices at which these securities can be sold. To the
extent that there is no established secondary market for lower-
rated securities, a Fund may experience difficulty in valuing
such securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in investment in
lower-rated securities through credit analysis, diversification,
and attention to current developments and trends in interest
rates and economic and political conditions. There can be no
assurance, however, that losses will not occur. Since the risk of
default is higher for lower-rated securities, Alliance's research
and credit analysis are a correspondingly more important aspect
of its program for managing a Fund's securities than would be the
case if a Fund did not invest in lower-rated securities. In
considering investments for the Fund, Alliance will attempt to
identify those high-yielding securities whose financial condition
is adequate to meet future obligations, has improved, or is
expected to improve in the future. Alliance's analysis focuses
on relative values based on such factors as interest or dividend
coverage, asset coverage, earnings prospects, and the experience
and managerial strength of the issuer.
UNRATED SECURITIES. Unrated securities will also be considered
for investment by NORTH AMERICAN GOVERNMENT INCOME, GLOBAL DOLLAR
GOVERNMENT, GLOBAL STRATEGIC INCOME, CORPORATE BOND and HIGH
YIELD when Alliance believes that the financial condition of the
issuers of such securities, or the protection afforded by the
terms of the securities themselves, limits the risk to the Fund
to a degree comparable to that of rated securities which are
consistent with the Fund's objective and policies.
SOVEREIGN DEBT OBLIGATIONS. No established secondary markets may
exist for many of the sovereign debt obligations in which GLOBAL
DOLLAR GOVERNMENT and GLOBAL STRATEGIC INCOME will invest.
Reduced secondary market liquidity may have an adverse effect on
the market price and a Fund's ability to dispose of particular
instruments when necessary to meet its liquidity requirements or
in response to specific economic events such as a deterioration
in the creditworthiness of the issuer. Reduced secondary market
liquidity for certain sovereign debt obligations may also make it
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more difficult for a Fund to obtain accurate market quotations
for the purpose of valuing its portfolio. Market quotations are
generally available on many sovereign debt obligations only from
a limited number of dealers and may not necessarily represent
firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be
exposed to the direct or indirect consequences of political,
social, and economic changes in various countries. Political
changes in a country may affect the willingness of a foreign
government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among
other things, in its inflation rate, the amount of its external
debt and its gross domestic product, will also affect the
government's ability to honor its obligations.
The sovereign debt obligations in which the Funds will invest in
many cases pertain to countries that are among the world's
largest debtors to commercial banks, foreign governments,
international financial organizations, and other financial
institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their
external debt obligations, which led to defaults on certain
obligations and the restructuring of certain indebtedness.
Restructuring arrangements have included, among other things,
reducing and rescheduling interest and principal payments by
negotiating new or amended credit agreements or converting
outstanding principal and unpaid interest to Brady Bonds, and
obtaining new credit to finance interest payments. Certain
governments have not been able to make payments of interest on or
principal of sovereign debt obligations as those payments have
come due. Obligations arising from past restructuring
agreements may affect the economic performance and political and
social stability of those issuers.
The Funds are permitted to invest in sovereign debt obligations
that are not current in the payment of interest or principal or
are in default so long as Alliance believes it to be consistent
with the Funds' investment objectives. The Funds may have limited
legal recourse in the event of a default with respect to certain
sovereign debt obligations it holds. For example, remedies from
defaults on certain sovereign debt obligations, unlike those on
private debt, must, in some cases, be pursued in the courts of
the defaulting party itself. Legal recourse therefore may be
significantly diminished. Bankruptcy, moratorium and other
similar laws applicable to issuers of sovereign debt obligations
may be substantially different from those applicable to issuers
of private debt obligations. The political context, expressed as
the willingness of an issuer of sovereign debt obligations to
meet the terms of the debt obligation, for example, is of
considerable importance. In addition, no assurance can be given
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that the holders of commercial bank debt will not contest
payments to the holders of securities issued by foreign
governments in the event of default under commercial bank loan
agreements.
U.S. CORPORATE FIXED-INCOME SECURITIES. The U.S. corporate
fixed-income securities in which GLOBAL DOLLAR GOVERNMENT and
HIGH YIELD invest may include securities issued in connection
with corporate restructurings such as takeovers or leveraged
buyouts, which may pose particular risks. Securities issued to
finance corporate restructurings may have special credit risks
due to the highly leveraged conditions of the issuer. In
addition, such issuers may lose experienced management as a
result of the restructuring. Furthermore, the market price of
such securities may be more volatile to the extent that expected
benefits from the restructuring do not materialize. The Funds may
also invest in U.S. corporate fixed-income securities that are
not current in the payment of interest or principal or are in
default, so long as Alliance believes such investment is
consistent with the Fund's investment objectives. The Funds'
rights with respect to defaults on such securities will be
subject to applicable U.S. bankruptcy, moratorium and other
similar laws.
YEAR 2000 AND EURO. Many computer systems and applications in
use today process transactions using two-digit date fields for
the year of the transaction, rather than the full four digits.
If these systems are not modified or replaced, transactions
occurring after 1999 could be processed as year "1900", which
could result in processing inaccuracies and computer system
failures. This is commonly known as the Year 2000 problem. In
addition to the Year 2000 problem, the European Economic and
Monetary Union has established a single currency, the Euro
Currency ("Euro") that will replace the national currency of
certain European countries effective January 1, 1999. Computer
systems and applications must be adapted in order to be able to
process Euro sensitive information accurately beginning in 1999.
Should any of the computer systems employed by the Funds' major
service providers fail to process Year 2000 or Euro related
information properly, that could have a significant negative
impact on the Funds' operations and the services that are
provided to the Funds' shareholders. In addition, to the extent
that the operations of issuers of securities held by the Funds
are impaired by the Year 2000 problem or the Euro, or prices of
securities held by the Funds decline as a result of real or
perceived problems relating to the Year 2000 or the Euro, the
value of the Funds' shares may be materially affected.
With respect to the Year 2000, the Funds have been advised that
Alliance, each Fund's investment adviser, Alliance Fund
Distributors, Inc. ("AFD"), each Fund's principal underwriter,
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and Alliance Fund Services, Inc. ("AFS"), each Fund's registrar,
transfer agent and dividend disbursing agent, (collectively,
"Alliance"), began to address the Year 2000 issue several years
ago in connection with the replacement or upgrading of certain
computer systems and applications. During 1997, Alliance began a
formal Year 2000 initiative, which established a structured and
coordinated process to deal with the Year 2000 issue. Alliance
reports that it has completed its assessment of the Year 2000
issues on its domestic and international computer systems and
applications. Currently, management of Alliance expects that the
required modifications for the majority of its significant
systems and applications that will be in use on January 1, 2000,
will be completed and tested by the end of 1998. Full
integration testing of these systems and testing of interfaces
with third-party suppliers will continue through 1999. At this
time, management of Alliance believes that the costs associated
with resolving this issue will not have a material adverse effect
on its operations or on its ability to provide the level of
services it currently provides to the Funds.
With respect to the Euro, the Funds have been advised that
Alliance has established a project team to assess changes that
will be required in connection with the introduction of the Euro.
Alliance reports that its project team has assessed all systems,
including those developed or managed internally, as well as those
provided by vendors, in order to determine the modifications that
will be required to process accurately transactions denominated
in Euro after 1998. At this time, management of Alliance expects
that the required modifications for the introduction of the Euro
will be completed and tested before the end of 1998. Management
of Alliance believes that the costs associated with resolving
this issue will not have a material adverse effect on its
operations or on its ability to provide the level of services it
currently provides to the Funds.
The Funds and Alliance have been advised by the Funds' Custodians
that they are also in the process of reviewing their systems with
the same goals. As of the date of this prospectus, the Funds and
Alliance have no reason to believe that the Custodians will be
unable to achieve these goals.
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MANAGEMENT OF THE FUNDS
INVESTMENT ADVISER
Each Fund's Adviser is Alliance Capital Management, L.P., 1345
Avenue of the Americas, New York, New York 10105. Alliance is a
leading international investment manager supervising client
accounts with assets as of December 31, 1998, totaling more than
$___ billion (of which approximately $___ billion represented the
assets of investment companies). Alliance's clients are primarily
major corporate employee benefit funds, public employee
retirement systems, investment companies, foundations, and
endowment funds. The __ registered investment companies, with
more than ___ separate portfolios, managed by Alliance currently
have over three million shareholder accounts. As of December 31,
1998, Alliance was retained as an investment manager for employee
benefit plan assets of __ of the FORTUNE 100 companies.
Alliance provides investment advisory services and order
placement facilities for the Funds. For these advisory services,
the Funds paid Alliance as a percentage of net assets:
<BB=>
FEE AS A PERCENTAGE FISCAL YEAR
FUND OF NET ASSETS * ENDING
Short-Term U.S. Governments
U.S. Government Portfolio
Limited Maturity Government
Mortgage Securities Income
Multi-Market Strategy
North American Government Income
Global Dollar Government
Global Strategic Income
Corporate Bond Portfolio
High Yield
* Fees are stated net of waivers and/or reimbursements. See the "Fee
Table" at the beginning of the Prospectus for more information about fee
waivers.
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PORTFOLIO MANAGER
The following table lists the person or persons who are primarily
responsible for the day-to-day management of each Fund's
portfolio, the length of time that each person has been primarily
responsible, and each person's principal occupation during the
past five years.
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EMPLOYEE; TIME PERIOD; PRINCIPAL
TITLE WITH ACMC OCCUPATION DURING
FUND THE PAST FIVE YEARS
Short-Term U.S. Patricia J. Young; Associated with
Government since inception; Alliance
Senior Vice President
Jeffrey S. Phlegar; since Associated with
1997; Senior Vice President Alliance
U.S. Government Wayne D. Lyski; since 1983; Associated with
Senior Vice President Alliance
Patricia J. Young; since 1997; (see above)
Jeffrey S. Phelgar; since 1997; (see above)
Limited Maturity Patricia J. Young; since 1997; (see above)
Government
Jeffrey S. Phelgar; since 1997; (see above)
Mortgage Securities Patricia J. Young; since 1997; (see above)
Income
Jeffrey S. Phelgar; since 1997; (see above)
Multi-Market Douglas J. Peebles; since Associated with
Strategy inception; Senior Vice President Alliance
North American Wayne D. Lyski; since inception; (see above)
Government Income
Global Dollar Wayne D. Lyski; since inception; (see above)
Government
Global Strategic Wayne D. Lyski; since inception; (see above)
Income
Douglas J. Peebles; since (see above)
inception;
Corporate Bond Wayne D. Lyski; since 1987; (see above)
Paul J. DeNoon; since Associated with
January 1992; Alliance
Vice President
High Yield Wayne C. Tappe; since 1991; Associated with
Senior Vice President Alliance
Nelson Jantzen; since 1991; Associated with
Senior Vice President Alliance
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PERFORMANCE OF A SIMILARLY MANAGED PORTFOLIO
Alliance is the investment adviser of a portfolio (the
"Historical Portfolio") of a registered investment company, sold
only to separate accounts of insurance companies in connection
with variable life insurance contracts and variable annuities
certificates and contracts (the "Contracts"), that has
substantially the same investment objective and policies and has
been managed in accordance with essentially the same investment
strategies and techniques as those of High Yield. Alliance since
July 22, 1993, and prior thereto, Equitable Capital Management
Corporation, whose advisory business Alliance acquired on that
date, have served as investment adviser to the Historical
Portfolio since its inception in 1987. Wayne C. Tappe, who
together with Nelson Jantzen is primarily responsible for the
day-to-day management of High Yield, has been the person
principally responsible for the day-to-day management of the
Historical Portfolio since 1995.
The following tables set forth performance results for the
Historical Portfolio since its inception (January 2, 1987),
together with those of High Yield and the Lipper High Current
Yield Mutual Funds Average as a comparative benchmark. As of
September 30, 1998, the assets in the Historical Portfolio
totalled approximately $571 million.
The performance data do not reflect account charges applicable to
the Contracts or imposed at the insurance company separate
account level, which, if reflected, would lower the performance
of the Historical Portfolio. In addition, the performance data
do not reflect the Fund's higher expenses, which, if reflected,
would lower the performance of the Historical Portfolio. The
performance data have not been adjusted for corporate or
individual taxes, if any, payable with respect to the Historical
Portfolio. The rates of return shown for the Historical
Portfolio are not an estimate or guarantee of future investment
performance of the Fund.
The Lipper High Current Yield Mutual Funds Average is a survey of
the performance of a large number of mutual funds the investment
objective of each of which is similar to that of the Fund.
Nonetheless, the investment policies pursued by Funds in the
survey may differ from those of High Yield and the Historical
Portfolio. This survey is published by Lipper Analytical
Services, Inc. ("Lipper"), a firm recognized for its reporting of
performance of actively managed funds. According to Lipper,
performance data are presented net of investment management fees,
operating expenses and, for funds with Rule 12b-1 plans, asset-
based sales charges.
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The performance results presented below are based on percent
changes in net asset values of the Historical Portfolio with
dividends and capital gains reinvested. Cumulative rates of
return reflect performance over a stated period of time.
Annualized rates of return represent the rate of growth that
would have produced the corresponding cumulative return had
performance been constant over the entire period. Rates of
return for High Yield Class A shares assume the imposition of the
maximum 4.25% sales charge. The inception date for the
Historical Portfolio and Lipper data is January 2, 1987 and for
High Yield is April 22, 1997.
ANNUALIZED RATES OF RETURN
PERIODS ENDED DECEMBER 31, 1998
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
Historical Portfolio % % % % %
Lipper High Current
Yield Mutual Funds
Average
High Yield
CUMULATIVE RATES OF RETURN
PERIODS ENDING DECEMBER 31, 1998
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
Historical Portfolio % % % % %
Lipper High Current
Yield Mutual Funds
Average
High Yield
PURCHASE AND SALE OF SHARES
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4 p.m. Eastern
time each day the Exchange is open for business. To calculate
NAV, a Fund's assets are valued and totaled, liabilities are
subtracted, and the balance, called net assets, is divided by the
number of shares outstanding. The Funds' value their securities
at their current market value determined on the basis of market
quotations or, if such quotations are not readily available, such
other methods as the Fund's Directors or Trustees believe
accurately reflect fair market value.
Your order for purchase, sale, or exchange of shares is priced at
the next NAV calculated after your order is accepted by the Fund.
Your purchase of Fund shares may be subject to an initial sales
charge. Sales of Fund shares may be subject to a contingent
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deferred sales charge or CDSC. See the next section of this
Prospectus, DISTRIBUTION ARRANGEMENTS, for details.
HOW TO BUY SHARES
You may purchase a Fund's shares through broker-dealers, banks,
or other financial intermediaries. You also may purchase shares
directly from the Funds' principal underwriter, Alliance Fund
Distributors, Inc., or AFD.
Minimum investment amounts are:
- Initial $250
- Subsequent $ 50
- Automatic Investment Program $ 25
If you are an existing Fund shareholder, you may purchases shares
by electronic funds transfer in amounts not exceeding $500,000 if
you have completed the appropriate section of the Subscription
Application or the Shareholder Options form obtained from AFS.
Call 800-221-5672 to arrange a transfer from your bank account.
A Fund is required to withhold 31% of taxable dividends, capital
gains distributions, and redemptions paid to shareholders who
have not provided the Fund with their certified taxpayer
identification number. To avoid this, you must provide your
correct Tax Identification Number (Social Security Number for
most investors) on your account application. The Funds may
refuse any order to purchase shares. In this regard, the Funds
reserve the right to restrict purchases of Fund shares (including
through exchanges) when they appear to evidence a pattern of
frequent purchases and sales made in response to short-term
considerations.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of
other Alliance Mutual Funds (including AFD Exchange Reserves, a
money market fund managed by Alliance). Exchanges of shares are
made at next-determined NAV, without sales or service charges.
You may request an exchange by mail or telephone. You must call
by 4:00 p.m. Eastern time to receive that day's NAV. The Funds
may change, suspend, or terminate the exchange service on 60
days' written notice.
HOW TO SELL SHARES
You may "redeem" your shares (i.e., sell your shares to the Fund)
on any day the Exchange is open, either directly or through your
financial intermediary. Your sales price will be the next-
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determined NAV, less any applicable CDSC, after the Fund receives
your request in proper form. Normally, proceeds will be sent to
you within seven days. If you recently purchased your shares by
check or electronic funds transfer, you cannot redeem your any
portion of it until the Fund is reasonably satisfied that the
check or electronic funds transfer has been collected (which may
take up to 15 days).
SELLING SHARES THROUGH YOUR BROKER
Your broker must receive your request by 4:00 p.m., Eastern time,
and submit it to the Fund by 5:00 p.m., Eastern time, for you to
receive that day's NAV, less any applicable CDSC. Your broker is
responsible for furnishing all necessary documentation to a Fund
and may charge you for this service.
SELLING SHARES DIRECTLY TO A FUND
BY MAIL
- Send a signed letter of instruction or stock power form
to AFS, along with certificates, to:
Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
800-221-5672
- For your protection, a bank, a member firm of a national
stock exchange or other eligible guarantor institution
must guarantee signatures. Stock power forms are
available from your financial intermediary, AFS, and
many commercial banks. Additional documentation is
required for the sale of shares by corporations,
intermediaries, fiduciaries, and surviving joint owners.
BY TELEPHONE
- You may redeem your shares for which no stock
certificates have been issued by telephone request.
Call AFS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
- A telephone redemption request must be made by 4:00 p.m.
Eastern time for you to receive that day's NAV, less any
applicable CDSC and, except for certain omnibus
accounts, may be made only once per day.
- If you have selected electronic funds transfer in your
Subscription Application, the redemption proceeds may be
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sent directly to your bank. Otherwise, the proceeds
will be mailed to you.
- Redemption requests by electronic funds transfer may not
exceed $100,000 per day and redemption requests by check
cannot exceed $50,000 per day.
- Telephone redemption is not available for shares held in
nominees or "street name" accounts or retirement plan
accounts or shares held by a shareholder who has changed
his or her address of record within the previous 30
calendar days.
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Funds declare dividends on their shares each Fund business
day. For Saturdays, Sundays, and holidays dividends will be as
of the previous business day. Each Fund pays dividends on its
shares after the close of business on the twentieth day of each
month or on the first day after that day if the day is not a
business day.
Each Fund's income dividend and capital gains distribution, if
any, declared by a Fund on its outstanding shares will, at the
election of each shareholder, be paid in cash or in additional
shares of the same class of shares of that Fund. If paid in
additional shares, the shares will have an aggregate NAV as of
the close of business on the day following the declaration date
of the dividend or distribution equal to the cash amount of the
dividend or distribution. You may make an election to receive
dividends and distributions in cash or in shares at the time you
purchase shares. Your election can be changed at any time prior
to a record date for a dividend. There is no sales or other
charge in connection with the reinvestment of dividends or
capital gains distributions. Cash dividends may be paid in
check, or at your election, electronically via the ACH network.
There is no sales or other charge on the reinvestment of Fund
dividends and distributions.
If you receive an income dividend or capital gains distribution
in cash you may, within 120 days following the date of its
payment, reinvest the dividend or distribution in additional
shares of that Fund without charge by returning to Alliance, with
appropriate instructions, the check representing the dividend or
distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends
and distributions in shares of that Fund.
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While it is the intention of each Fund to distribute to its
shareholders substantially all of each fiscal year's net income
and net realized capital gains, if any, the amount and timing of
any such dividend or distribution must necessarily depend upon
the realization by such Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no
assurance that a Fund will pay any dividends or realize any
capital gains.
Investment income received by a Fund from sources within foreign
countries may be subject to foreign income taxes withheld at the
source. To the extent that any Fund is liable for foreign income
taxes withheld at the source, each Fund intends, if possible, to
operate so as to meet the requirements of the Code to "pass
through" to the Fund's shareholders credits or deductions for
foreign income taxes paid, but there can be no assurance that any
Fund will be able to do so. Furthermore, a shareholder's ability
to claim a foreign tax credit or deduction for foreign taxes paid
by a Fund may be subject to certain limitations imposed by the
Code, as a result of which a shareholder may not be permitted to
claim a full credit or deduction for the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g.,
from fluctuations in currency exchange rates) after paying a
dividend, all or a portion of the dividend may subsequently be
characterized as a return of capital. Returns of capital are
generally nontaxable, but will reduce a shareholder's basis in
shares of a Fund. If that basis is reduced to zero (which could
happen if the shareholder does not reinvest distributions and
returns of capital are significant), any further returns of
capital will be taxable as capital gain.
U.S. FEDERAL INCOME TAXES
The Funds expect that distributions will consist either of net
income (or short-term capital gains) or long-term capital gains.
For federal income tax purposes, the Fund's dividend
distributions of net income (or short-term taxable gains) will be
taxable to you as ordinary income. Any capital gains
distributions may be taxable to you as capital gains. A Fund's
distributions also may be subject to certain state and local
taxes.
If you buy shares just before a Fund deducts a distribution from
its NAV, you will pay the full price for the shares and then
receive a portion of the price back as a taxable distribution.
The sale or exchange of Fund shares is a taxable transaction for
Federal income tax purposes. Each year shortly after December
31, the Fund will send you tax information stating the amount and
type of all its distributions for the year. Consult your tax
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adviser about the federal, state, and local tax consequences in
your particular circumstances.
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DISTRIBUTION ARRANGEMENT
SHARE CLASSES. The Funds offer three classes of shares.
CLASS A SHARES--INITIAL SALES CHARGE ALTERNATIVE
You can purchase Class A shares at NAV plus an initial sales
charge, as follows:
INITIAL SALES CHARGE
COMMISSION
AS % OF NET AS % OF TO DEALER/
AMOUNT OFFERING AGENT AS % OF
AMOUNT PURCHASED INVESTED PRICE OFFERING PRICE
Up to $100,000 4.44% 4.25% 4.00%
$100,000 up to $250,000 3.36% 3.25% 3.00%
$250,000 up to $500,000 2.30% 2.25% 2.00%
$500,000 up to $1,000,000 1.78% 1.75% 1.50%
You pay no initial sales charge on purchases of Class A Shares in
the amount of $1,000,000, but may pay a 1% CDSC if you redeem
your shares within 1 year. Alliance may pay the dealer or agent
a fee of up to 1% of the dollar amount purchased. Certain
purchases of Class A shares may qualify for reduced or eliminated
sales charges under a Fund's Combined Purchase Privilege,
Cumulative Quantity Discount, Statement of Intention, Privilege
for Certain Retirement Plans, Reinstatement Privilege, and Sales
at Net Asset Value Programs. Consult the Subscription
Application and a Fund's SAI for additional information about
these options.
CLASS B SHARES--DEFERRED SALES CHARGE ALTERNATIVE
You can purchase Class B shares at NAV without an initial sales
charge. A Fund will thus receive the full amount of your
purchase. Your investment, however, will be subject to a CDSC if
you redeem shares within three years (four years in the case of
Global Strategic Income and High Yield) after purchase. The CDSC
varies depending on the number of years you hold the shares. The
CDSC amounts are:
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GLOBAL STRATEGIC INCOME and HIGH YIELD:
Year Since Purchase CDSC
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
ALL OTHER FUNDS:
Year Since Purchase CDSC
First 3.0%
Second 2.0%
Third 1.0%
Fourth None
If you exchange your shares for the Class B shares of another
Alliance Mutual Fund, the CDSC also will apply to those Class B
shares. The CDSC period begins with the date of your original
purchase, not the date of exchange for the other Class B shares.
The Fund's Class B shares purchased for cash automatically
convert to Class A shares six years after the end of the month of
your purchase. If you purchase shares by exchange for the Class B
shares of another Alliance Mutual Fund, the conversion period
runs from the date of your original purchase.
CLASS C SHARES--ASSET-BASED SALES CHARGE ALTERNATIVE
You can purchase Class C shares at NAV without any initial sales
charge. A Fund will thus receive the full amount of your
purchase. Your investment, however, will be subject to a 1% CDSC
if you redeem your shares within 1 year. If you exchange your
shares for the Class C shares of another Alliance Mutual Fund,
the 1% CDSC also will apply to those Class C shares. The 1-year
period for the CDSC begins with the date of your original
purchase, not the date of the exchange for the other Class C
shares.
Class C shares do not convert to any other class of shares of the
Fund.
ASSET-BASED SALES CHARGE OR RULE 12B-1 FEES. Each Fund has
adopted a plan under SEC Rule 12b-1 that allows the Fund to pay
asset-based sales charges or distribution and service fees for
the distribution and sale of its shares. The amount of these
fees for each class of the Fund's shares is:
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Rule 12b-1 Fee
(as a percent of Aggregate average daily net assets)
Class A .30%
Class B 1.00%
Class C 1.00%
Because these fees are paid out of the Fund's assets on an on-
going basis, over time these fees will increase the cost of your
investment and may cost you more than paying other types of sales
fees. Class B and Class C shares are subject to higher
distribution fees than Class A shares (Class B shares are subject
to these higher fees for a period of six years, after which they
convert to Class A shares). The higher fees mean a higher
expense ratio, so Class B and Class C shares pay correspondingly
lower dividends and may have a lower NAV than Class A shares.
CHOOSING A CLASS OF SHARES. The decision as to which class of
shares is more beneficial to you depends on the amount and
intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might
consider purchasing Class A shares. If you are making a smaller
investment, you might consider purchasing Class B shares because
100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C
shares because there is no initial sales charge and no CDSC as
long as the shares are held for one year or more. Dealers and
agents may receive differing compensation for selling Class A,
Class B, or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C hares is $1,000,000.
You should consult your financial agent to assist in choosing a
class of Fund shares.
APPLICATION OF THE CDSC. The CDSC is applied to the lesser of
the original cost of shares being redeemed or NAV at the time of
redemption (or, as to Fund shares acquired through an exchange,
the cost of the Alliance Fund shares originally purchased for
cash). Shares obtained from dividend or distribution
reinvestment are not subject to the CDSC. The Fund may waive the
CDSC on redemptions of shares following the death or disability
of a shareholder, to meet the requirements of certain qualified
retirement plans, or under a monthly, bimonthly, or quarterly
systematic withdrawal plan. See the Fund's SAI or further
information about CDSC waivers.
OTHER. A transaction, service, administrative, or other similar
fee may be charged by your broker-dealer, agent, financial
intermediary, or other financial representative with respect to
the purchase, sale, or exchange of Class A, Class B or Class C
shares made through your financial representative. The financial
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intermediaries also may impose requirements on the purchase,
sale, or exchange of shares that are different from, or in
addition to, those imposed by a Fund, including requirements as
to the minimum initial and subsequent investment amounts.
In addition to the discount or commission paid to dealers or
agents, AFD from time to time pays additional cash or other
incentives to dealers or agents, including EQ Financial
Consultants Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. These additional amounts may be
utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the
Funds. On some occasions, the cash or other incentives will be
conditioned upon the sale of a specified minimum dollar amount of
the shares of a Fund and/or other Alliance Mutual Funds during a
specific period of time. The incentives may take the form of
payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. The dealer or agent may elect to receive cash incentives
of equivalent amount in lieu of such payments.
GENERAL INFORMATION
Under unusual circumstances, a Fund may suspend redemptions or
postpone payment for up to seven days or longer, as permitted by
federal securities law. The Funds reserve the right to close an
account that through redemption has remained below $200 for 90
days. Shareholders will receive 60 days' written notice to
increase the account value before the account is closed.
During drastic economic or market developments, you might have
difficulty reaching AFS by telephone, in which event you should
issue written instructions to AFS. AFS is not responsible for the
authenticity of telephonic requests to purchase, sell, or
exchange shares. AFS will employ reasonable procedures to verify
that telephone requests are genuine, and could be liable for
losses resulting from unauthorized transactions if it fails to do
so. Dealers and agents may charge a commission for handling
telephonic requests. The telephone service may be suspended or
terminated at any time without notice.
SHAREHOLDER SERVICES. AFS offers a variety of shareholder
services. For more information about these services or your
account, call AFS's toll-free number, 800-221-5672. Some services
are described in the attached Subscription Application. A
shareholder manual explaining all available services will be
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provided upon request. To request a shareholder manual, call 800-
227-4618.
EMPLOYEE BENEFIT PLANS. Certain employee benefit plans,
including employer-sponsored tax-qualified 401(k) plans and other
defined contribution retirement plans ("Employee Benefit Plans"),
may establish requirements as to the purchase, sale or exchange
of shares of the Funds, including maximum and minimum initial
investment requirements, that are different from those described
in this Prospectus. Employee Benefit Plans also may not offer all
classes of shares of the Funds. In order to enable participants
investing through Employee Benefit Plans to purchase shares of
the Funds, the maximum and minimum investment amounts may be
different for shares purchased through Employee Benefit Plans
from those described in this Prospectus. In addition, the Class
A, Class B and Class C CDSC may be waived for investments made
through Employee Benefit Plans.
PENDING LEGAL PROCEEDINGS INVOLVING NORTH AMERICAN GOVERNMENT
INCOME. On July 25, 1995, a Consolidated and Supplemental Class
Action Complaint ("Complaint") styled In re Alliance North
American Government Income Trust, Inc. Securities Litigation was
filed in the U.S. District Court for the Southern District of New
York ("District Court") against the Fund, Alliance, ACMC, AFD,
The Equitable Companies Incorporated ("ECI"), a parent of the
Adviser, and certain current and former officers and directors of
the Fund and ACMC, alleging violations of the federal securities
laws, fraud and breach of fiduciary duty in connection with the
Fund's investments in Mexican and Argentine securities. The
Complaint sought certification of a plaintiff class of all
persons who purchased or owned Class A, B or C shares of the Fund
from March 27, 1992 through December 23, 1994. Plaintiffs alleged
that during 1995 the Fund's losses exceeded $750,000,000 and
sought as relief unspecified damages, costs and attorney's fees.
On September 26, 1996, the District Court granted defendants'
motion to dismiss all counts of the Complaint ("First Decision").
On October 11, 1996, plaintiffs filed a motion for
reconsideration of the First Decision. On November 25, 1996, the
District Court denied plaintiffs' motion for reconsideration of
the First Decision. On October 29, 1997, the United States Court
of Appeals for the Second Circuit ("Court of Appeals") issued an
order granting defendants' motion to strike and dismissing
plaintiffs' appeal of the First Decision.
On October 29, 1996, plaintiffs filed a motion for leave to file
an amended complaint ("Amended Complaint"). In the Amended
Complaint, plaintiffs asserted claims against the Fund, Alliance,
ACMC, AFD, ECI, and certain current and former officers of the
Fund and ACMC alleging violations of the federal securities laws,
fraud and breach of fiduciary duty. The principal allegations of
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the Amended Complaint related to the Fund's hedging practices,
the Fund's investments in certain mortgage-backed securities, and
the risk and objectives of the Fund as described in the Fund's
marketing materials. The Amended Complaint made similar requests
for class certification and damages as made in the Complaint. On
July 15, 1997, the District Court denied plaintiffs' motion for
leave to file the Amended Complaint and dismissed the case
("Second Decision").
On November 17, 1997, plaintiffs filed a notice of appeal of the
Second Decision to the Court of Appeals. On October 15, 1998, the
Court of Appeals affirmed in part and reversed in part the Second
Decision. The Court of Appeals affirmed the District Court's
denial of plaintiffs' motion for leave to file the Amended
Complaint insofar as the Amended Complaint alleged that
defendants had made misrepresentations and omissions relating to
the Funds' investments in certain mortgage-backed securities and
in the Fund's marketing materials. The Court of Appeals reversed
the District Court's decision to deny plaintiffs' motions for
leave to file the Amended Complaint insofar as the Amended
Complaint alleged that defendants had made actionable
misrepresentations and omissions relating to the Fund's hedging
practices. The Fund and Alliance believe that the allegations in
the Complaint and the Amended Complaint are without merit and
intend to defend vigorously against those claims.
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FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you
understand the Fund's financial performance for the period of the
Fund's operations. Certain information reflects financial
information for a single Fund share. The total return in the
table represents the rate that an investor would have earned (or
lost) on an investment in the Fund (assuming reinvestment of all
dividends and distributions). The information has been audited
by ______________, the Fund's independent auditors, whose report,
along with Fund's financial statements, appears in the Statement
of Additional Information, which is available upon request.
[To Follow]
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For more information about the Funds, the following documents are
available upon request:
ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Fund's annual and semi-annual reports to shareholders contain
additional information on the Funds' investments. In the annual
report, you will find a discussion of the market conditions and
investment strategies that significantly affected a Fund's
performance during its last fiscal year.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
Each Fund has an SAI, which contains more detailed information
about the Fund, including its operations and investment policies.
The Funds' SAIs are incorporated by reference into (and is
legally part of) this prospectus.
You may request a free copy of the current annual/semi-annual
report or the SAI, by contacting your broker or other financial
intermediary, or by contacting Alliance:
BY MAIL: c/o Alliance Fund Services, Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
Or you may view or obtain these documents from the Commission:
IN PERSON: at the Commission's Public Reference Room in
Washington, D.C.
BY PHONE: 1-800-SEC-0330
BY MAIL: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
ON THE INTERNET: www.sec.gov
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APPENDIX A
BOND RATINGS
Moody's Investors Service, Inc.
Aaa--Bonds which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and
are generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa--Bonds which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long-term risks appear somewhat larger than the Aaa
securities.
A--Bonds which are rated A possess many favorable investment
attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest
are considered adequate but elements may be present which suggest
a susceptibility to impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B--Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal
payments or of maintenance of other terms of the contract over
any long period of time may be small.
A-1
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Caa--Bonds which are rated Caa are of poor standing. Such issues
may be in default or there may be present elements of danger with
respect to principal or interest.
Ca--Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or
have other marked shortcomings.
C--Bonds which are rated C are the lowest rated class of bonds
and issues so rated can be regarded as having extremely poor
prospects of ever attaining any real investment standing.
Absence of Rating--When no rating has been assigned or where a
rating has been suspended or withdrawn, it may be for reasons
unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the
following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are unrated as a matter of policy.
3. There is a lack of essential data pertaining to the
issue or issuer.
4. The issue was privately placed, in which case the rating
is not published in Moody's publications.
Suspension or withdrawal may occur if new and material
circumstances arise, the effects of which preclude satisfactory
analysis; if there is no longer available reasonable up-to-date
data to permit a judgment to be formed; if a bond is called for
redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each
generic rating classification from Aa through B in its corporate
bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
STANDARD & POOR'S RATINGS SERVICES
AAA--Debt rated AAA has the highest rating assigned by S&P.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
small degree.
A-2
<PAGE>
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection
parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to
pay interest and repay principal for debt in this category than
in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as
having significant speculative characteristics. BB indicates the
lowest degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major exposures to
adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other
speculative debt. However, it faces major ongoing uncertainties
or exposure to adverse business, financial or economic conditions
which could lead to an inadequate capacity to pay interest and
repay principal.
B--Debt rated B is more vulnerable to nonpayment than debt rated
BB, but there is capacity to pay interest and repay principal.
Adverse business, financial or economic conditions will likely
impair the capacity or willingness to pay principal or repay
interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial and economic
conditions to pay interest and repay principal. In the event of
adverse business, financial or economic conditions, there is not
likely to be capacity to pay interest or repay principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment.
C--The C rating may be used to cover a situation where a
bankruptcy petition has been filed or similar action has been
taken, but payments are being continued.
D--The D rating, unlike other ratings, is not prospective;
rather, it is used only where a default has actually occurred.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified
by the addition of a plus or minus sign to show relative standing
within the major rating categories.
NR--Not rated.
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DUFF & PHELPS CREDIT RATING CO.
AAA--Highest credit quality. The risk factors are negligible,
being only slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- --High credit quality. Protection factors are strong.
Risk is modest but may vary slightly from time to time because of
economic conditions.
A+, A, A- --Protection factors are average but adequate. However,
risk factors are more variable and greater in periods of economic
stress.
BBB+, BBB, BBB- --Below average protection factors but still
considered sufficient for prudent investment. Considerable
variability in risk during economic cycles.
BB+, BB, BB- --Below investment grade but deemed likely to meet
obligations when due. Present or prospective financial protection
factors fluctuate according to industry conditions or company
fortunes. Overall quality may move up or down frequently within
this category.
B+, B, B- --Below investment grade and possessing risk that
obligations will not be met when due. Financial protection
factors will fluctuate widely according to economic cycles,
industry conditions and/or company fortunes. Potential exists for
frequent changes in the rating within this category or into a
higher or lower rating grade.
CCC--Well below investment grade securities. Considerable
uncertainty exists as to timely payment of principal, interest or
preferred dividends. Protection factors are narrow and risk can
be substantial with unfavorable economic/industry conditions,
and/or with unfavorable company developments.
DD--Defaulted debt obligations. Issuer failed to meet scheduled
principal and/or interest payments.
DP--Preferred stock with dividend arrearages.
FITCH IBCA, INC.
AAA--Bonds considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be
affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay
principal is very strong, although not quite as strong as bonds
rated AAA. Because bonds rated in the AAA and AA categories are
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not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F- 1+.
A--Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay
principal is considered to be strong, but may be more vulnerable
to adverse changes in economic conditions and circumstances than
bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory
credit quality. The obligor's ability to pay interest and repay
principal is considered to be adequate. Adverse changes in
economic conditions and circumstances, however, are more likely
to have adverse impact on these bonds, and therefore impair
timely payment. The likelihood that the ratings of these bonds
will fall below investment grade is higher than for bonds with
higher ratings.
BB--Bonds are considered speculative. The obligor's ability to
pay interest and repay principal may be affected over time by
adverse economic changes. However, business and financial
alternatives can be identified which could assist the obligor in
satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this
class are currently meeting debt service requirements, the
probability of continued timely payment of principal and interest
reflects the obligor's limited margin of safety and the need for
reasonable business and economic activity throughout the life of
the issue.
CCC--Bonds have certain identifiable characteristics which, if
not remedied, may lead to default.
The ability to meet obligations requires an advantageous business
and economic environment.
CC--Bonds are minimally protected. Default in payment of interest
and/or principal seems probable over time.
C--Bonds are in imminent default in payment of interest or
principal.
DDD, DD, D--Bonds are in default on interest and/or principal
payments. Such bonds are extremely speculative and should be
valued on the basis of their ultimate recovery value in
liquidation or reorganization of the obligor. DDD represents the
highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) Minus (-)--Plus and minus signs are used with a rating
symbol to indicate the relative position of a credit within the
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rating category. Plus and minus signs, however, are not used in
the AAA, DDD, DD or D categories.
NR--Indicates that Fitch does not rate the specific issue.
A-6
<PAGE>
APPENDIX B
General Information
About Canada, Mexico
and Argentina
GENERAL INFORMATION ABOUT CANADA
Canada consists of a federation of ten Provinces and two federal
territories (which generally fall under federal authority) with a
constitutional division of powers between the federal and
Provincial governments. The Parliament of Canada has jurisdiction
over all areas not assigned exclusively to the Provincial
legislatures, and has jurisdiction over such matters as the
federal public debt and property, the regulation of trade and
commerce, currency and coinage, banks and banking, national
defense, the postal services, navigation and shipping and
unemployment insurance.
The Canadian economy is based on the free enterprise system, with
business organizations ranging from small owner-operated
businesses to large multinational corporations. Manufacturing and
resource industries are large contributors to the country's
economic output, but as in many other highly developed countries,
there has been a gradual shift from a largely goods-producing
economy to a predominantly service-based one. Agriculture and
other primary production play a small but key role in the
economy. Canada is also an exporter of energy to the United
States in the form of natural gas (of which Canada has
substantial reserves) and hydroelectric power, and has
significant mineral resources.
Canadian Dollars are fully exchangeable into U.S. Dollars without
foreign exchange controls or other legal restriction. Since the
major developed-country currencies were permitted to float freely
against one another, the range of fluctuation in the U.S.
Dollar/Canadian Dollar exchange rate generally has been narrower
than the range of fluctuation between the U.S. Dollar and most
other major currencies. Since 1991, Canada generally has
experienced a weakening of its currency. The Canadian Dollar
reached an all-time low of 1.5770 Canadian Dollars per U.S.
Dollar on August 27, 1998. On October 13, 1998 the Canadian
Dollar-U.S. Dollar exchange rate was 1.5510:1. The range of
fluctuation that has occurred in the past is not necessarily
indicative of the range of fluctuation that will occur in the
future. Future rates of exchange cannot be accurately predicted.
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GENERAL INFORMATION ABOUT THE UNITED MEXICAN STATES
The United Mexican States ("Mexico") is a nation formed by 31
states and a Federal District (Mexico City). The Political
Constitution of Mexico, which took effect on May 1, 1917,
established Mexico as a Federal Republic and provides for the
separation of executive, legislative and judicial branches. The
President and the members of the General Congress are elected by
popular vote.
Prior to 1994, when Mexico experienced an economic crisis that
led to the devaluation of the Peso in December 1994, the Mexican
economy experienced improvement in a number of areas, including
growth in gross domestic product and a substantial reduction in
the rate of inflation and in the public sector financial deficit.
Much of the past improvement in the Mexican economy was due to a
series of economic policy initiatives intended to modernize and
reform the Mexican economy, control inflation, reduce the
financial deficit, increase public revenues through the reform of
the tax system, establish a competitive and stable currency
exchange rate, liberalize trade restrictions and increase
investment and productivity, while reducing the government's role
in the economy. In this regard, the Mexican government launched a
program for privatizing certain state owned enterprises,
developing and modernizing the securities markets, increasing
investment in the private sector and permitting increased levels
of foreign investment.
In 1994 Mexico faced internal and external conditions that
resulted in an economic crisis that continues to affect the
Mexican economy adversely. Growing trade and current account
deficits, which could no longer be financed by inflows of foreign
capital, were factors contributing to the crisis. A weakening
economy and unsettling political and social developments caused
investors to lose confidence in the Mexican economy. This
resulted in a large decline in foreign reserves followed by a
sharp and rapid devaluation of the Mexican Peso. The ensuing
economic and financial crisis resulted in higher inflation and
domestic interest rates, a contraction in real gross domestic
product and a liquidity crisis.
In response to the adverse economic conditions that developed at
the end of 1994, the Mexican government instituted a new economic
program; and the government and the business and labor sectors of
the economy entered into a new accord in an effort to stabilize
the economy and the financial markets. To help relieve Mexico's
liquidity crisis and restore financial stability to Mexico's
economy, the Mexican government also obtained financial
assistance from the United States, other countries and certain
international agencies conditioned upon the implementation and
continuation of the economic reform program.
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<PAGE>
In October 1995, and again in October 1996, the Mexican
government announced new accords designed to encourage economic
growth and reduce inflation. While it cannot be accurately
predicted whether these accords will continue to achieve their
objectives, the Mexican economy has stabilized since the economic
crisis of 1994, and the high inflation and high interest rates
that continued to be a factor after 1994 have subsided as well.
After declining for five consecutive quarters beginning with the
first quarter of 1995, Mexico's gross domestic product began to
grow in the second quarter of 1996. That growth was sustained in
1996 and 1997, resulting in increases of 5.2% and 7.0%,
respectively. The growth rate for the first half of 1998 was
5.4%. In addition, inflation dropped from a 52% annual rate in
1995 to a 27.7% annual rate in 1996 and a 15.7% annual rate in
1997. For the first eight months of 1998, the inflation rate
fluctuated between 15.0% and 15.5% on an annualized basis.
Mexico's economy is influenced by international economic
conditions, particularly those in the United States, and by world
prices for oil and other commodities. The recovery of the economy
will require continued economic and fiscal discipline as well as
stable political and social conditions. In addition, there is no
assurance that Mexico's economic policy initiatives will be
successful or that succeeding administrations will continue these
initiatives.
Under economic policy initiatives implemented on and after
December 1987, the Mexican government introduced a series of
schedules allowing for the gradual devaluation of the Mexican
Peso against the U.S. Dollar. These gradual devaluations
continued until December 1994. On December 22, 1994, the Mexican
government announced that it would permit the Peso to float
freely against other currencies, resulting in a precipitous
decline against the U.S. Dollar. By December 31, 1996, the Peso-
Dollar exchange rate had decreased approximately 40% from that on
December 22, 1994. After dropping approximately 55% from 1994
through 1996, in 1997, the average annual Peso-Dollar exchange
rate decreased approximately 4% from that in 1996. At the end of
the first nine months of 1998, the Peso-Dollar exchange rate
decreased approximately 25% from the end of 1997.
Mexico has in the past imposed strict foreign exchange controls.
There is no assurance that future regulatory actions in Mexico
would not affect the Fund's ability to obtain U.S. Dollars in
exchange for Mexican Pesos.
GENERAL INFORMATION ABOUT THE REPUBLIC OF ARGENTINA
The Republic of Argentina ("Argentina") consists of 23 provinces
and the federal capital of Buenos Aires. Its federal constitution
provides for an executive branch headed by a President, a
legislative branch and a judicial branch. Each province has its
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own constitution, and elects its own governor, legislators and
judges, without the intervention of the federal government.
The military has intervened in the political process on several
occasions since 1930 and has ruled the country for 22 of the past
68 years. The most recent military government ruled the country
from 1976 to 1983. Four unsuccessful military uprisings have
occurred since 1983, the most recent in December 1990.
Shortly after taking office in 1989, the country's current
President adopted market-oriented and reformist policies,
including an aggressive privatization program, a reduction in the
size of the public sector and an opening of the economy to
international competition.
In the decade prior to the announcement of a new economic plan in
March 1991, the Argentine economy was characterized by low and
erratic growth, declining investment rates and rapidly worsening
inflation. Despite its strengths, which include a well-balanced
natural resource base and a high literacy rate, the Argentine
economy failed to respond to a series of economic plans in the
1980's. The 1991 economic plan represented a pronounced departure
from its predecessors in calling for raising revenues, cutting
expenditures and reducing the public deficit. The extensive
privatization program commenced in 1989 was accelerated, the
domestic economy deregulated and opened up to foreign trade and
the frame-work for foreign investment reformed. As a result of
the economic stabilization reforms, gross domestic product has
increased each year since 1991, with the exception of 1995.
During 1997, gross domestic product increased an estimated 8.4%
from 1996. Preliminary data indicate that during the first
quarter of 1998 gross domestic product increased 6.9% from the
first quarter of 1997. The rate of inflation is generally viewed
to be under control. Significant progress was also made between
1991 and 1994 in rescheduling Argentina's debt with both external
and domestic creditors, which improved fiscal cash flows in the
medium term and allowed a return to voluntary credit markets.
There is no assurance that Argentina's economic policy
initiatives will be successful or that succeeding administrations
will continue these initiatives.
In 1995 economic policy was directed toward the effects of the
Mexican currency crisis. The Mexican currency crisis led to a run
on Argentine bank deposits, which was brought under control by a
series of measures designed to strengthen the financial system.
The measures included the "dollarization" of banking reserves,
the establishment of two trust funds and strengthening bank
reserve requirements.
In 1991 the Argentine government enacted currency reforms, which
required the domestic currency to be fully backed by
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international reserves, in an effort to make the Argentine Peso
fully convertible into the U.S. Dollar at a rate of one to one.
The Argentine Peso has been the Argentine currency since
January 1, 1992. Since that date, the rate of exchange from the
Argentine Peso to the U.S. Dollar has remained approximately one
to one. The fixed exchange rate has been instrumental in
stabilizing the economy, but has not reduced pressures from high
rates of unemployment. It is not clear that the government will
be able to resist pressure to devalue the currency. However, the
historic range is not necessarily indicative of fluctuations that
may occur in the exchange rate over time and future rates of
exchange cannot be accurately predicted. The Argentine foreign
exchange market was highly controlled until December 1989, when a
free exchange rate was established for all foreign currency
transactions. Argentina has eliminated restrictions on foreign
direct investment and capital repatriation. In 1993, legislation
was adopted abolishing previous requirements of a three-year
waiting period for capital repatriation. Under the legislation,
foreign investors are permitted to remit profits at any time.
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(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 2, 1998
________________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Funds' current Prospectus
that offers Class A, Class B and Class C shares and the Funds'
current Prospectus that offers the Advisor Class shares (the
"Advisor Class Prospectus" and, together with the Funds'
Prospectus that offers the Class A, Class B and Class C shares,
the "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............. 9
INVESTMENT RESTRICTIONS................................... 32
MANAGEMENT OF THE FUNDS................................... 36
PORTFOLIO TRANSACTIONS.................................... 42
EXPENSES OF THE FUNDS..................................... 45
PURCHASE OF SHARES........................................ 50
REDEMPTION AND REPURCHASE OF SHARES....................... 69
SHAREHOLDER SERVICES...................................... 73
NET ASSET VALUE........................................... 79
DIVIDENDS, DISTRIBUTIONS AND TAXES........................ 82
GENERAL INFORMATION....................................... 85
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT
ACCOUNTANTS............................................. 92
APPENDIX A: DESCRIPTION OF CORPORATE BOND RATINGS A-1
APPENDIX B: CERTAIN EMPLOYEE BENEFIT PLANS B-1
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(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
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INVESTMENT POLICIES AND RESTRICTIONS
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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 (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. 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, asset allocation and the ability of Alliance
Capital Management L.P. (the "Adviser") to anticipate and react
to changing market conditions.
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. In periods of rising interest
rates, the Fund may, to the extent it holds mortgage-backed
securities, be subject to the risk that the average dollar-
weighted maturity of its portfolio of debt or other fixed-income
securities may be extended as a result of lower than anticipated
prepayment rates. See "Mortgage-backed Securities," below.
As a fundamental policy, the Fund will invest at least
25% of its total assets in fixed-income securities, which for
this purpose includes 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 ("S&P"), Fitch IBCA,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,
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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 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. 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 an individual mortgage prepays the
remaining principal before the mortgage's scheduled maturity
date. 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. During periods of declining interest
rates, such 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. Conversely,
during periods of rising interest rates, a reduction in
prepayments may increase the effective maturities of the
securities, subjecting them to a greater risk of decline in
market value in response to rising interest rates. In addition,
prepayments of mortgages underlying securities purchased at a
premium could result in capital losses.
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
date on which the Fund contracted to purchase or sell a security
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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 higher or
lower than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin
requirements.
For transaction 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 conversion feature. Also, the price
of the convertible security will normally vary to some degree
with changes in the price of the underlying stock although under
some market conditions the higher yield of the convertible
security tends to make it less volatile than the underlying
common stock. In addition, the price of the convertible security
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will generally also vary inversely to some degree 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 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, 1997, the Fund did not
invest in any High-Yield Securities.
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
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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. Such provisions
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
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 appropriate
in the circumstances.
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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 yield
that is higher than that of the underlying stock but lower than
that of a fixed-income security without the conversion feature.
Also, the price of the convertible security will normally vary to
some degree with changes in the price of the underlying stock
although under some market conditions the higher yield of the
convertible security tends to make it less volatile than the
underlying common stock. In addition, the price of the
convertible security will generally also vary inversely to some
degree 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 to liquidate other investments in order to satisfy
its dividend requirements at times when the Adviser would not
otherwise deem it advisable to do so.
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").
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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 higher or
lower than the spot rate. Foreign currency futures contracts are
standardized exchange-traded contracts and have margin
requirements.
For transaction 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.
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
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portfolio turnover rate will involve greater costs to a Fund
(including brokerage commissions and other 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.
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ADDITIONAL INVESTMENT TECHNIQUES OF THE FUNDS
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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. 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 incur various expenses in the
attempted enforcement and may be subject to various delays and
risks of loss, including (a) possible declines in the value of
the underlying security, (b) possible reduced levels of income
and lack of access to income and (c) possible inability to
enforce their rights.
NON-PUBLICLY TRADED SECURITIES
The Funds may invest in securities that are not publicly
traded, including securities sold pursuant to Rule 144A under the
Securities Act of 1933, as amended ("Rule 144A Securities"). The
sale of these securities is usually restricted under federal
securities laws, and market quotations may not be readily
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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 traded 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 or nationalization of assets, 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 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 abroad)
and expenses not present in the settlement of domestic
investments. The Fund may invest a portion of its assets in
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developing countries or in countries with new or developing
capital markets. The risks noted above are generally increased
with respect to these investments. These countries may have
relatively unstable governments, economies based on only a few
industries or securities markets that trade in limited volume.
Securities of issuers located in these countries tend to have
volatile prices and may offer significant potential for loss.
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.
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.
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COMMERCIAL PAPER. Commercial paper consists of short-
term (usually from 1 to 270 days) unsecured promissory notes
issued in order to finance 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
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
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certificate holders. 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, each of the Funds may invest in other
types of 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
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. The value of the securities loaned will not
exceed 25% of the value of such Fund's total assets at the time
any such loan is made.
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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 liquid assets 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, in the opinion of the Adviser, it is
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
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).
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OPTIONS
OPTIONS ON SECURITIES. The Funds may write call and put
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 liquid
assets 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.
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
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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
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
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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 on 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
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
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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 option, the Fund
holds in its portfolio securities the price changes of which are
expected by the Adviser to replicate substantially the movement
of the index or indexes upon which the options written by the
Fund are based. A put option 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 option, the Fund maintains with its
custodian in a segregated account liquid assets having a value
equal to or greater than the exercise price of the option.
A Fund may purchase put options on securities indexes to
hedge against a decline in the value of portfolio securities. 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.
A Fund may purchase call options on securities indexes
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 call options on securities the Fund owns.
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
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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 whole or in part, 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 rates 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 were to 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
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 in order to protect against
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 they hold securities denominated in such currency
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<PAGE>
and it anticipates a decline in the value of such currency
relative to the dollar. If such a decline were to occur, 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.
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, 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
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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 were to occur,
it may be offset, in whole or part, by a profit on the option. If
the market decline were not to 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
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
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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 liquid assets 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
Funds will have the right to sell such currency for a fixed
amount in dollars and will thereby offset, in whole or in part,
the adverse effect on its portfolio which otherwise would have
resulted.
Conversely, where a rise in the dollar value of a
currency in which securities to be acquired are denominated is
projected, thereby increasing the cost of such securities, the
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.
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The Funds may write options on foreign currencies for
the same types of hedging purposes or to increase return. For
example, where a 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,
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 are being hedged may not be the same as those 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.
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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.
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
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 not
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
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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
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, in the opinion of the
Adviser, it is disadvantageous to do so. The inability to close
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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 of some Futures Contracts 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 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
26
<PAGE>
"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
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
27
<PAGE>
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
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 U.S. 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
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<PAGE>
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
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 total 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
29
<PAGE>
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.
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
the OCC 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.
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<PAGE>
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 is
required to maintain with its custodian in a segregated account
cash, short-term U.S. Government securities or high quality U.S.
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
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 in part 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
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<PAGE>
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 accelerate or adversely affect 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 to be made in order to
meet tax requirements.
FUTURE DEVELOPMENTS
The foregoing discussion relates to each Fund's proposed
use of Futures Contracts, Forward 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.
________________________________________________________________
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 the fundamental
restrictions on the investments that may 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
32
<PAGE>
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 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
33
<PAGE>
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 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
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<PAGE>
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 open-end 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 such
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, 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.
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<PAGE>
(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.
______________________________________________________________
MANAGEMENT OF THE FUNDS
______________________________________________________________
Adviser
Alliance Capital Management L.P., a Delaware limited
partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "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 (see "Management
of the Funds" in the Prospectus).
The Adviser is a leading international investment
manager supervising client accounts with assets as of June 30,
1998, totaling more than $262 billion (of which more than $107
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The 58 registered investment
36
<PAGE>
companies managed by the Adviser, comprising 123 separate
investment portfolios, currently have more than 3.5 million
shareholders. As of September 30, 1998, the Adviser and its
subsidiaries employed approximately 2,000 employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of June 30, 1998, the Adviser was
retained as an investment manager for employee benefit plan
assets of 32 of the FORTUNE 100 companies.
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
37
<PAGE>
INVESTMENT ADVISORY CONTRACT AND EXPENSES
The Adviser serves as investment manager and adviser of
each of the Funds, continuously furnishes 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 Strategic
Balanced Fund at an annual rate of .75% of the Fund's average
daily net assets. The Adviser is compensated for its services to
the Growth Fund at an annual rate of 0.75% of the first $3
billion of the Fund's average daily net assets, 0.70% of the next
$1 billion of such assets, 0.65% of the next $1 billion of such
assets, and 0.60% of such average net assets in excess of $5
billion.
The Adviser is, under the Investment Advisory Contract,
responsible for certain expenses incurred by the Funds,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).
For the fiscal year ended October 31, 1997, the Adviser
earned $31,680,829 in management fees from the Growth Fund (none
of which was waived). For the fiscal year ended October 31,
1996, the Adviser earned $20,263,705 in management fees from the
Growth Fund (none of which was waived). For the fiscal year
ended October 31, 1995, the Adviser earned $11,100,437 in
management fees from the Growth Fund (none of which was waived).
For the fiscal year ended July 31, 1998, the Adviser
earned $385,597 in management fees from the Strategic Balanced
Fund (of which $281,633 was waived). For the fiscal year ended
July 31, 1997, the Adviser earned $380,244 in management fees
from the Strategic Balanced Fund (of which $334,820 was waived).
For the fiscal year ended July 31, 1996, the Adviser earned
$396,099 in management fees from the Strategic Balanced Fund (of
which $194,243 was 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
38
<PAGE>
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 the word
"Alliance" from their names.
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,* 53, Chairman of the Board, is the
President, Chief Operating Officer, and a Director of ACMC, with
which he has been associated since prior to 1993. His address is
1345 Avenue of the Americas, New York, New York 10105.
Ruth Block, 67, was formerly an Executive Vice President
and the Chief Insurance Officer of Equitable. She is a Director
of Ecolab Incorporated (specialty chemicals) and Amoco
Corporation (oil and gas). Her address is P.O. Box 4623,
Stamford, Connecticut 06903.
Richard W. Couper, 75, is President Emeritus and Trustee
of The Woodrow Wilson Fellowship Foundation and President
____________________
* An "interested person" of the Trust, as defined by the
1940 Act.
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<PAGE>
Emeritus of the New York Public Library. His address is Box 345,
Clinton, New York, 13323-0345.
William H. Foulk, Jr., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
Brenton W. Harries, 70, 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, 64, is Senior Counsel to the law
firm of Orrick, Herrington and Sutcliffe and was formerly a
senior partner and a member of the Executive Committee of that
firm. He was also a Trustee of the Museum of the City of New
York from 1977 to 1995. His address is 98 Hell's Peak Road,
Weston, Vermont 05161.
OFFICERS
John D. Carifa, President, see biography above.
Edmund P. Bergan, Jr., 48, Clerk, is a Senior Vice
President and General Counsel of Alliance Fund Distributors, Inc.
("AFD") and Alliance Fund Services, Inc. ("AFS"), with which he
has been associated since prior to 1993. His address is 1345
Avenue of the Americas, New York, New York 10105.
Mark D. Gersten, 48, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS, with which he has
been associated since prior to 1993. His address is 500 Plaza
Drive, Secaucus, New Jersey 07094.
Vincent S. Noto, 34, Controller and Chief Accounting
Officer, is a Vice President of AFS, with which he has been
associated since prior to 1993. His address is 500 Plaza Drive,
Secaucus, New Jersey 07094.
Bruce W. Calvert, 52, Vice President, is the Vice
Chairman and Chief Investment Officer of ACMC, with which he has
been associated since prior to 1993. His address is 1345 Avenue
of the Americas, New York 10105.
Kathleen A. Corbet, 39, Vice President, is an Executive
Vice President of ACMC, with which she has been associated since
July 1993. Her address is 1345 Avenue of the Americas, New York,
New York 10105.
40
<PAGE>
Wayne D. Lyski, 57, Vice President, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1993. His address is 1345 Avenue of the Americas, New York,
New York 10105.
Nicholas D.P. Carn, 40, Vice President, is a Vice
President of ACMC, with which he has been associated since 1997.
Prior thereto, he was Chief Investment Officer and Portfolio
Manager at Draycott Partners. His address is 1345 Avenue of the
Americas, New York, New York 10105.
Tyler Smith, 60, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since July
1993. His address is 1345 Avenue of the Americas, New York, New
York 10105.
Andrew L. Gangolf, 44, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was Vice
President and Assistant Secretary of Delaware Management Co.,
Inc. His address is 1345 Avenue of the Americas, New York, New
York 10105.
Domenick Pugliese, 37, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was Vice
President and General Counsel of Concorde Holding Corporation
since 1994 and Vice President and Associate General Counsel of
Prudential Securities since prior to 1993. His address is 1345
Avenue of the Americas, New York, New York 10105.
Emilie D. Wrapp, 42, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993. Her address is 1345
Avenue of the Americas, New York, New York 10105.
The aggregate compensation paid to each of the Trustees
by the Strategic Balanced Fund for the fiscal year ended July 31,
1998, and by the Growth Fund for the fiscal year ended October
31, 1997, the aggregate compensation paid to each of the Trustees
during calendar year 1997 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 (and separate investment portfolios within
the 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
41
<PAGE>
the Trustees is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
Total Number
of Investment
Total Number Portfolios
of Investment Within the
Companies in Alliance Fund
Total Com- the Alliance Complex,
Aggre- pensation Fund Complex, Including
gate Aggregate From the Including the the Fund,
Compensa- Compen- Alliance Fund, as to as to which
tion from sation Fund which the the Trustee
Strategic from Complex, Trustee is is a
Balanced Growth Including a Director Director
Name of Trustee Fund Fund the Fund or Trustee or Trustee*
John D. Carifa $ -0- $ -0- $ -0- 53 118
Ruth Block $4,407 $6,413 $164,000 40 81
Richard W. Couper $5,500 $7,400 $ 94,000 2 19
William H. Foulk, Jr. $4,407 $6,221 $149,145 48 113
Brenton W. Harries $5,400 $7,400 $102,000 2 19
Donald J. Robinson $4,407 $7,200 $217,358 44 107
As of January 16, 1998, the Trustees and officers of
Growth Fund as a group owned less than 1% of the shares of the
Fund.
As of October 9, 1998, the Trustees and officers of
Strategic Balanced Fund 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
42
<PAGE>
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
such investment information, the Adviser believes its receipt
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 Growth Fund
during the fiscal year ended October 31, 1997 were $1,458,023,454
and, in connection therewith, brokerage commissions of $1,326,056
(32.3%) were allocated to persons or firms supplying research
information. Aggregate securities transactions for the Strategic
Balanced Fund during the fiscal year ended July 31, 1998 were
$101,940,022 and, in connection therewith, brokerage commissions
of $2,136 (2.29%) were allocated to persons or firms supplying
research information.
For the fiscal years ended October 31, 1995, 1996 and
1997, the Growth Fund paid aggregate brokerage commissions of
$3,231,153, $3,395,225 and $4,109,583, respectively. For the
fiscal years ended July 31, 1996, 1997 and 1998, the Strategic
43
<PAGE>
Balanced Fund paid aggregate brokerage commissions of $173,237,
100,951 and $93,166, respectively.
The extent to which commissions that will be charged by
broker-dealers selected by the Funds may reflect an element of
value for research cannot presently be determined. To the extent
that research services of value are provided by broker-dealers
with or through whom the Funds place portfolio transactions, the
Adviser may be relieved of expenses which it might otherwise
bear. Research services furnished by broker-dealers could be
useful and of value to the Adviser in servicing its other clients
as well as the Funds; on the other hand, certain research
services obtained by the Adviser as a result of the placement of
portfolio brokerage of other clients could be useful and of value
to it in servicing the Funds. Consistent with the Conduct Rules
of the National Association of Securities Dealers, Inc. and
subject to seeking best execution, the Funds may consider sales
of shares of the Funds or other investment companies managed by
the Adviser as a factor in the selection of broker-dealers to
execute portfolio transactions for the Funds.
The Funds may from time to time place orders for the
purchase or sale of securities (including listed call options)
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 commissions. 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,
1997 for the Growth Fund and July 31, 1998 for the Strategic
Balanced Fund are set forth below:
44
<PAGE>
% of Fund's
% of Fund's Aggregate
Amount of Aggregate Dollar
Fiscal Year Brokerage Brokerage Amount of
Ended Fund Commissions Commissions Transactions
October 31, 1997 Growth Fund $14,245 0.35% 0.00%
July 31, 1998 Strategic $0 0.00% 0.00%
Balanced Fund
______________________________________________________________
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
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 AFD (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
45
<PAGE>
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, Class B 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
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, the Principal
46
<PAGE>
Underwriter received $67,585 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $3,305 in sales charges with
respect to the Class A shares of the Strategic Balanced Fund for
the fiscal year ended July 31, 1998. For services rendered by
the Principal Underwriter in connection with the Distribution of
Class A shares, the Principal Underwriter received $1,931,232 in
12b-1 fees, pursuant to the Plan applicable to such shares, and
$216,796 in sales charges and $9,882 in contingent deferred sales
charges with respect to the Class A shares of the Growth Fund for
the fiscal year ended October 31, 1997.
For services rendered by the Principal Underwriter in
connection with the distribution of Class B shares, the Principal
Underwriter received $258,610 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $12,289 in contingent deferred
sales charges with respect to the Class B shares of the Strategic
Balanced Fund for the fiscal year ended July 31, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class B shares, the Principal Underwriter
received $30,755,087 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $4,125,626 in contingent deferred
sales charges with respect to the Class B shares of the Growth
Fund for the fiscal year ended October 31, 1997.
For services rendered by the Principal Underwriter in
connection with the distribution of Class C shares, the Principal
Underwriter received $30,232 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $1,684 in contingent deferred
sales charges with respect to the Class C shares of the Strategic
Balanced Fund for the fiscal year ended July 31, 1998. For
services rendered by the Principal Underwriter in connection with
the distribution of Class C shares, the Principal Underwriter
received $5,105,935 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $101,192 in contingent deferred
sales charges with respect to the Class C shares of the Growth
Fund for the fiscal years ended October 31, 1997.
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:
47
<PAGE>
STRATEGIC BALANCED FUND
Amount of Expense and Allocated Cost
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, 1998) July 31, 1998) July 31, 1998)
Advertising/Marketing $ 21,884 $ 53,912 $ 14,973
Printing and Mailing
of Prospectuses and
Semi-Annual and
Annual Reports to
Other than Current
Shareholders $ 1,384 $ 5,425 $ 1,236
Compensation to
Underwriters $ 46,173 $114,277 $ 29,143
Compensation to
Dealers $ 72,159 $223,667 $ 39,093
Compensation to Sales
Personnel $ 3,835 $ 3,023 $ 729
Interest, Carrying or
Other Financing
Charges $ 0 $ 27,128 $ 3,177
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) $ 70,160 $157,883 $ 40,424
Total $215,595 $585,315 $128,775
======== ======== ========
48
<PAGE>
GROWTH FUND
Amount of Expense and Allocated Cost
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 1997) 1997) 1997)
Advertising/Marketing $ 153,682 $ 532,693 $ 121,477
Printing and Mailing
of Prospectuses and
Semi-Annual and
Annual Reports to
Other than Current
Shareholders $ 57,802 $ 219,834 $ 49,321
Compensation to
Underwriters $ 307,493 $ 1,100,520 $ 248,667
Compensation to
Dealers $1,594,084 $30,483,485 $5,038,885
Compensation to Sales
Personnel $ 468,205 $ 584,769 $ 117,224
Interest, Carrying or
Other Financing
Charges - $ 3,611,838 $ 501,326
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) $ 727,604 $ 1,395,919 $ 315,409
$3,308,870 $37,929,058 $6,392,309
========== =========== ==========
49
<PAGE>
CUSTODIAL ARRANGEMENTS
State Street Bank and Trust Company ("State Street
Bank"), 225 Franklin Street, Boston, MA, 02110 acts as the
Trust's custodian, but plays no part in deciding the purchase or
sale of portfolio securities. Subject to the supervision of the
Funds' Trustees, State Street Bank may enter into subcustodial
agreements for the holding of the Funds' securities outside of
the United States.
TRANSFER AGENCY ARRANGEMENTS
AFS, an indirect wholly-owned subsidiary of the Adviser,
receives a transfer agency fee per account holder of each of the
Class A, Class B , Class C and Advisor Class shares of the Trust,
plus reimbursement for out-of-pocket expenses. The transfer
agency fee with respect to the Class B and Class C shares is
higher than the transfer agency fee with respect to the Class A
and Advisor Class shares. For the fiscal year ended July 31,
1998, Alliance Strategic Balanced Fund paid AFS $82,954 for
transfer agency services. For the fiscal year ended October 31,
1997, Alliance Growth Fund paid AFS $6,625,051 for transfer
agency services.
_________________________________________________________________
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 "Class A shares"), with a
contingent deferred sales charge (the "Class B shares"), without
any initial sales charge and, as long as the shares are held for
one year or more, without any contingent deferred sales charge
("Class C shares"), or, to investors eligible to purchase Advisor
Class shares, without any initial, contingent deferred or asset-
based sales charge ("Advisor Class Shares"), in each case as
described below. Shares of the Funds that are offered subject to
a sales charge are offered 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
50
<PAGE>
the Principal Underwriter ("selected agents"), and (iii) the
Principal Underwriter.
Advisor Class shares of the Funds may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers
or other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, or (iii) by the
categories of investors described in clauses (i) through (iv)
below under "--Sales at Net Asset Value" (other than officers,
directors and present and full-time employees of selected dealers
or agents, or relatives of such persons, or any trust, individual
retirement account or retirement plan account for the benefit of
such relative, none of whom is eligible on the basis solely of
such status to purchase and hold Advisor Class shares), or (iv)
by directors and present or retired full-time employees of CB
Richard Ellis, Inc. Generally, a fee-based program must charge
an asset-based or other similar fee and must invest at least
$250,000 in Advisor Class shares of the Fund in order to be
approved by the Principal Underwriter for investment in Advisor
Class shares.
Investors may purchase shares of the Funds either
through selected broker-dealers, agents, financial intermediaries
or other financial representatives, or directly through the
Principal Underwriter. A transaction, service, administrative or
other similar fee may be charged by your broker-dealer, agent,
financial intermediary or other financial representative with
respect to the purchase, sale or exchange of Class A, Class B,
Class C or Advisor Class shares made through such financial
representative. Such financial representative may also impose
requirements with respect to the purchase, sale or exchange of
shares that are different from, or in addition to, those imposed
by the Funds, including requirements as to the minimum initial
and subsequent investment amounts. Sales personnel of selected
dealers and agents distributing the Funds' shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
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 Class A shares, a
sales charge which will vary depending on the amount of the
purchase alternative chosen by the investor, as shown in the
table below under "Class A Shares". On each Fund business day on
51
<PAGE>
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. Eastern 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.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the
Class A, Class B, Class C and Advisor Class shares are expected
to be substantially the same. Under certain circumstances,
however, the per share net asset values of the Class B and
Class C shares may be lower than the per share net asset value of
the Class A and Advisor Class shares, as a result of the
differential daily expense accruals of the distribution and
transfer agency fees applicable with respect to those classes of
shares. Even under those circumstances, the per share net asset
values of the four classes eventually will tend to converge
immediately after the payment of dividends, which will differ by
approximately the amount of the expense accrual differential
among the classes.
The 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), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the
net asset value computed as of the close of regular trading on
the Exchange on that day (plus applicable Class A sales charges).
In the case of orders for purchase of shares placed through
selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as
applicable, is responsible for transmitting such orders by
5:00 p.m. Eastern time (certain selected dealers, agents or
financial representatives may enter into operating agreements
permitting them to transmit purchase information to the Principal
Underwriter after 5:00 p.m. Eastern time and receive that day's
net asset value). If the selected dealer, agent or financial
representative, as applicable, fails to do so, the investor's
right to purchase shares at that day's closing price must be
settled between the investor and the selected dealer, agent or
52
<PAGE>
financial representative, as applicable. If the selected dealer,
agent or financial representative, as applicable, receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate
portion of the Subscription Application or an "Autobuy"
application, both of which may be obtained by calling the "For
Literature" telephone number shown on the cover of this Statement
of Additional Information. Except with respect to certain
omnibus accounts, telephone purchase orders may not exceed
$500,000. Payment for shares purchased by telephone can be made
only by Electronic Funds Transfer from a bank account maintained
by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("NACHA"). If a
shareholder's telephone purchase request is received before
3:00 p.m. Eastern time on a Fund business day, the order to
purchase shares is automatically placed the following Fund
business day, and the applicable public offering price will be
the public offering price determined as of the close of business
on such following business day.
Full and fractional shares are credited to a
subscriber's account in the amount of his or her subscription. As
a convenience to the subscriber, and to avoid unnecessary expense
to the Fund, 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 paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents, in
connection with the sale of shares of the 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 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
53
<PAGE>
connection with travel, lodging and entertainment incurred in
connection with travel taken by persons associated with a dealer
or agent to urban or resort locations within or outside the
United States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of 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 and Class C generally shares bear the
expense of the deferred sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor Class
shares do not bear such a fee, (iii) Class B and Class C shares
bear higher transfer agency costs than those borne by Class A and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders, an amendment to
the Rule 12b-1 Plan that would materially increase the amount to
be paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders and the Class A shareholders, the Class B
shareholders and the Advisor Class shareholders will vote
separately by class and (v) Class B and Advisor Class shares are
subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service
options available.
The Trustees of the Trust have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Trustees of the Trust, pursuant to their fiduciary duties
under the 1940 Act and state law, will seek to ensure that no
such conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares**
The alternative purchase arrangements available with
respect to Class A, Class B and Class C shares permit an investor
to choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
____________________
** Advisor Class shares are sold only to investors described
above in this section under "--General."
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<PAGE>
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
investment in the Funds, the accumulated distribution services
fee and contingent deferred sales charges on Class B shares prior
to conversion, or the accumulated distribution services fee and
contingent deferred sales charges on Class C shares, would be
less than the initial sales charge and accumulated distribution
services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher
return of Class A shares. Class A shares will normally be more
beneficial than Class B shares to the investor who qualifies for
reduced initial sales charges on Class A shares, as described
below. In this regard, the Principal Underwriter will reject any
order (except orders from certain retirement plans and certain
employee benefit plans) for more than $250,000 for Class B
shares. (See Appendix B for information concerning the
eligibility of certain employee benefit plans to purchase Class B
shares at net asset value without being subject to a contingent
deferred sales charge and the ineligibility of certain such plans
to purchase Class A shares.) Class C shares will normally not be
suitable for the investor who qualifies to purchase Class A
shares at net asset value. For this reason, the Principal
Underwriter will reject any order for more than $1,000,000 for
Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time
of purchase, investors purchasing Class A shares would not have
all their funds invested initially and, therefore, would
initially own fewer shares. Investors not qualifying for reduced
initial sales charges who expect to maintain their investment for
an extended period of time might consider purchasing Class A
shares because the accumulated continuing distribution charges on
Class B shares or Class C shares may exceed the initial sales
charge on Class A shares during the life of the investment.
Again, however, such investors must weigh this consideration
against the fact that, because of such initial sales charges, not
all their funds will be invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a four-
year and one-year period, respectively. For example, based on
current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or
her investment approximately seven years for the Class C
distribution services fee to exceed the initial sales charge plus
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<PAGE>
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
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
During the Growth Fund's fiscal year ended October 31,
1997, the aggregate amount of underwriting commissions payable
with respect to Class A shares of the Fund was $5,837,510 of
which $216,796, 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, was retained by the Principal
Underwriter. During the Growth Fund's fiscal year ended
October 31, 1997, the Principal Underwriter received $9,882 in
contingent deferred sales charges. During the Growth Fund's
fiscal year ended October 31, 1996, the aggregate amount of
underwriting commissions payable with respect to Class A shares
of the Fund was $6,003,066, of which $231,038, 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,
was retained by the Principal Underwriter. During the Growth
Fund's fiscal year ended October 31, 1996, the Principal
Underwriter received $2,632,819 in contingent deferred sales
charges. During the Growth Fund's fiscal year ended October 31,
1995, the aggregate amount of underwriting commissions payable
with respect to Class A shares of the Fund was $3,688,506, of
which $144,082, 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, was retained by the Principal
Underwriter. During the Growth Fund's fiscal year ended
October 31, 1995, the Principal Underwriter received $2,140,032
in contingent deferred sales charges.
During the Strategic Balanced Fund's fiscal year ended
July 31, 1998, the aggregate amount of underwriting commissions
payable with respect to Class A shares of the Fund was $62,753,
of which $4,211, 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, was retained by the Principal
Underwriter. During the Strategic Balanced Fund's fiscal year
ended July 31, 1998, the Principle Underwriter received $32,909
in contingent deferred sales charges. During the Strategic
Balanced Fund's fiscal year ended July 31, 1997, the aggregate
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<PAGE>
amount of underwriting commissions payable with respect to
Class A shares of the Fund was $17,128, of which $637,
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, was retained by the Principal Underwriter.
During the Strategic Balanced Fund's fiscal year ended July 31,
1997, the Principal Underwriter received $47,251 in contingent
deferred sales charges. During the Strategic Balanced Fund's
fiscal year ended July 31, 1996, the aggregate amount of
underwriting commissions payable with respect to Class A shares
of the Fund was $15,976, of which $1,204, 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,
was retained by the Principal Underwriter. During the Strategic
Balanced Fund's fiscal year ended July 31, 1996, the Principal
Underwriter received $37,022 in contingent deferred sales
charges.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below:
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
Less than
$100,000 . . . 4.44% 4.25% 4.00%
$100,000 but
less than
$250,000 . . . 3.36 3.25 3.00
$250,000 but
less than
$500,000 . . . 2.30 2.25 2.00
$500,000 but
less than
$1,000,000*. . 1.78 1.75 1.50
____________________
* There is no initial sales charge on transactions of $1,000,000
or more.
57
<PAGE>
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. In
determining the contingent deferred sales charge applicable to a
redemption of Class A shares, it will be assumed that the
redemption is, first, of any shares that are not subject to a
contingent deferred sales charge (for example, because an initial
sales charge was paid with respect to the shares, or they have
been held beyond the period during which the charge applies or
were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge. Proceeds from the
contingent deferred sales charge 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
Class A shares. With respect to purchases of $1,000,000 or more
made through selected dealers or agents, the Adviser may,
pursuant to the Distribution Services Agreement described above,
pay such dealers or agents from its own resources a fee of up to
1% of the amount invested to compensate such dealers or agents
for their distribution assistance in connection with such
purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that
an initial sales charge will be imposed on Class A shares issued
in exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The 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 above. In this regard, the
Principal Underwriter may elect to reallow the entire sales
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<PAGE>
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 January 16, 1998.
Net Asset Value per Class A
Share at January 16, 1998 $42.41
Per Share Sales Charge--4.25%
of offering price (4.44% of
net asset value per share) $ 1.88
Class A Per Share Offering Price
to the Public $44.29
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 Strategic Balanced 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 July 31, 1998.
Net Asset Value per Class A
Share at July 31, 1998 $19.76
Per Share Sales Charge--4.25%
of offering price (4.45% of
net asset value per share) $ .88
Class A Per Share Offering Price
to the Public $20.64
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which such investors may pay a reduced
initial sales charge are described below.
COMBINED PURCHASE PRIVILEGE. Certain persons may
qualify for the sales charge reductions indicated in the schedule
of such charges shown above by combining purchases of shares of a
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<PAGE>
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 two 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:
The Alliance Fund, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
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<PAGE>
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Fund
-Alliance Growth Investors Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting AFS at the address or the
"For Literature" telephone number shown on the front cover of
this Statement of Additional Information.
CUMULATIVE QUANTITY DISCOUNT (RIGHT OF ACCUMULATION). An
investor's purchase of additional Class A shares of 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 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
additional $100,000, the sales charge for the $100,000 purchase
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<PAGE>
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or
agent must provide the Principal Underwriter with sufficient
information to verify that each purchase qualifies for the
privilege or discount.
STATEMENT OF INTENTION. Class A investors may also
obtain the reduced sales charges shown in the table above by
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of 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 only be necessary to invest a
total of $60,000 during the following 13 months in shares of the
Fund or any other Alliance Mutual Fund to qualify for the 3.25%
sales charge on the total amount being invested (the sales charge
applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5%
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
in cash or reinvested in additional Fund shares, are not subject
to escrow. When the full amount indicated has been purchased,
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<PAGE>
the escrow will be released. To the extent that an investor
purchases more than the dollar amount indicated on the Statement
of Intention and qualifies for a further reduced sales charge,
the sales charge will be adjusted for the entire amount purchased
at the end of the 13-month period. The difference in the sales
charge will be used to purchase additional shares of a Fund
subject to the rate of the sales charge applicable to the actual
amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
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 AFS 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 sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of a Fund will be that normally applicable,
under the schedule of 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 total purchases previously made
during the 13-month period and (ii) the current month's purchase
multiplied by the number of months (including the current month)
remaining in the 13-month period. Sales charges previously paid
during such period will not be retroactively adjusted on the
basis of later purchases.
REINSTATEMENT PRIVILEGE. A shareholder who has caused
any or all of his or her Class A or Class B shares of 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
(i) such reinvestment is made within 120 calendar days after the
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinstatement of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal tax purposes except
that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund within 30 calendar days
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<PAGE>
after the redemption or repurchase transaction. 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
management 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, the Principal Underwriter, AFS and
their affiliates; officers and directors of ACMC, the Principal
Underwriter, AFS 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; 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) the Adviser, Principal Underwriter, AFS and their
affiliates; certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, AFS and their affiliates;
(iv) registered investment advisers or other financial
intermediaries who charge a management, consulting or other fee
for their service and who purchase shares through a broker or
agent approved by the Principal Underwriter and clients of such
registered investment advisers or financial intermediaries whose
accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent; (v) persons participating in a fee-based
program, sponsored and maintained by a registered broker-
dealer or other financial intermediary and approved by the
Principal Underwriter, pursuant to which such persons pay an
asset-based fee to such broker-dealer or financial intermediary,
or its affiliate or agent, for services in the nature of
investment advisory or administrative services; (vi) persons who
establish to the Principal Underwriter's satisfaction that they
are investing in the Fund, within such time period as may be
designated by the Principal Underwriter, proceeds of redemption
of shares of such other registered investment companies as may be
designated from time to time by the Principal Underwriter; and
(vii) employer-sponsored qualified pension or profit-sharing
plans (including Section 401(k) plans), custodial accounts
maintained pursuant to Section 403(b)(7) retirement plans and
individual retirement accounts (including individual retirement
accounts to which simplified employee pension (SEP) contributions
are made), if such plans or accounts are established or
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<PAGE>
administered under programs sponsored by administrators or other
persons that have been approved by the Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of
a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the 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 that
are redeemed within four years of purchase will generally 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
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<PAGE>
at a rate of 3.0% (the applicable rate in the second year after
purchase).
The amount of the contingent deferred sales charge, if
any, will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge for the
Funds as a % of Dollar Amount
Shares purchased
on or after Shares
August 2, 1993, purchased
Year Since but before on or after
Purchase November 19, 1993 November 19, 1993
First 5.50% 4.00%
Second 4.50% 3.00%
Third 3.50% 2.00%
Fourth 2.50% 1.00%
Fifth 1.50 None
Sixth None None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who
has attained the age of 70-1/2, (iii) that had been purchased by
present or former 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 of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see Appendix B and
"Shareholder Services--Systematic Withdrawal Plan" below).
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<PAGE>
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. 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 and such shares will no longer be
subject to a higher distribution services fee. Such conversions
will occur on the basis of the relative net asset values of the
two classes, without the imposition of any sales load, fee or
other charge. The purpose of the conversion feature is to reduce
the distribution services fee paid by holders of Class B shares
that have been outstanding long enough for the Principal
Underwriter to have been compensated for distribution expenses
incurred in the sale of such shares.
For purposes of conversion to Class A 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 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 eight years after the end of the calendar month in which
the shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of
a sales charge either at the time of purchase or, as long as the
shares are held for at least one year, 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, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
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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, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1% of the lesser of the cost of shares being redeemed or net
asset value at the time of redemption. Accordingly, no sales
charge will be imposed on increases in net asset value above the
initial purchase price. In addition, no charge will be assessed
on shares derived from reinvestment of dividends or capital gains
distributions. The contingent deferred sales charge on Class C
shares will be waived on certain redemptions, as described above
under "--Class B Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Funds
in connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Funds to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
paid with respect to Class A and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationships
described above under "Purchase of Shares-- General," and by
investment advisory clients of, and certain other persons
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associated with, the Adviser and its affiliates or the Trust. If
(i) a holder of Advisor Class shares ceases to participate in the
fee-based program or plan, or to be associated with the
investment adviser or financial intermediary that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice
contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the same Funds
during the calendar month following the month in which the Funds
are informed of the occurrence of the Conversion Event. The
failure of a shareholder or a fee-based program to satisfy the
minimum investment requirements to purchase Advisor Class shares
will not constitute a Conversion Event. The conversion would
occur on the basis of the relative net asset values of the two
classes and without the imposition of any sales load, fee or
other charge. Class A shares currently bear a .30% distribution
services fee and have a higher expense ratio than Advisor Class
shares. As a result, Class A shares may pay correspondingly
lower dividends and have a lower net asset value than Advisor
Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of
counsel to the effect that the conversion of Advisor Class shares
to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Advisor Class shares
to Class A shares may be suspended if such an opinion is no
longer available at the time such conversion is to occur. In
that event, the Advisor Class shareholder would be required to
redeem his or her Advisor Class shares, which would constitute a
taxable event under federal income tax law.
_________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
_________________________________________________________________
The following information supplements that set forth in
the Funds' Prospectus under the heading "Purchase and Sale of
Shares--How to Sell Shares." If you are an Advisor Class
shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Funds that are different from those described herein. A
transaction fee may be charged by your financial representative
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with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
REDEMPTION
Subject only to the limitations described below, the
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, Class B or
Class C 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. If a shareholder is in
doubt about what documents are required by his or her fee-based
program or employee benefit plan, the shareholder should contact
his or her financial representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the 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 SEC may by order permit
for the protection of security holders of a Fund.
Payment of the redemption price will be made in cash.
The value of a shareholder's shares on redemption or repurchase
may be more or less than the cost of such shares to the
shareholder, depending upon the market value of a Fund's
portfolio securities at the time of such redemption or
repurchase. Redemption proceeds from Class A, Class B and
Class C shares will reflect the deduction of the contingent
deferred sales charge, if any. Payment received by a shareholder
upon redemption or repurchase of his or her shares, assuming the
shares constitute capital assets in his or her hands, will result
in long-term or short-term capital gain (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 "eligible guarantor institution" as defined in
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Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
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.
TELEPHONE REDEMPTION BY ELECTRONIC FUNDS TRANSFER. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have
been issued by telephone at (800) 221-5672 by a shareholder who
has completed the appropriate portion of the Subscription
Application found in the Prospectus or, in the case of an
existing shareholder, an "Autosell" application obtained from
AFS. A telephone redemption request by electronic funds transfer
may not exceed $100,000 (except for certain omnibus accounts by
electronic funds transfer), and must be made by 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by Electronic Funds Transfer
to a shareholder's designated bank account at a bank selected by
the shareholder that is a member of the NACHA.
TELEPHONE REDEMPTION BY CHECK. Each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued, by telephone at
(800) 221-5672 before 4:00 p.m. Eastern time on a Fund business
day in an amount not exceeding $50,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of
record. A shareholder otherwise eligible for telephone redemption
by check may cancel the privilege by written instruction to AFS,
or by checking the appropriate box on the Subscription
Application found in the Prospectus.
TELEPHONE REDEMPTIONS--GENERAL. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching AFS 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
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AFS 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. Telephone redemption is not available with
respect to shares (i) for which certificates have been issued,
(ii) held in nominee or "street name" accounts, (iii) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (iv) held in any retirement
plan account. Neither the Funds nor the Adviser, the Principal
Underwriter nor AFS will be responsible for the authenticity of
telephone requests for redemptions that a Fund reasonably
believes to be genuine. The Funds 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 a Fund did
not employ such procedures, it could be liable for losses arising
from unauthorized or fraudulent telephone instructions. Selected
dealers or agents may charge a commission for handling telephone
requests for redemptions.
REPURCHASE
The Funds may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of the close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. Eastern time (certain
selected dealers, agents or financial representatives may enter
into operating agreements permitting them to transmit purchase
information to the Principal Underwriter after 5:00 p.m. Eastern
time and receive that day's net asset value). If the financial
intermediary or selected dealer or agent fails to do so, the
shareholder's right to receive that day's closing price must be
settled between the shareholder and the dealer or agent. A
shareholder may offer shares of 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, Class B and Class C shares). Normally, if
shares of the Funds are offered through a financial intermediary
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or selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the 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 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the 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 Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program, your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Funds that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
AUTOMATIC INVESTMENT PROGRAM
Investors may purchase shares of the Funds through an
automatic investment program utilizing Electronic Funds Transfers
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
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should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact AFS at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
EXCHANGE PRIVILEGE
You may exchange your investment in the Funds for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance
Mutual Fund and (iii) certain employee benefit plans for
employees of the Adviser, the Principal Underwriter, AFS and
their affiliates may exchange Class A shares of any Alliance
Mutual Fund for Advisor Class shares of any other Alliance Mutual
Fund, including the Funds. Exchanges of shares are made at the
net asset value next determined after receipt of a properly
completed exchange request and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by AFS by 4:00 p.m. Eastern
time on a Fund business day in order to receive that day's net
asset value.
Shares will continue to age without regard to exchanges
for 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.
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
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(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for federal income tax purposes.
Each Fund shareholder, and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless AFS
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 AFS with their account number and other details
of the exchange at (800) 221-5672 before 4:00 p.m. Eastern time
on a Fund business day as defined above. Telephone requests for
exchange received before 4:00 p.m. Eastern time on a Fund
business day will be processed as of the close of business on
that day. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching AFS
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 AFS at the address shown on the cover of
this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto
Exchange" whereby a specified dollar amount's worth of his or her
Fund shares (minimum $25) is automatically exchanged for shares
of another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or AFS will be responsible for the
authenticity of telephone requests for exchanges that a Fund
reasonably believes to be genuine. AFS 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
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resulting transactions to be sent to shareholders. If AFS did
not employ such procedures, it could be liable for losses arising
from unauthorized or fraudulent telephone instructions. Selected
dealers, agents or financial representatives, as applicable, may
charge a commission for handling telephone requests for
exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may legally be
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 AFS at the "For Literature"
telephone number on the cover of this Statement of Additional
Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, 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 contributions to an IRA will be deductible if neither
the individual nor his or her spouse is an active participant in
an employer-sponsored retirement plan. If the individual or his
or her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
EMPLOYER-SPONSORED QUALIFIED RETIREMENT PLANS. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
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If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan 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, at
the plan's request, without any sales charge, for Class A shares
of such Fund.
SIMPLIFIED EMPLOYEE PENSION PLAN ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP
under which they make annual tax-deductible contributions to an
IRA established by each eligible employee within prescribed
limits based on employee compensation.
403(b)(7) RETIREMENT PLAN. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay
period) may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Funds, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to AFS 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 AFS at the
address or "For Literature" telephone number shown on the cover
of this Statement of Additional Information.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund accounts,
a Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains distributions paid on his or her Class A,
Class B, Class C or Advisor Class Fund shares be automatically
reinvested, in any amount, without the payment of any sales or
service charges, in shares of the same class of such other
Alliance Mutual Fund(s). Further information can be obtained by
contacting AFS at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
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the Prospectus. Current shareholders should contact AFS 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 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
with withdrawals are undesirable because of sales charges imposed
when the 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 AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information.
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CDSC WAIVER FOR CLASS B SHARES AND CLASS C SHARES.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B or Class C shares in a shareholder's account may
be redeemed free of any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held
the longest will be redeemed next. Redemptions of Class B shares
in excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations 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 accountants, PricewaterhouseCoopers LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or AFS, a shareholder can arrange for copies of his
or her account statements to be sent to another person.
_________________________________________________________________
NET ASSET VALUE
_________________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
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In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at
fair value as determined in good faith by the Board of Directors.
The Board of Directors has delegated to the Adviser certain of
the Board's duties with respect to the following procedures.
Readily marketable securities listed on the Exchange or on a
foreign securities exchange (other than foreign securities
exchanges whose operations are similar to those of the United
States over-the-counter market) are valued, except as indicted
below, at the last sale price reflected on the consolidated tape
at the close of the Exchange or, in the case of a foreign
securities exchange, at the last quoted sale price, in each case
on the business day as of which such value is being determined.
If there has been no sale on such day, the securities are valued
at the mean of the closing bid and asked prices on such day. If
no bid or asked prices are quoted on such day, then the security
is valued in good faith at fair value by, or in accordance with
procedures established by, the Board of Directors. Readily
marketable securities not listed on the Exchange or on a foreign
securities exchange but listed on other United States national
securities exchanges or traded on The Nasdaq Stock Market, Inc.
are valued in like manner. Portfolio securities traded on the
Exchange and on one or more foreign or other national securities
exchanges, and portfolio securities not traded on the Exchange
but traded on one or more foreign or other national securities
exchanges are valued in accordance with these procedures by
reference to the principal exchange on which the securities are
traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities
exchange whose operations are similar to those of the United
States over-the-counter market, and securities listed on a U.S.
national securities exchange whose primary market is believed to
be over-the-counter (but excluding securities traded on The
Nasdaq Stock Market, Inc.), are valued at the mean of the current
bid and asked prices as reported by Nasdaq or, in the case of
securities not quoted by Nasdaq, the National Quotation Bureau or
another comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be
valued using the closing settlement price or, in the absence of
such a price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last
available closing settlement price will be used.
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U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that
this method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are
believed to reflect the fair market value of such securities.
The prices provided by pricing service take into account many
factors, including institutional size trading in similar groups
of securities and any developments related to specific
securities.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place
in various foreign markets on days that are not Fund business
days. The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities
in these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are
determined in accordance with the above procedures and the close
of the Exchange will not be reflected in the Fund's calculation
of net asset value unless it is believed that these prices do not
reflect current market value, in which case the securities will
be valued in good faith by, or in accordance with procedures
established by, the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of
shares), subject to the rules of the Commission and other
governmental rules and regulations, at a time when: (1) the
Exchange is closed, other than customary weekend and holiday
closings, (2) an emergency exists as a result of which it is not
reasonably practicable for the Fund to dispose of securities
owned by it or to determine fairly the value of its net assets,
or (3) for the protection of shareholders, the Commission by
order permits a suspension of the right of redemption or a
postponement of the date of payment on redemption.
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For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each
class will be determined separately by subtracting the
liabilities allocated to that class from the assets belonging to
that class in conformance with the provisions of a plan adopted
by the Fund in accordance with Rule 18f-3 under the 1940 Act.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
UNITED STATES FEDERAL INCOME TAXATION OF DIVIDENDS AND
DISTRIBUTIONS
General. Each Fund intends to qualify for tax treatment
as a "regulated investment company" under the 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 and (2) diversify its holdings
so that at the end of each quarter of its taxable year, the
following two conditions are met: (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 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
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trades or businesses. These requirements may 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 capital 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.
In addition, if a Fund fails to distribute in a calendar
year substantially all of its ordinary income for such year and
substantially all of its capital gain net income for the one-year
period ending October 31 (or later if the Fund is permitted so to
elect and so elects), plus any retained amount from the prior
year, the Fund will be subject to a 4% excise tax on the
undistributed amounts. A dividend paid to shareholders by a Fund
in January of a year generally is deemed to have been paid by the
Fund on December 31 of the preceding year, if the dividend was
declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Funds
intend generally to make distributions sufficient to avoid
imposition of the 4% excise tax.
The information set forth in the Funds' 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, but only to the extent so designated by
the Fund. The amount of such dividends and distributions that
may be designated by the Fund as eligible for the dividends-
received deduction is limited to the amount qualifying 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.
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The dividends- received deduction shall also be disallowed with
respect to a dividend unless the corporate shareholder held its
shares without protection from risk of loss on the ex-dividend
date and for at least 45 more days during the 90-day period
beginning 45 days prior to the ex-dividend date.
Distributions of net capital gains designated by the
Fund as such (i.e., the excess of net long-term capital gain over
net short-term capital loss) are taxable as long-term capital
gain (generally at a 20% rate for noncorporate shareholders),
regardless of how long a shareholder has held shares in a Fund.
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 a Fund (even
if received 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 six months or less will be treated as
a long-term capital loss for federal income tax purposes to the
extent of any distribution of net capital gain 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.
Dividends and distributions on a Fund's shares are
generally subject to federal income tax as described herein to
the extent they do not exceed theFund's realized income and
gains, even though such dividends and distributions may
economically represent a return of a particular shareholder's
investment. Such distributions are likely to occur in respect of
shares purchased at a time when a Fund's net asset value reflects
gains that are either unrealized, or realized but not
distributed. Such realized gains may be required but not
distributed. Such realized gains may be required to be
distributed, even when a Fund's net asset value also reflects
unrealized losses.
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 nature of the gain or loss on the
sale of stock depends upon the holding period of the stock.
There may be short-term gains or losses associated with closing
purchase transactions.
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A Fund's hedging transactions, including hedging
transactions in options, futures contracts and straddles, or
other similar transactions, will subject the Fund to special tax
rules (including mark-to-market, straddle, wash sale and short
sale rules), the effect of which may be to accelerate income to a
Fund, defer losses to a Fund, cause adjustments in the holding
periods of a Fund's securities, or convert short-term capital
losses into long-term capital losses. These rules could
therefore affect the amount, timing and character of
distributions to shareholders. Each Fund will endeavor to make
any available elections pertaining to such transactions in a
manner believed to be in the best interest of the Fund.
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 investing in 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,
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.
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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, Class C and Advisor Class 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 series and each class of shares thereof, certain expenses
may be legally chargeable against the assets of all series 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 January 16, 1998 in the case of
Growth Fund, and October 9, 1998 in the case of Strategic
Balanced Fund:
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NAMES AND ADDRESSES NO. OF SHARES % OF CLASS
GROWTH FUND--CLASS A
MLPF&S For The Sole Benefit 2,170,951 10.95%
of Its Customers
Attn: Fund Administration
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
CLASS B
Merrill Lynch 21,176,004 19.71%
Mutual Fund Operations
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
CLASS C
MLPF&S for the Sole 7,203,556 40.16%
Benefit of Customers
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
ADVISOR CLASS
Merrill Lynch 2,447,991 91.43%
Mutual Fund Operations
4800 Deer Lake Dr. East, 3rd Floor
Jacksonville, FL 32246-6486
Trust for Profit 164,328 6.14%
Sharing Plan For
Employees of Alliance
Capital Management L.P. Plan R
Attn: Jill Smith-32nd Fl.
1345 Avenue of the Americas
New York, NY 10105-0302
STRATEGIC BALANCED FUND--CLASS C
MLPF&S 42,548 21.16%
For the Sole Benefit of its
Customers
ATTN: Fund Admin. (97B77)
4800 Deer Lake Drive East 2nd Floor
Jacksonville, FL 32245-6484
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ADVISOR CLASS
Alliance Fund Services 1,128 47.04%
Audit Output Account
Attn: Corporate Actions
P.O. Box 1520
Secaucus, NJ 07096-1520
Alliance Fund Services 1,424 52.60%
Audit Output Account
Attn: Corporate Actions
P.O. Box 1520
Secaucus, NJ 07096-1520
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 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. 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 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
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(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.
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 or she 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
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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 or her 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 or she 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
or her 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
The financial statements of the Strategic Balanced Fund
for the fiscal year ended July 31, 1998, and of the Growth Fund
for the fiscal year ended October 31, 1997, which are included in
this Statement of Additional Information, have been audited by
PricewaterhouseCoopers 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.
PERFORMANCE INFORMATION
From time to time, a Fund may advertise its "total
return." Total return is computed separately for Class A,
Class B, Class C and Advisor Class shares. Such advertisements
disclose a Fund's average annual compounded total return for its
most recently completed 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.
The average annual compounded total return for Class A
shares of the Growth Fund was 29.54% for the one-year period
ended October 31, 1997, 21.87% for the five-year period ended
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October 31, 1997, and 23.28% for the period September 4, 1990
(commencement of distribution of Class A shares), through
October 31, 1997. The average annual compounded total return for
Class B shares of the Growth Fund was 28.64% for the one-year
period ended October 31, 1997, 21.04% for the five-year period
ended October 31, 1997, and 21.01% for the ten year period
through October 31, 1997. The average annual compounded total
return for Class C shares of the Growth Fund was 28.66% for the
one-year period ended October 31, 1997, and 18.31% for the period
August 2, 1993 (commencement of distribution of Class C shares)
through October 31, 1997. The average annual compounded total
return for Advisor Class shares of the Growth Fund was 30.09% for
the period October 2, 1996 (commencement of operations) through
October 31, 1997.
The average annual compounded total return for Class A
shares of the Strategic Balanced Fund was 10.50% for the one-year
period ended July 31, 1998, 10.54% for the five-year period ended
July 31, 1998, and 12.91% for the period September 4, 1990
(commencement of distribution of Class A shares) through July 31,
1998. The average annual compounded total return for Class B
shares of the Strategic Balanced Fund was 9.78% for the one-year
period ended July 31, 1998, 13.20% for the five-year period ended
July 31, 1998, and 11.72% for the ten-year period ended July 31,
1998. The average annual compounded total return for Class C
shares of the Strategic Balanced Fund was 9.78% for the one-year
period ended July 31, 1998, and was 9.79% for the five-year
period ended July 31, 1998. The average annual compounded total
return for Advisor Class shares of the Strategic Balanced Fund
was 10.32% for the one-year period ended July 31, 1998, and was
6.40% for the period October 2, 1996 (commencement of operations)
through July 31, 1998.
Each Fund's total return is computed separately for
Class A, Class B, Class C and Advisor Class shares. 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
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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.
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____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT ACCOUNTANTS
____________________________________________________________
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________________________________________________________________
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 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
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 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
A-1
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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 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 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.
Descriptions of the bond ratings of Standard & Poor's
Ratings Services ("Standard & Poor's") 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.
A-2
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BB, B, CCC, CC, or C -- Debt rated BB, B, CCC, CC or C
is regarded, on balance, as having predominantly speculative
characteristics 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 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 IBCA, 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 as 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
A-3
<PAGE>
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
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.
A-4
<PAGE>
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:
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.
A-5
<PAGE>
____________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are
intended to be tax-qualified under section 401(a) of the Internal
Revenue Code of 1986, as amended ("Tax Qualified Plans"), for
which Merrill Lynch, Pierce, Fenner & Smith Incorporated or an
affiliate thereof ("Merrill Lynch") is recordkeeper (or with
respect to which recordkeeping services are provided pursuant to
certain arrangements as described in paragraph (ii) below)
("Merrill Lynch Plans") are subject to specific requirements as
to the Fund shares which they may purchase. Notwithstanding
anything to the contrary contained elsewhere in this Statement of
Additional Information, the following Merrill Lynch Plans are not
eligible to purchase Class A shares and are eligible to purchase
Class B shares of the Fund at net asset value without being
subject to a contingent deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
B-2
<PAGE>
(LOGO)(R) THE ALLIANCE PORTFOLIOS:
Alliance Short-Term
U. S. Government Fund
___________________________________________________________
c/o Alliance Fund Services, Inc.
P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature Toll Free (800)-227-4618
___________________________________________________________
STATEMENT OF ADDITIONAL INFORMATION
March 1, 1999
___________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the current Prospectus that
offers Class A, Class B and Class C shares and, if the Fund
begins to offer Advisor Class shares, the Prospectus that offers
Advisor Class shares of the Fund (the "Advisor Class Prospectus"
and, together with any Prospectus that offers the Class A, Class
B and Class C shares, the "Prospectus"). The Fund currently does
not offer Advisor Class shares. Copies of the Fund's Prospectus
may be obtained by contacting Alliance Fund Services, Inc. at the
address or the "For Literature" telephone number shown above.
TABLE OF CONTENTS
PAGE
INVESTMENT POLICIES AND RESTRICTIONS......................
ADDITIONAL INVESTMENT TECHNIQUES OF THE FUND..............
INVESTMENT RESTRICTIONS...................................
MANAGEMENT OF THE FUND....................................
PORTFOLIO TRANSACTIONS....................................
EXPENSES OF THE FUND......................................
PURCHASE OF SHARES........................................
REDEMPTION AND REPURCHASE OF SHARES.......................
SHAREHOLDER SERVICES......................................
NET ASSET VALUE...........................................
DIVIDENDS, DISTRIBUTIONS AND TAXES........................
GENERAL INFORMATION.......................................
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT ACCOUNTANTS.........................
APPENDIX A: DESCRIPTION OF CORPORATE BOND RATINGS........ A-1
APPENDIX B: CERTAIN EMPLOYEE BENEFIT PLANS............... B-1
_____________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
___________________________________________________________
INVESTMENT POLICIES AND RESTRICTIONS
___________________________________________________________
The Alliance Portfolios (the "Trust") is a diversified,
open-end investment company. 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 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 diversified 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. In periods of rising
interest rates, the Fund may, to the extent it invests in
mortgage-backed securities, be subject to the risk that its
average dollar weighted portfolio maturity may be extended as a
result of lower than anticipated prepayment rates. 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.
2
<PAGE>
U.S. Treasury Bonds - Direct obligations of the U.S.
Treasury are issued in maturities of 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
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"), 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 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.
3
<PAGE>
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 London
Interbank Offered Rate ("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.
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 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. 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. Conversely, during periods
of rising interest rates, a reduction in prepayments may increase
the effective maturities of the securities, subjecting them to a
greater risk of decline in market value in response to rising
interest rates. 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. Such
securities, except GNMA certificates, normally provide for
periodic payments of interest in fixed amount with principal
payments at maturity or specified call dates.
4
<PAGE>
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
undivided interests 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. 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 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. The Fund will have the right to
regain record ownership of loaned securities or equivalent
securities in order to exercise ownership rights such as voting
rights, subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan.
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, Alliance Capital Management L.P. (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 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 generally have a lower yield to maturity,
5
<PAGE>
however, the Fund's current return and 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 ("S&P") or Aa by Moody's Investors
Service, Inc. ("Moodys"), or if unrated will be of comparable
quality as determined by 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 an unrated security is determined by the
Adviser to no longer be of comparable quality to securities rated
Aa or AA), the Fund will not be obligated to dispose of such
security and may continue to hold the security if, in the opinion
of the Adviser, such investment is 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 U.S. 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
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
6
<PAGE>
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 multiple 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. Such short sales may cause the
Fund to recognize gain under tax rules pertaining to constructive
sales.
Adjustable Rate Securities. The Fund may invest in
adjustable rate securities, which may be U.S. Government
Securities or securities of other issuers. 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 relevant issuer's
creditworthiness. Because the interest rate is reset only
periodically, changes in the interest rate on adjustable rate
7
<PAGE>
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.
The Fund 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 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
other party to such transaction, the Fund will have contractual
remedies pursuant to the agreements related to the transaction.
Caps and floors may be illiquid.
8
<PAGE>
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 liquid assets with the Fund's
custodian in amount equal to the Fund's 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.
Borrowing. In addition, the 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.
Securities Ratings. The ratings of fixed-income
securities by S&P, Moody's, Duff & Phelps Credit Rating Co.
("Duff & Phelps") and Fitch IBCA, Inc. ("Fitch") are a generally
accepted barometer of credit risk. They are, however, subject to
9
<PAGE>
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.
1940 Act Restrictions
Under the 1940 Act, the Fund is not permitted to borrow
unless immediately after such borrowing there is "asset
coverage," as that term is defined and used in the 1940 Act, of
at least 300% for all borrowings of the Fund. In addition, under
the 1940 Act, in the event asset coverage falls below 300%, the
Fund must within three days reduce the amount of its borrowing to
such an extent that the asset coverage of its borrowings is at
least 300%. Assuming, for example, outstanding borrowings
representing not more than one-third of the Fund's total assets
less liabilities (other than such borrowings), the asset coverage
of the Fund's portfolio would be 300%; while outstanding
borrowings representing 25% of the total assets less liabilities
(other than such borrowings), the asset coverage of the Fund's
portfolio would be 400%. The Fund will maintain asset coverage
of outstanding borrowings of at least 300% and if necessary will,
to the extent possible, reduce the amounts borrowed by making
repayments from time to time in order to do so. Such repayments
could require the Fund to sell portfolio securities at times
considered disadvantageous by the Adviser and such sales could
cause the Fund to incur related transaction costs and to realize
taxable gains.
Under the 1940 Act, the Fund may invest not more than
10% of its total assets in securities of other investment
companies. In addition, under the 1940 Act the Fund may not own
more than 3% of the total outstanding voting stock of any
investment company and not more than 5% of the value of the
Fund's total assets may be invested in the securities of any
investment company.
Portfolio Management
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 other 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.
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___________________________________________________________
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. 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 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 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. The Fund 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).
Non-Publicly Traded Securities
The Fund may invest in securities that 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
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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
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 in order to finance their current operations.
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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 these notes 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
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 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
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damage to the collateral (usually automobiles) securing certain
contracts, or other factors. If consistent with its investment
objectives and policies, the Fund may invest in other types of
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
matter affecting the investment. The Fund will have the right to
regain record ownership of loaned securities or equivalent
securities in order to execute ownership rights such as voting
rights, subscription rights and rights to dividends, interest or
distributions. The Fund may pay reasonable finders',
administrative and custodial fees in connection with a loan.
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. The value of the
securities loaned will not exceed 25% of the value of the Fund's
total assets at the time any such loan is made.
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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 when, for example, 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 liquid assets 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, in the opinion of the Adviser it is
deemed advisable as a matter of investment strategy.
At the time the 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.
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
securities was made. Any such gain or loss would be treated as a
capital gain or loss for Federal income tax purposes. 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
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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 liquid assets 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 liquid
assets. 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 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
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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 option 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 is 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 is
otherwise is below the exercise price, the 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 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
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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 on the underlying
security by the amount of the premium paid for the put option and
by transaction costs.
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
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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 Fund's 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
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
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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, although 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
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.
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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.
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 the
Fund intends to purchase before the Fund is able to invest its
cash in such securities, the Fund faces the risk that the prices
of such securities 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.
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,
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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.
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.
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.
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
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.
22
<PAGE>
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 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
23
<PAGE>
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
limited 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
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,
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 secondary 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.
24
<PAGE>
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.
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 liquid
assets, 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
25
<PAGE>
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 not "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
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
accelerate or adversely affect 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
26
<PAGE>
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 developing. 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 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 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) 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.
(2) Invest 25% or more of its total assets in the
securities of any one industry.
(3) 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
27
<PAGE>
extraordinary or emergency purposes, except that
the Fund may enter into reverse repurchase
agreements to the maximum extent permitted by law.
(4) 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.
(5) 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.
(6) 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.
(7) 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.
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
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<PAGE>
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.
(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
29
<PAGE>
of securities of that issuer together own more than
5%.
(g) Purchase securities issued by any other registered
open-end 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 such 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
options on any of the foregoing) to the extent such
action is consistent with such Funds investment
objective and policies.
30
<PAGE>
(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 New
York Stock Exchange listed company with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been
retained under an 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 and control of the Trust's Board of
Trustees.
The Adviser is a leading international investment
manager supervising client accounts with assets as of _______,
1999, totaling more than $___ billion (of which more than $___
billion represented the assets of investment companies). The
Adviser's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies,
foundations and endowment funds. The __ registered investment
companies managed by the Adviser, comprising ___ separate
investment portfolios, currently have more than ___ million
shareholders. As of _______, 1999, the Adviser and its
subsidiaries employed approximately ____ employees who operate
out of domestic offices and the offices of subsidiaries in
Bahrain, Bangalore, Cairo, Chennai, Hong Kong, Istanbul,
Johannesburg, London, Luxembourg, Madrid, Moscow, Mumbai, New
Delhi, Paris, Pune, Sao Paolo, Seoul, Singapore, Sydney, Tokyo,
Toronto, Vienna and Warsaw. As of ________, 1999, the Adviser
was retained as an investment manager for employee benefit plan
assets of __ of the FORTUNE 100 companies.
31
<PAGE>
Alliance Capital Management Corporation ("ACMC"), the
sole general partner of, and the owner of a 1% general
partnership interest in the Adviser, is an indirect wholly-owned
subsidiary of the Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States and a wholly-owned subsidiary of the
Equitable Companies Incorporated ("ECI"). ECI is a holding
company controlled by AXA-UAP ("AXA") a French insurance holding
company which at March 1, 1998, beneficially owned approximately
59% of the outstanding voting shares of ECI. As of June 30,
1998, ACMC, Inc. and Equitable Capital Management Corporation,
each a wholly-owned direct or indirect subsidiary of Equitable,
together with Equitable, owned in the aggregate approximately 57%
of the issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser.
AXA is a holding company for an international group of
insurance and related financial services companies. AXA's
insurance operations include activities in life insurance,
property and casualty insurance and reinsurance. The insurance
operations are diverse geographically, with activities
principally in Western Europe, North America and the Asia/Pacific
area. AXA is also engaged in asset management, investment
banking, securities trading, brokerage, real estate and other
financial services activities principally in the United States,
as well as in Western Europe and the Asia/Pacific area.
Based on information provided by AXA, as of March 31,
1998, more than 30% of the voting power of AXA was controlled
directly and indirectly by FINAXA, a French holding company. As
of March 31, 1998 approximately 74% of the voting power of FINAXA
was controlled directly and indirectly by four French mutual
insurance companies (the "Mutuelles AXA"), one of which, AXA
Assurances I.A.R.D. Mutuelle, itself controlled directly and
indirectly more than 42% of the voting power of FINAXA. Acting
as a group, the Mutuelles AXA control AXA and FINAXA.
Investment Advisory Contract and Expenses
The Adviser serves as investment manager and adviser of
the Fund, continuously furnishes 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 Fund's 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
32
<PAGE>
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, 1999 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 16, 1998.
During the fiscal year ended August 31, 1998, the
Adviser earned $89,353 in advisory fees from the Fund (all of
which was waived, and an additional $78,479 in expenses were
reimbursed by the Adviser). During the fiscal year ended August
31, 1997, the Adviser earned $91,527 in advisory fees from the
Fund (all of which was waived, and an additional $73,336 in
expenses were reimbursed by the Adviser). During the fiscal year
ended August 31, 1996, the Adviser earned $83,317 in advisory
fees from the Fund (all of which was waived, and an additional
$145,095 in expenses were reimbursed by the Adviser).
The Adviser is, under the Investment Advisory Contract,
responsible for certain expenses incurred by the Funds,
including, for example, office facilities and certain
administrative services, and any expenses incurred in promoting
the sale of Fund shares (other than the portion of the
33
<PAGE>
promotional expenses borne by the Fund in accordance with an
effective plan pursuant to Rule 12b-1 under the 1940 Act, and the
costs of printing Fund prospectuses and other reports to
shareholders and fees related to registration with the Securities
and Exchange Commission and with state regulatory authorities).
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 the word "Alliance" from their names.
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,*** 53, Chairman of the Board, is the
President, Chief Operating Officer, and a Director of ACMC, with
which he has been associated since prior to 1993. His address is
1345 Avenue of the Americas, New York, New York 10105.
____________________
*** An "interested person" of the Trust, as defined by the
1940 Act.
34
<PAGE>
Ruth Block, 67, 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 P.O. Box 4623, Stamford, Connecticut 06903.
Richard W. Couper, 75, 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.
William H. Foulk, Jr., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1993. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
Brenton W. Harries, 70, is a Director of Enhance
Reinsurance Co. and was formerly the President and Chief
Executive Officer of Global Electronic Markets Company. His
address is 14 Point Road, Wilson Point, South Norwalk,
Connecticut 06854.
Donald J. Robinson, 64, is Senior Counsel to the law
firm of Orrick, Herrington & Sutcliffe and was formerly a senior
partner and a member of the Executive Committee of that firm. He
was also a Trustee of the Museum of the City of New York from
1977 to 1995. His address is 98 Hell's Peak Road, Weston,
Vermont 05161.
Officers
*John D. Carifa, President, see biography above.
Edmund P. Bergan, Jr., 48, Clerk, is a Senior Vice
President and the General Counsel of Alliance Fund Distributors,
Inc. ("AFD") and Alliance Fund Services, Inc. ("AFS"), with which
he has been associated since prior to 1993. His address is 1345
Avenue of the Americas, New York, New York 10105.
Mark D. Gersten, 48, Treasurer and Chief Financial
Officer, is a Senior Vice President of AFS, with which he has
been associated since prior to 1993. His address is 500 Plaza
Drive, Secaucus, New Jersey 07094.
Vincent S. Noto, 33, Controller and Chief Accounting
Officer, is a Vice President of AFS, with which he has been
associated since prior to 1993. His address is 500 Plaza Drive,
Secaucus, New Jersey 07094.
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<PAGE>
Bruce W. Calvert, 51, Vice President, is the Vice
Chairman and Chief Investment Officer of ACMC, with which he has
been associated since prior to 1993. His address is 1345 Avenue
of the Americas, New York, New York 10105.
Kathleen A. Corbet, 38, Vice President, is an Executive
Vice President of ACMC, with which she has been associated since
July, 1993.
Wayne D. Lyski, 57, Vice President, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1993. His address is 1345 Avenue of the Americas, New York,
New York 10105.
Patricia J. Young, 44, Vice President, is a Senior Vice
President of ACMC, with which she has been associated since July,
1993. Her address is 1345 Avenue of the Americas, New York, New
York 10105.
Andrew L. Gangolf, 44, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since December 1994. Prior thereto, he was vice
president and Assistant Secretary of Delaware Management Co.,
Inc. His address is 1345 Avenue of the Americas, New York, New
York 10105.
Domenick Pugliese, 37, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which he has
been associated since May 1995. Prior thereto, he was Vice
president and Counsel of Concorde Holding Corporation since 1994
and Vice President and Associate General Counsel of Prudential
Securities since prior to 1993. His address is 1345 Avenue of
the Americas, New York, New York 10105.
Emilie D. Wrapp, 42, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1993. Her address is 1345
Avenue of the Americas, New York, New York 10105.
The aggregate compensation paid to each of the Trustees
by the Fund during the fiscal year ended August 31, 1998, and the
aggregate compensation paid to each of the Trustees during
calendar year 1998 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 (and
separate investment portfolios within the companies) in the
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
36
<PAGE>
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 Total Number
of Investment of Investment
Companies in Portfolios
the Alliance Within the
Fund Complex, Funds,
Compensation Including the Including the
from the Fund, as to Fund, as to
Aggregate Alliance Fund which the which the
Compensation Complex, Director is a Director is a
from Including Director or Director or
Name of Trustee the Fund the Fund Trustee Trustee
____________________ ____________ _____________ _____________ _____________
John D. Carifa $ -0- $ -0- __ __
Ruth Block $4,407 $_____ __ __
Richard W. Couper $5,500 $_____ __ __
William H. Foulk, Jr. $4,407 $_____ __ __
Brenton W. Harries $5,400 $_____ __ __
Donald J. Robinson $ -0- $_____ __ __
As of _______, 1999, the Trustees and officers of the
Fund 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
________________________________________________________________
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
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.
37
<PAGE>
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. Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Trust may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Trust.
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 August 31, 1996,
1997 and 1998, the Fund incurred no brokerage commissions.
38
<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 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 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
39
<PAGE>
Adviser from the Trust or other investment companies which it
manages and the Adviser's 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 provide that AFD will use the distribution
services fee received from the Fund in its entirety for payments
(i) to compensate broker-dealers or other persons for providing
distribution assistance, (ii) to otherwise promote the sale of
shares of the Fund and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for
providing administrative, accounting and other services with
respect to the Fund's shareholders. In this regard, some
payments under the 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 the Fund by its customers.
Distribution services fees received from the Fund with respect to
Class A shares will not be used to pay any interest expenses,
carrying charges or other financing costs or allocation of
overhead of AFD. Distribution services fees received from the
Fund, with respect to Class B and Class C shares, may be used for
these purposes. The Plans also provide that the Adviser may use
its own resources to finance the distribution of the Fund's
shares. The Fund is not obligated under the Plans to pay any
distribution services fee in excess of the amounts set forth
above. With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares for any given year, however, will probably exceed
40
<PAGE>
the distribution services fee payable under the Plans with
respect to the class involved and, in the case of Class B and
Class C shares, payments received from Contingent Deferred Sales
Charges ("CDSCs"). The excess will be carried forward by AFD and
reimbursed from distribution services fees payable under the
Plans with respect to the class involved and, in the case of
Class B and Class C shares, payments subsequently received
through CDSCs, so long as the Plans are in effect.
Unreimbursed distribution expenses incurred as of the
end of the Fund's most recently completed fiscal year, and
carried over for reimbursement in future years in respect of the
Class B and Class C shares for the Fund, were, as of that time
$______ (___% as a percentage of Net Assets of Class B Shares)
and $______ (___% as a percentage of Net Assets of Class C
Shares), respectively.
The 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 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.
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 $15,938 in 12b-1 fees, pursuant to the Plan applicable
to such shares, and $0 in sales charges with respect to the
Class A shares of the Fund for the fiscal year ended August 31,
1998.
41
<PAGE>
For services rendered by the Principal Underwriter in
connection with the distribution of Class B shares the Principal
Underwriter received $64,165 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $18,771 in contingent deferred
sales charges with respect to the Class B shares of the Fund for
the fiscal year ended August 31, 1998.
For services rendered by the Principal Underwriter in
connection with the distribution of Class C shares the Principal
Underwriter received $45,169 in 12b-1 fees, pursuant to the Plan
applicable to such shares, and $2,286 in contingent deferred
sales charges with respect to the Class C shares of the Fund for
the fiscal year ended August 31, 1998.
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 period indicated:
Amount of Expense and Allocated Cost
Class A Shares Class B Shares Class C Shares
(for the Fiscal (for the Fiscal (for the Fiscal
Category year ended year ended year ended
of Expense August 31, 1998) August 31, 1998) August 31, 1998)
Advertising/
Marketing $60,145 $12,529 $12,842
Printing and
Mailing of
Prospectuses
and Semi-Annual
and Annual Reports
to Other than
Current
Shareholders $9,208 $(540) $774
Compensation
to Underwriters $119,002 $30,782 $31,793
Compensation
to Dealers $55,294 $49,903 $57,812
Compensation
to Sales
Personnel $10,682 $2,981 $3,382
42
<PAGE>
Interest,
Carrying or
Other
Financing
Charges $0 $7,662 $5,131
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) $214,482 $44,048 $46,106
________ _______ _______
$472,813 $147,365 $157,480
========== ========= ========
Custodial Arrangements
State Street Bank and Trust Company ("State Street
Bank"), 225 Franklin Street, Boston, MA, 02110 acts as the Trust's
custodian, but plays no part in deciding the purchase or sale of
portfolio securities. Subject to the supervision of the Funds
Trustees, State Street Bank may enter into subcustodial agreements
for the holding of the Funds securities outside the United States.
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 Trust's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
service arrangements would be made and that shareholders would not
be adversely affected.
43
<PAGE>
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, located at 500 Plaza Drive, Secaucus,
New Jersey 07094, acts as the Fund's registrar, transfer agent and
dividend-disbursing agent for a fee based upon the number of
account holders of each of the Class A, Class B, Class C shares
and Advisor Class shares of the Fund, plus reimbursement for out-
of-pocket expenses. The transfer agency fee with respect to the
Class B and Class C shares is higher than the transfer agency fee
with respect to the Class A shares and Advisor Class shares. For
the fiscal year ended August 31, 1998, the Fund paid Alliance Fund
Services, Inc. $20,680 for transfer agency services.
_______________________________________________________________
PURCHASE OF SHARES
_______________________________________________________________
The following information supplements that set forth in
the Prospectus under "Purchase and Sale of Shares -- How To Buy
Shares."
General
Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase ("Class A shares"), with a contingent
deferred sales charge ("Class B shares"), without any initial
sales charge and, as long as the shares are held for one year or
more, without any contingent deferred sales charge ("Class C
shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
sales charge ("Advisor Class Shares"), in each case, as described
below. Shares of the Fund that are offered subject to a sales
charge are offered through (i) investment dealers that are members
of the 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"), and (iii) the Principal
Underwriter.
Advisor Class shares of the Fund may be purchased and
held solely (i) through accounts established under fee-based
programs, sponsored and maintained by registered broker-dealers or
other financial intermediaries and approved by the Principal
Underwriter, (ii) through self-directed defined contribution
employee benefit plans (e.g., 401(k) plans) that have at least
1,000 participants or $25 million in assets, (iii) by the
44
<PAGE>
categories of investors described in clauses (i) through (ii) and
(iii) below under "--Sales at Net Asset Value" (other than
officers, directors and present and full-time employees of
selected dealers or agents, or relatives of such person, or any
trust, individual retirement account or retirement plan account
for the benefit of such relative, none of whom is eligible on the
basis solely of such status to purchase and hold Advisor Class
shares) or (iv) by directors and present or retired full-time
employees of CB Richard Ellis, Inc. Generally, a fee-based
program must charge an asset-based or other similar fee and must
invest at least $250,000 in Advisor Class shares of the Fund in
order to be approved by the Principal Underwriter for investment
in Advisor Class shares.
Investors may purchase shares of the Fund either through
selected broker-dealers, agents, financial intermediaries or other
financial representatives, or directly through the Principal
Underwriter. A transaction, service, administrative or other
similar fee may be charged by your broker-dealer, agent, financial
intermediary or other financial representative with respect to the
purchase, sale or exchange of Class A, Class B, Class C or Advisor
Class shares made through such financial representative. Such
financial representative may also impose requirements with respect
to the purchase, sale or exchange of shares that are different
from, or in addition to, those imposed by the Fund, including
requirements as to the minimum initial and subsequent investment
amounts. Sales personnel of selected dealers and agents
distributing the Fund's shares may receive differing compensation
for selling Class A, Class B, Class C or Advisor Class shares.
The Fund may refuse any order for the purchase of shares.
The Fund reserves the right to suspend the sale of 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 Class A shares, a sales
charge which will vary depending on the purchase alternative
chosen by the investor, as shown in the table below under "Class A
Shares." On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the 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.
Eastern time) by dividing the value of the Fund's total assets,
less its liabilities, by the total number of its shares then
outstanding. A Fund business day is any day on which the Exchange
is open for trading.
45
<PAGE>
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however, the
per share net asset values of the Class B shares and Class C
shares may be lower than the per share net asset value of the
Class A and Advisor Class shares as a result of the differential
daily expense accruals of the distribution and transfer agency
fees applicable with respect to those classes of shares. Even
under those circumstances, the per share net asset values of the
four classes eventually will tend to converge immediately after
the payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares
to be executed at the public offering price equal to their net
asset value next determined (plus applicable Class A sales
charges), as described below. Orders received by the Principal
Underwriter prior to the close of regular trading on the Exchange
on each day the Exchange is open for trading are priced at the net
asset value computed as of the close of regular trading on the
Exchange on that day (plus applicable Class A share sales
charges). In the case of orders for purchase of shares placed
through selected dealers, agents or financial representatives, as
applicable, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer,
agent or financial representative receives the order prior to the
close of regular trading on the Exchange and transmits it to the
Principal Underwriter prior to 5:00 p.m. Eastern time. The
selected dealer, agent or financial representative, as applicable,
is responsible for transmitting such orders by 5:00 p.m. Eastern
time (certain selected dealers, agents or financial
representatives may enter into operating agreements permitting
them to transmit purchase information to the Principal Underwriter
after 5:00 p.m. Eastern time and receive that day's net asset
value). If the selected dealer, agent or financial
representative fails to do so, the investor's right to that day's
closing price must be settled between the investor and the
selected dealer, agent or financial representative, as applicable.
If the selected dealer, agent or financial representative, as
applicable, receives the order after the close of regular trading
on the Exchange, the price will be based on the net asset value
determined as of the close of regular trading on the Exchange on
the next day it is open for trading.
Following the initial purchase of Fund shares, a
shareholder may place orders to purchase additional shares by
telephone if the shareholder has completed the appropriate portion
of the Subscription Application or an "Autobuy" application both
of which may be obtained by calling the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Except with respect to certain omnibus accounts,
46
<PAGE>
telephone purchase orders may not exceed $500,000. Payment for
shares purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. Eastern time on a Fund
business day, the order to purchase shares is automatically placed
the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day.
Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense to
the Fund, 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 or other incentives to dealers or agents, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, cash or other incentives
will be conditioned upon the sale of a specified minimum dollar
amount of the shares of the Fund and/or other Alliance Mutual
Funds, as defined below, during a specific period of time. On
some occasions, such cash or other incentives may take the form of
payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel taken by persons
associated with a dealer or agent to urban or resort locations
within or outside the United States. Such dealer or agent may
elect to receive cash incentives of equivalent amount in lieu of
such payments.
Class A, Class B, Class C and Advisor Class shares.
Shares of each of the classes represent an interest in the same
portfolio of investments, have the same rights and are identical
in all respects, except that (i) Class A shares bear the expense
of the initial sales charge (or contingent deferred sales charge,
when applicable) and Class B and Class C shares generally bear the
expense of the deferred sales charge, (ii) Class B shares and
Class C shares each bear the expense of a higher distribution
services fee than that borne by Class A shares, and Advisor Class
47
<PAGE>
shares do not bear such a fee, (iii) Class B and Class C shares
bear higher transfer agency costs than those borne by Class A and
Advisor Class shares, (iv) each of Class A, Class B and Class C
shares has exclusive voting rights with respect to provisions of
the Rule 12b-1 Plan pursuant to which its distribution services
fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that if the Fund
submits to a vote of the Class A shareholders, an amendment to the
Rule 12b-1 Plan that would materially increase the amount to be
paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders, and the Class A, the Class B and the Advisor Class
shareholders will vote separately by class and (v) Class B and
Advisor Class shares are subject to a conversion feature. Each
class has different exchange privileges and certain different
shareholder service options available.
The Trustees of the Fund have determined that currently
no conflict of interest exists between or among the Class A,
Class B, Class C and Advisor Class shares. On an ongoing basis,
the Trustees of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Retail Purchase Arrangements - Class A, Class B and
Class C Shares****
The alternative purchase arrangements available with
respect to Class A shares, Class B shares and Class C shares
permit an investor to choose the method of purchasing shares that
is most beneficial given the amount of the purchase, the length of
time the investor expects to hold the shares, and other
circumstances. Investors should consider whether, during the
anticipated life of their investment in 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 and contingent deferred sales charge on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the Principal
Underwriter will reject any order (except orders from certain
retirement plans and certain employee benefit plans) for more than
$250,000 for Class B shares. (See Appendix B for information
____________________
**** Advisor Class Shares are sold only to investors described
above in this section under "--General."
48
<PAGE>
concerning the eligibility of certain employee benefit plans to
purchase Class B shares at net asset value without being subject
to a contingent deferred sales charge and the ineligibility of
certain such plans to purchase Class A shares.) Class C shares
will normally not be suitable for the investor who qualifies to
purchase Class A shares at net asset value. For this reason, the
Principal Underwriter will reject any order for more than
$1,000,000 for Class C shares.
Class A shares are subject to a lower distribution
services fee and, accordingly, pay correspondingly higher
dividends per share than Class B shares or Class C shares.
However, because initial sales charges are deducted at the time of
purchase, investors purchasing Class A shares would not have all
their funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will be
invested initially.
Other investors might determine, however, that it would
be more advantageous to purchase Class B shares or Class C shares
in order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and
being subject to a contingent deferred sales charge for a three-
year period and one-year period, respectively. For example, 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
three-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
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<PAGE>
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below:
Sales Charge
Discount or
Commission
As % of to Dealers
As % of the 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, as described below under "--Class B
Shares." In determining the contingent deferred sales charge
applicable to a redemption of Class A shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because an
initial sales charge was paid with respect to the shares, or they
have been held beyond the period during which the charge applies
or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the time
they are subject to the sales charge. Proceeds from the
contingent deferred sales charge on Class A shares are paid to the
Principal Underwriter and are used by the Principal Underwriter to
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<PAGE>
defray the expenses of the Principal Underwriter related to
providing distribution-related services to the Fund in connection
with sales of Class A shares, such as the payment of compensation
to selected dealers or agents for selling Class A shares. With
respect to purchases of $1,000,000 or more made through selected
dealers or agents, the Adviser may, pursuant to the Distribution
Services Agreement described above, pay such dealers or agents
from its own resources a fee of up to 1% of the amount invested to
compensate such dealers or agents for their distribution
assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares
issued (i) pursuant to the automatic reinvestment of income
dividends or capital gains distributions, (ii) in exchange for
Class A shares of other "Alliance Mutual Funds" (as that term is
defined under "Combined Purchase Privilege" below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge or (iii) upon the automatic conversion of Class B
shares or Advisor Class shares as described below under "--Class B
Shares--Conversion Feature" and "--Conversion of Advisor Class
Shares to Class A Shares." The Fund receives the entire net asset
value of its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents for
all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives a
reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act.
Set forth below is an example of the method of computing
the offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of the
Fund on August 31, 1998.
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<PAGE>
Net Asset Value per Class A
Share at August 31, 1998 $ 9.48
Per Share Sales Charge - 4.25%
of offering price (4.45% of
net asset value per share) $ .42
Class A Per Share Offering Price
to the Public $ 9.90
======
Investors choosing the initial sales charge alternative
may under certain circumstances be entitled to pay (i) no initial
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
Combined Purchase Privilege. Certain persons may qualify
for the sales charge reductions indicated in the schedule of such
charges shown above by combining purchases of shares of the Fund
into a single "purchase," if the resulting "purchase" totals at
least $100,000. The term "purchase" refers to: (i) a single
purchase by an individual, or two 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 the term is defined in the 1940 Act, but does not
include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term "purchase"
does not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit
card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an
investment adviser. A "purchase" may also include shares,
purchased at the same time through a single selected dealer or
agent, of any other "Alliance Mutual Fund." Currently, the
Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
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<PAGE>
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Growth Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be
obtained without charge by contacting AFS at the address or the
"For Literature" telephone number shown on the front cover of this
Statement of Additional Information.
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<PAGE>
Cumulative Quantity Discount (Right of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business on the
previous day) of (a) all shares of the Fund held by
the investor and (b) all shares of any other
Alliance Mutual Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder eligible
to combine his or her purchase with that of the
investor into a single "purchase" (see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to
obtain the Cumulative Quantity Discount on a purchase through a
selected dealer or agent, the investor or selected dealer or agent
must provide the Principal Underwriter with sufficient information
to verify that each purchase qualifies for the privilege or
discount.
Statement of Intention. Class A investors may also
obtain the reduced sales charge shown in the table above by means
of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction of
the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
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<PAGE>
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 only be necessary to invest a
total of $60,000 during the following 13 months in shares of the
Fund or any other Alliance Mutual Fund, to qualify for the 3.25 %
sales charge on the total amount being invested (the sales charge
applicable to an investment of $100,000).
The Statement of Intention is not a binding obligation
upon the investor to purchase the full amount indicated. The
minimum initial investment under a Statement of Intention is 5% 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 in cash or
reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow will
be released. To the extent that an investor purchases more than
the dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of the
13-month period. The difference in the sales charge will be used
to purchase additional shares of the Fund subject to the rate of
the sales charge applicable to the actual amount of the aggregate
purchases.
Investors wishing to enter into a Statement of Intention
in conjunction with their initial investment in Class A shares of
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 AFS at the address or the telephone
numbers shown on the cover of this Statement of Additional
Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund or
any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of a Fund will be that normally applicable,
under the schedule of the sales charges set forth in this
Statement of Additional Information, to an investment 13 times
larger than such initial purchase. The sales charge applicable to
each succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchases previously made during the 13-month period and
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<PAGE>
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will not
be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused
any or all of his or her Class A or Class B shares of the Fund to
be redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund at
net asset value without any sales charge, provided that (i) such
reinvestment is made within 120 calendar days after the redemption
or repurchase date and (ii) for Class B shares, a contingent
deferred sales charge has been paid and the Principal Underwriter
has approved, at its discretion, the reinvestment of such shares.
Shares are sold to a reinvesting shareholder at the net asset
value next determined as described above. A reinstatement
pursuant to this privilege will not cancel the redemption or
repurchase transaction; therefore, any gain or loss so realized
will be recognized for Federal income tax purposes except that no
loss will be recognized to the extent that the proceeds are
reinvested in shares of the Fund within 30 calendar days after the
redemption or repurchase transaction. Investors may exercise the
reinstatement privilege by written request sent to the Fund at the
address shown on the cover of this Statement of Additional
Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without any initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former 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, the Principal Underwriter, AFS and their affiliates;
officers and directors of ACMC, the Principal Underwriter, AFS and
their affiliates; officers, directors and present and full-time
employees of selected dealers or agents; the spouse, sibling,
direct ancestor or direct descendant (collectively, "relatives")
of any such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, Principal
Underwriter, AFS and their affiliates; certain employee benefit
plans for employees of the Adviser, the Principal Underwriter, AFS
and their affiliates; (iv) registered investment advisers or other
financial intermediaries who charge a management, consulting or
other fee for their service and who purchase shares through a
broker or agent approved by the Principal Underwriter and clients
of such registered investment advisers or financial intermediaries
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<PAGE>
whose accounts are linked to the master account of such investment
adviser or financial intermediary on the books of such approved
broker or agent; (v) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer or other
financial intermediary and approved by the Principal Underwriter,
pursuant to which such persons pay an asset-based fee to such
broker-dealer or other financial intermediary, or its affiliate or
agent, for services in the nature of investment advisory or
administrative services; (vi) persons who establish to the
Principal Underwriter's satisfaction that they are investing,
within such time period as may be designated by the Principal
Underwriter, proceeds of redemption of shares of such other
registered investment companies as may be designated from time to
time by the Principal Underwriter; and (vii) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7), retirement plans and individual retirement accounts
(including individual retirement accounts to which simplified
employee pension (SEP) contributions are made), if such plans or
accounts are established or administered under programs sponsored
by administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public
offering price equal to the net asset value per share of the
Class B shares on the date of purchase without the imposition of a
sales charge at the time of purchase. The Class B shares are sold
without an initial sales charge so that the 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 that
are redeemed within three years of purchase will generally 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
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<PAGE>
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).
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 Contingent Deferred Sales Charge as a %
Since Purchase of Dollar Amount Subject to Charge
First 3.00%
Second 2.00%
Third 1.00%
Fourth None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on
redemptions of shares (i) following the death or disability, as
defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption
represents a minimum required distribution from an individual
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<PAGE>
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
Appendix B and "Shareholder Services--Systematic Withdrawal Plan"
below).
Conversion Feature. Six years after the end of the
calendar month in which the shareholders purchase order was
accepted, Class B shares will automatically convert to Class A
shares and will no longer be subject to a higher distribution
services fee. Such conversions will occur on the basis of the
relative net asset values of the two classes, without the
imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee
paid by holders of Class B shares that have been outstanding long
enough for the Principal Underwriter to have been compensated for
distribution expenses incurred in the sale of such shares.
For purposes of conversion to Class A 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 the conversion of Class B shares to Class A shares
does not constitute a taxable event under Federal income tax law.
The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee for
an indefinite period which may extend beyond the period ending six
years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public
offering price equal to the net asset value per share of the
Class C shares on the date of purchase without the imposition of a
sales charge either at the time of purchase or, as long as the
shares are held for one year or more, upon redemption. Class C
shares are sold without an initial sales charge so that the Fund
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<PAGE>
will receive the full amount of the investor's purchase payment
and, as long as the shares are held for one year or more, without
a contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
other class of shares of the Fund and incur higher distribution
services fees and transfer agency costs than Class A shares and
Advisor Class shares, and will thus have a higher expense ratio
and pay correspondingly lower dividends than Class A shares and
Advisor Class shares.
Class C shares that are redeemed within one year of
purchase will be subject to a contingent deferred sales charge of
1% charged as a percentage of the dollar amount subject thereto.
The charge will be assessed on an amount equal to the lesser of
the cost of the shares being redeemed or their net asset value at
the time of redemption. Accordingly, no sales charge will be
imposed on increases in net asset value above the initial purchase
price. In addition, no charge will be assessed on shares derived
from reinvestment of dividends or capital gains distributions.
The contingent deferred sales charge on Class C shares will be
waived on certain redemptions, as described above under "--Class B
Shares. In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the time
they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are
paid to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for selling
Class C shares. The combination of the contingent deferred sales
charge and the distribution services fee enables the Fund to sell
the Class C shares without a sales charge being deducted at the
time of purchase. The higher distribution services fee incurred
by Class C shares will cause such shares to have a higher expense
ratio and to pay lower dividends than those paid with respect to
Class A and Advisor Class shares.
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Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-
based program accounts and employee benefit plans and registered
investment advisory or other financial intermediary relationship,
described above under "Purchase of Shares--General," and by
investment advisory clients of, and certain other persons
associated with, the Adviser and its affiliates or the Fund. If
(i) a holder of Advisor Class shares ceases to participate in a
fee-based program or plan, or to be associated with the investment
adviser or financial intermediary, in each case that satisfies the
requirements to purchase shares set forth under "Purchase of
Shares--General" or (ii) the holder is otherwise no longer
eligible to purchase Advisor Class shares as described in the
Advisor Class Prospectus and this Statement of Additional
Information (each, a "Conversion Event"), then all Advisor Class
shares held by the shareholder will convert automatically and
without notice to the shareholder, other than the notice contained
in the Advisor Class Prospectus and this Statement of Additional
Information, to Class A shares of same the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee and
have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends and
have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares
is subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to
Class A shares does not constitute a taxable event under Federal
income tax law. The conversion of Advisor Class shares to Class A
shares may be suspended if such an opinion is no longer available
at the time such conversion is to occur. In that event, the
Advisor Class shareholders would be required to redeem
shareholders Advisor Class shares, which would constitute a
taxable event under Federal income tax law.
________________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
________________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares -- How to Sell Shares." If you are an Advisor Class
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<PAGE>
shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
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, Class B or Class C shares, there is no
redemption charge. Payment of the redemption price will be made
within seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents are
required by his or her fee-based program or employee benefit plan,
the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date
of payment upon redemption postponed for more than seven days
after shares are tendered for redemption, except for any period
during which the Exchange is closed (other than customary weekend
and holiday closings) or during which the 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 SEC may by order permit
for the protection of security holders of the Fund.
Payment of the redemption price will be made in cash. The
value of a shareholder's shares on redemption or repurchase may be
more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio securities
at the time of such redemption or repurchase. Redemption proceeds
from Class A, Class B and Class C shares will reflect the
deduction of the contingent deferred sales charge, if any.
Payment received by a shareholder upon redemption or repurchase of
the shareholders shares, assuming the shares constitute capital
assets in the shareholders 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.
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To redeem shares of the Fund for which no share
certificates have been issued, the registered owner or owners
should forward a letter to the Fund containing a request for
redemption. The signature or signatures on the letter must be
guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended.
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 share assignment form on the reverse side of each share
certificate surrendered to the Fund for redemption must be signed
by the registered owner or owners exactly as the registered name
appears on the face of the certificate or, alternatively, a stock
power signed in the same manner may be attached to the share
certificate or certificates or, where tender is made by mail,
separately mailed to the Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each
Fund shareholder is entitled to request redemption by electronic
funds transfer of shares for which no share certificates have been
issued by telephone at (800) 221-5672 by a shareholder who has
completed the appropriate portion of the Subscription Application
found in the Prospectus or, in the case of an existing
shareholder, an "Autosell" application obtained from AFS. A
telephone redemption request may not exceed $100,000 (except for
certain omnibus accounts), and must be made by 4:00 p.m. Eastern
time on a Fund business day as defined above. Proceeds of
telephone redemptions will be sent by electronic funds transfer to
a shareholder's designated bank account at a bank selected by the
shareholder that is a member of the NACHA.
Telephone Redemption By Check. Except for certain
omnibus accounts or as noted below, each Fund shareholder is
eligible to request redemption by check of Fund shares for which
no share certificates have been issued by telephone at (800) 221-
5672 before 4:00 p.m. Eastern time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check
may cancel the privilege by written instruction to AFS, or by
checking the appropriate box on the Subscription Application found
in the Prospectus.
Telephone Redemptions--General. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
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difficulty in reaching AFS 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
AFS 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. Telephone redemption is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) held by a shareholder who
has changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account.
Neither the Fund nor the Adviser, the Principal Underwriter nor
AFS will be responsible for the authenticity of telephone requests
for redemptions that the Fund reasonably believes to be genuine.
The Fund will employ reasonable procedures in order to verify that
telephone requests for redemptions are genuine, including, among
others, recording such telephone instructions and causing written
confirmations of the resulting transactions to be sent to
shareholders. If the Fund did not employ such procedures, it
could be liable for losses arising from unauthorized or fraudulent
telephone instructions. Selected dealers or agents may charge a
commission for handling telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries, selected dealers
or agents. The repurchase price will be the net asset value next
determined after the Principal Underwriter receives the request
(less the contingent deferred sales charge, if any, with respect
to the Class A, Class B and Class C shares), except that requests
placed through selected dealers or agents before the close of
regular trading on the Exchange on any day will be executed at the
net asset value determined as of the close of regular trading on
that day if received by the Principal Underwriter prior to its
close of business on that day (normally 5:00 p.m. Eastern time).
The financial intermediary or selected dealer or agent is
responsible for transmitting the request to the Principal
Underwriter by 5:00 p.m. Eastern time (certain selected dealers,
agents or financial representatives may enter into operating
agreements permitting them to transmit purchase information to the
Principal Underwriter after 5:00 p.m. Eastern time and receive
that day's net asset value). If the financial intermediary or
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Fund to the Principal Underwriter either directly or
through a selected dealer or agent. Neither the Fund nor the
Principal Underwriter charges a fee or commission in connection
with the repurchase of shares (except for the contingent deferred
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sales charge, if any, with respect to Class A, Class B and Class C
shares). Normally, if shares of the Fund are offered through a
financial intermediary or selected dealer or agent, the repurchase
is settled by the shareholder as an ordinary transaction with or
through the selected dealer or agent, who may charge the
shareholder for this service. The repurchase of shares of the
Fund as described above is a voluntary service of the Fund and the
Fund may suspend or terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for 90 days.
Shareholders will receive 60 days' written notice to increase the
account value before the account is closed. No contingent
deferred sales charge will be deducted from the proceeds of this
redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
___________________________________________________________
SHAREHOLDER SERVICES
___________________________________________________________
The following information supplements that set forth in
the Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set forth
below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing Electronic Funds Transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives the
proceeds from the investor's bank. In electronic form, drafts can
be made on or about a date each month selected by the shareholder.
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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 AFS at the
address or telephone numbers shown on the cover of this Statement
of Additional Information to establish an automatic investment
program.
Exchange Privilege
You may exchange your investment in the Fund for shares
of the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by the Adviser).
In addition, (i) present officers and full-time employees of the
Adviser, (ii) present Directors or Trustees of any Alliance Mutual
Fund and (iii) certain employee benefit plans for employees of the
Adviser, the Principal Underwriter, AFS and their affiliates may,
on a tax-free basis, exchange Class A shares of the Fund for
Advisor Class shares of the Fund. Exchanges of shares are made at
the net asset value next determined and without sales or service
charges. Exchanges may be made by telephone or written request.
Telephone exchange requests must be received by AFS by 4:00 p.m.
Eastern time on a Fund business day in order to receive that day's
net asset value.
Shares will continue to age without regard to exchanges
for 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 Alliance
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 are taxable capital transactions for
Federal income tax purposes. The exchange service may be changed,
suspended or terminated on 60 days' written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
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(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose shares
have been tendered for exchange is reasonably assured that the
check has cleared, normally up to 15 calendar days following the
purchase date. Exchanges of shares of Alliance Mutual Funds will
generally result in the realization of a capital gain or loss for
federal income tax purposes.
Each Fund shareholder and the shareholder's selected
dealer, agent or financial representative, as applicable, are
authorized to make telephone requests for exchanges unless
AFS 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 AFS with their account number and other details of the
exchange at (800) 221-5672 before 4:00 p.m. Eastern time on a Fund
business day as defined above. Telephone requests for exchange
received before 4:00 p.m. Eastern time on a Fund business day will
be processed as of the close of business on that day. During
periods of drastic economic or market developments (such as the
market break of October 1987) it is possible that shareholders
would have difficulty in reaching AFS 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
AFS 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 prior thereto.
None of the Alliance Mutual Funds, the Adviser, the
Principal Underwriter or AFS will be responsible for the
authenticity of telephone requests for exchanges that the Fund
reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
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resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers, agents or financial representatives, as
applicable, may charge a commission for handling telephone
requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may legally be
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part or
all of the assets held in various types of retirement plans, such
as those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact AFS at the "For Literature" telephone
number on the cover of this Statement of Additional Information,
or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, 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. The minimum
initial investment requirement may be waived with respect to
certain of these qualified plans.
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If the aggregate net asset value of shares of the
Alliance Mutual Funds held by a qualified plan reaches $1 million
on or before December 15 in any year, all Class B or Class C
shares of the Fund held by the plan can be exchanged at the plan's
request, without any sales charge, for Class A shares of the Fund.
Simplified Employee Pension Plan ("SEP"). Sole
proprietors, partnerships and corporations may sponsor a SEP under
which they make annual tax-deductible contributions to an IRA
established by each eligible employee within prescribed limits
based on employee compensation.
403(b)(7) Retirement Plan. Certain tax-exempt
organizations and public educational institutions may sponsor
retirement plans under which an employee may agree that monies
deducted from his or her compensation (minimum $25 per pay period)
may be contributed by the employer to a custodial account
established for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the Fund,
charges certain nominal fees for establishing an account and for
annual maintenance. A portion of these fees is remitted to AFS 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 AFS at the
address or "For Literature" telephone number shown on the cover of
this Statement of Additional Information.
Dividend Direction Plan
A shareholder who already maintains, in addition to his
or her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains distributions paid on the shareholder's
Class A, Class B, Class C or Advisor Class Fund shares be
automatically reinvested, in any amount, without the payment of
any sales or service charges, in shares of the same class of such
other Alliance Mutual Fund(s). Further information can be
obtained by contacting AFS at the address or the "For Literature"
telephone number shown on the cover of this Statement of
Additional Information. Investors wishing to establish a dividend
direction plan in connection with their initial investment should
complete the appropriate section of the Subscription Application
found in the Prospectus. Current shareholders should contact AFS
to establish a dividend direction plan.
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Systematic Withdrawal Plan
General. Any shareholder who owns or purchases shares of
the Fund having a current net asset value of at least $4,000 (for
quarterly or less frequent payments), $5,000 (for bi-monthly
payments) or $10,000 (for monthly payments) may establish a
systematic withdrawal plan under which the shareholder will
periodically receive a payment in a stated amount of not less than
$50 on a selected date. Systematic withdrawal plan participants
must elect to have their dividends and distributions from the Fund
automatically reinvested in additional shares of the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such payments will be subject to any taxes
applicable to redemptions and, except as discussed below, any
applicable contingent deferred sales charge. Shares acquired with
reinvested dividends and distributions will be liquidated first to
provide such withdrawal payments and thereafter other shares will
be liquidated to the extent necessary, and depending upon the
amount withdrawn, the 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 " Redemption and
Repurchase of Shares--General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when the 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 AFS at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information.
CDSC Waiver for Class B and Class C Shares. Under a
systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class B or
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Class C shares in a shareholder's account may be redeemed free of
any contingent deferred sales charge.
With respect to Class B shares, the waiver applies only
with respect to shares acquired after July 1, 1995. Class B
shares that are not subject to a contingent deferred sales charge
(such as shares acquired with reinvested dividends or
distributions) will be redeemed first and will count toward the
foregoing limitations. Remaining Class B shares that are held the
longest will be redeemed next. Redemptions of Class B shares in
excess of the foregoing limitations will be subject to any
otherwise applicable contingent deferred sales charge.
With respect to Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing
limitations. Redemptions in excess of those limitations 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 accountants, PricewaterhouseCoopers LLP, as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or AFS, 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
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the shareholder for the initiation and maintenance of this service
or for the clearance of any checks.
When a check is presented to the Bank for payment, the
Bank, as the shareholder's agent, causes the Fund to redeem, at
the net asset value next determined, a sufficient number of full
and fractional shares of the Fund in the shareholder's account to
cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service enables
the shareholder to receive the daily dividends declared on the
shares to be redeemed until the day that the check is presented to
the Bank for payment.
_______________________________________________________________
NET ASSET VALUE
_______________________________________________________________
The per share net asset value is computed in accordance
with the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange (ordinarily 4:00 p.m.
Eastern time) following receipt of a purchase or redemption order
by the Fund on each Fund business day on which such an order is
received and on such other days as the Board of Directors deems
appropriate or necessary in order to comply with Rule 22c-1 under
the 1940 Act. The Fund's per share net asset value is calculated
by dividing the value of the Fund's total assets, less its
liabilities, by the total number of its shares then outstanding.
A Fund business day is any weekday on which the Exchange is open
for trading.
In accordance with applicable rules under the 1940 Act,
portfolio securities are valued at current market value or at fair
value as determined in good faith by the Board of Directors. The
Board of Directors has delegated to the Adviser certain of the
Board's duties with respect to the following procedures. Readily
marketable securities listed on the Exchange or on a foreign
securities exchange (other than foreign securities exchanges whose
operations are similar to those of the United States over-the-
counter market) are valued, except as indicted below, at the last
sale price reflected on the consolidated tape at the close of the
Exchange or, in the case of a foreign securities exchange, at the
last quoted sale price, in each case on the business day as of
which such value is being determined. If there has been no sale
on such day, the securities are valued at the mean of the closing
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bid and asked prices on such day. If no bid or asked prices are
quoted on such day, then the security is valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors. Readily marketable securities not listed
on the Exchange or on a foreign securities exchange but listed on
other United States national securities exchanges or traded on The
Nasdaq Stock Market, Inc. are valued in like manner. Portfolio
securities traded on the Exchange and on one or more foreign or
other national securities exchanges, and portfolio securities not
traded on the Exchange but traded on one or more foreign or other
national securities exchanges are valued in accordance with these
procedures by reference to the principal exchange on which the
securities are traded.
Readily marketable securities traded in the over-the-
counter market, securities listed on a foreign securities exchange
whose operations are similar to those of the United States over-
the-counter market, and securities listed on a U.S. national
securities exchange whose primary market is believed to be over-
the-counter (but excluding securities traded on The Nasdaq Stock
Market, Inc.), are valued at the mean of the current bid and asked
prices as reported by Nasdaq or, in the case of securities not
quoted by Nasdaq, the National Quotation Bureau or another
comparable sources.
Listed put or call options purchased by the Fund are
valued at the last sale price. If there has been no sale on that
day, such securities will be valued at the closing bid prices on
that day.
Open futures contracts and options thereon will be valued
using the closing settlement price or, in the absence of such a
price, the most recent quoted bid price, If there are no
quotations available for the day of valuations, the last available
closing settlement price will be used.
U.S. Government Securities and other debt instruments
having 60 days or less remaining until maturity are valued at
amortized cost if their original maturity was 60 days or less, or
by amortizing their fair value as of the 61st day prior to
maturity if their original term to maturity exceeded 60 days
(unless in either case the Board of Directors determines that this
method does not represent fair value).
Fixed-income securities may be valued on the basis of
prices provided by a pricing service when such prices are believed
to reflect the fair market value of such securities. The prices
provided by pricing service take into account many factors,
including institutional size trading in similar groups of
securities and any developments related to specific securities.
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All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
Trading in securities on Far Eastern and European
securities exchanges and over-the-counter markets is normally
completed well before the close of business of each Fund business
day. In addition, trading in foreign markets may not take place
on all Fund business days. Furthermore, trading may take place in
various foreign markets on days that are not Fund business days.
The Fund's calculation of the net asset value per share,
therefore, does not always take place contemporaneously with the
most recent determination of the prices of portfolio securities in
these markets. Events affecting the values of these portfolio
securities that occur between the time their prices are determined
in accordance with the above procedures and the close of the
Exchange will not be reflected in the Fund's calculation of net
asset value unless it is believed that these prices do not reflect
current market value, in which case the securities will be valued
in good faith by, or in accordance with procedures established by,
the Board of Directors at fair value.
The Board of Directors may suspend the determination of
the Fund's, net asset value (and the offering and sale of shares),
subject to the rules of the Commission and other governmental
rules and regulations, at a time when: (1) the Exchange is
closed, other than customary weekend and holiday closings, (2) an
emergency exists as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or
to determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
For purposes of determining the Fund's net asset value
per share, all assets and liabilities initially expressed in a
foreign currency will be converted into U.S. dollars at the mean
of the current bid and asked prices of such currency against the
U.S. dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the
basis of a pricing service that takes into account the quotes
provided by a number of such major banks. If such quotations are
not available as of the close of the Exchange, the rate of
exchange will be determined in good faith by, or under the
direction of, the Board of Directors.
The assets attributable to the Class A shares, Class B
shares, Class C shares and Advisor Class shares will be invested
together in a single portfolio. The net asset value of each class
will be determined separately by subtracting the liabilities
allocated to that class from the assets belonging to that class in
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conformance with the provisions of a plan adopted by the Fund in
accordance with Rule 18f-3 under the 1940 Act.
_______________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_______________________________________________________________
The Fund intends to qualify for tax treatment as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended (the "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 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
and (2) diversify its holdings so that at the end of each quarter
of its taxable year, the following two conditions are met: (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 limit the range of the Fund's investments.
If the 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 capital 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 Fund must meet to qualify for such treatment.
In addition, if the Fund fails to distribute in a
calendar year substantially all of its ordinary income for such
year and substantially all of its capital gain net income for the
one-year period ending October 31, plus any retained amount from
the prior year, the Fund will be subject to a 4% excise tax on the
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undistributed amounts. A dividend paid to shareholders by the
Fund in January of a year generally is deemed to have been paid by
the Fund on December 31 of the preceding year, if the dividend was
declared and payable to shareholders of record on a date in
October, November or December of that preceding year. The Fund
intends generally to make distributions sufficient to avoid
imposition of the 4% excise tax.
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. Distributions of net capital gain designated by
the Fund as such (i.e., the excess of net long-term capital gain
over net short-term capital loss) are taxable as long-term capital
gain (generally at a 20% rate for noncorporate shareholders),
regardless of how long a shareholder has held shares in the Fund.
The investment objective of the Fund is such that only a small
portion, if any, of the Fund's distributions is expected to
qualify for the dividends-received deduction for corporate
shareholders.
Any dividend or distribution received by a shareholder on
shares of the Fund (even if received 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 six months or
less will be treated as a long-term capital loss for Federal
income tax purposes to the extent of any distribution of net
capital gain 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.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, 403(b)(7) retirement plan or
corporate pension or profit-sharing plan, generally will not be
taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the
qualified plan.
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Under current federal tax law, the Fund will receive net
investment income in the form of interest by virtue of holding
Treasury bills, notes and bonds, and will recognize interest
attributable to it under the original issue discount rules of the
Code from holding zero coupon Treasury securities. Current
federal tax law requires that a holder (such as the 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 Fund
receives no interest payment in cash on the security during the
year. Accordingly, the Fund may be required to pay out as an
income distribution each year an amount which is greater than the
total amount of cash interest the Fund actually received. Such
distributions will be made from the cash assets of the Fund or by
liquidation of portfolio securities, if necessary. If a
distribution of cash necessitates the liquidation of portfolio
securities, the Adviser will select which securities to sell. The
Fund may realize a gain or loss from such sales. In the event the
Fund realizes net capital gains from such transactions, its
shareholders may receive a larger capital gain distribution, if
any, than they would have in the absence of such transactions.
The Fund's hedging transactions, including hedging
transactions in options, futures contracts and straddles, or other
similar transactions, including short sales against-the-box, will
subject the Fund to special tax rules (including mark-to-market,
straddle, wash sale, short sale and constructive sales rules), the
effect of which may be to accelerate income to the Fund, defer
losses to the Fund, cause adjustments in the holding periods of
the Fund's securities, or convert short-term capital losses into
long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders.
The Fund will endeavor to make any available elections pertaining
to such transactions in a manner believed to be in the best
interest of the Fund.
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
77
<PAGE>
counsel for further information as to the U.S. tax consequences of
investing in 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, Class C and Advisor Class 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 series and each
class of shares thereof, certain expenses may be legally
chargeable against the assets of all series or a particular class
of shares thereof.
The Declaration of Trust provides for the perpetual
existence of the Trust. The Trust or 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
provides that the Trustees may also terminate the Trust upon
written notice to the shareholders.
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Capitalization
Except as noted below under "Shareholder and Trustee
Liability", all shares of the Fund 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 _______, 1999:
Names and Addresses % of Class
Voting Rights
As summarized above, 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.
A shareholder in the Fund will be entitled to share pro
rata with other holders of the same class of shares all dividends
and distributions arising from the Fund's assets and, upon
redeeming shares, will receive the then current net asset value of
the Fund represented by the redeemed shares less any applicable
CDSC. The Fund is empowered to establish, without shareholder
approval, additional portfolios, which may have different
investment objectives and policies than those of the Fund, and
additional classes of shares within the Fund. If an additional
portfolio or class were established in the Fund, each share of the
Portfolio or class would normally be entitled to one vote for all
purposes.
The By-Laws of the Trust provide that generally, shares
of each class would vote together as a single class on matters,
such as the election of Trustees, that affect each portfolio and
class in substantially the same manner. Class A, Class B and
Class C shares of the Fund have identical voting, dividend,
liquidation and other rights, except that each class bears its own
distribution and transfer agency expenses. Each class of shares
of the Fund votes separately with respect to the Fund's
distribution plans 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
Trustees and, in liquidation of the Fund, are entitled to receive
the net assets of the Fund. Certain additional matters relating
to the Fund's organization are discussed in this Statement of
Additional Information. Notwithstanding the foregoing, with
79
<PAGE>
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 applicable Fund or the applicable class
thereof represented at a meeting at which more than 50% of the
outstanding shares of the 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 or state law (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.
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<PAGE>
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 or she 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 or her 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 or she 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 or her 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, 1998 which are included in this Statement of
Additional Information, have been audited by
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York,
New York 10036, the Trust's independent accountants and have been
so included in reliance upon such report given upon the authority
of that firm as experts in accounting and auditing.
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Total Return and Yield Quotations
From time to time, the Fund advertises its "yield" and
"total return," which are computed separately for Class A, Class B
and Class C shares. The Fund's yield for any 30-day (or one-
month) period is computed by dividing the net investment income
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. The Fund may also state in sales literature an
"actual distribution rate" for each class which is computed in the
same manner as yield except that actual income dividends declared
per share during the period in question are substituted for net
investment income per share. The actual distribution rate is
computed separately for Class A, Class B and Class C shares.
Advertisements of the Fund's total return disclose its average
annual compounded total return for the periods prescribed by the
SEC. The Fund's 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 the period that
would equate an assumed initial amount invested to the value of
the investment at the end of the period. For purpose of computing
total return, income dividends and capital gains distributions
paid on shares of the Fund are assumed to have been reinvested
when paid and the maximum sales charges applicable to purchases
and redemptions of the Fund's shares are assumed to have been
paid.
The yield of Class A shares of the Short-Term U.S.
Government Fund was 4.85% for the 30-day period ended August 31,
1998. The yield of Class B shares of the Short-Term U.S.
Government Fund was 4.29% for the 30-day period ended August 31,
1998. The yield of Class C shares of the Short-Term U.S.
Government Fund was 4.28% for the 30-day period ended August 31,
1998.
The average annual total return based on net asset value
for each class of shares for the one-, five- and ten-year periods
ended August 31, 1998 (or since inception through that date, as
noted) was as follows:
12 Months
Ended 5 Years Ended 10 Years Ended
8/31/98 8/31/98 8/31/98
_________ _____________ ______________
Class A (4.04)% 3.55% 4.47%*
Class B 3.52% 2.86% 3.79%*
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Class C 3.53% 2.85% 2.91%*
*Inception Dates: Class A - May 4, 1992
Class B - May 4, 1992
Class C - August 2, 1993
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. (or
comparing the Fund's performance to that of various indices), 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, Barron's, 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.
83
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________________________________________________________________
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 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
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 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.
A-1
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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 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 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.
Descriptions of the bond ratings of Standard & Poor's
Ratings Services ("Standard & Poor's") 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 having predominantly speculative
characteristics with respect to the issuer's capacity to pay
interest and repay principal in accordance with the terms of the
A-2
<PAGE>
obligation. While such debt will likely have some quality and
protective 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 IBCA, 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 as 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 less
A-3
<PAGE>
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:
A-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.
A-5
<PAGE>
____________________________________________________________
APPENDIX B:
CERTAIN EMPLOYEE BENEFIT PLANS
____________________________________________________________
Employee benefit plans described below which are intended
to be tax-qualified under section 401(a) of the Internal Revenue
Code of 1986, as amended ("Tax Qualified Plans"), for which
Merrill Lynch, Pierce, Fenner & Smith Incorporated or an affiliate
thereof ("Merrill Lynch") is recordkeeper (or with respect to
which recordkeeping services are provided pursuant to certain
arrangements as described in paragraph (ii) below) ("Merrill Lynch
Plans") are subject to specific requirements as to the Fund shares
which they may purchase. Notwithstanding anything to the contrary
contained elsewhere in this Statement of Additional Information,
the following Merrill Lynch Plans are not eligible to purchase
Class A shares and are eligible to purchase Class B shares of the
Fund at net asset value without being subject to a contingent
deferred sales charge:
(i) Plans for which Merrill Lynch is the recordkeeper on a
daily valuation basis, if when the plan is established
as an active plan on Merrill Lynch's recordkeeping
system:
(a) the plan is one which is not already
investing in shares of mutual funds or
interests in other commingled investment
vehicles of which Merrill Lynch Asset
Management, L.P. is investment adviser or
manager ("MLAM Funds"), and either (A) the
aggregate assets of the plan are less than
$3 million or (B) the total of the sum of
(x) the employees eligible to participate in
the plan and (y) those persons, not
including any such employees, for whom a
plan account having a balance therein is
maintained, is less than 500, each of (A)
and (B) to be determined by Merrill Lynch in
the normal course prior to the date the plan
is established as an active plan on Merrill
Lynch's recordkeeping system (an "Active
Plan"); or
(b) the plan is one which is already investing
in shares of or interests in MLAM Funds and
the assets of the plan have an aggregate
value of less than $5 million, as determined
B-1
<PAGE>
by Merrill Lynch as of the date the plan
becomes an Active Plan.
For purposes of applying (a) and (b), there
are to be aggregated all assets of any Tax-
Qualified Plan maintained by the sponsor of
the Merrill Lynch Plan (or any of the
sponsor's affiliates) (determined to be such
by Merrill Lynch) which are being invested
in shares of or interests in MLAM Funds,
Alliance Mutual Funds or other mutual funds
made available pursuant to an agreement
between Merrill Lynch and the principal
underwriter thereof (or one of its
affiliates) and which are being held in a
Merrill Lynch account.
(ii) Plans for which the recordkeeper is not Merrill Lynch,
but which are recordkept on a daily valuation basis by
a recordkeeper with which Merrill Lynch has a
subcontracting or other alliance arrangement for the
performance of recordkeeping services, if the plan is
determined by Merrill Lynch to be so eligible and the
assets of the plan are less than $3 million.
Class B shares of the Fund held by any of the above-
described Merrill Lynch Plans are to be replaced at Merrill
Lynch's direction through conversion, exchange or otherwise by
Class A shares of the Fund on the earlier of the date that the
value of the plan's aggregate assets first equals or exceeds $5
million or the date on which any Class B share of the Fund held
by the plan would convert to a Class A share of the Fund as
described under "Purchase of Shares" and "Redemption and
Repurchase of Shares."
Any Tax Qualified Plan, including any Merrill Lynch
Plan, which does not purchase Class B shares of the Fund without
being subject to a contingent deferred sales charge under the
above criteria is eligible to purchase Class B shares subject to
a contingent deferred sales charge as well as other classes of
shares of the Fund as set forth above under "Purchase of Shares"
and "Redemption and Repurchase of Shares."
B-2
<PAGE>
C. OTHER INFORMATION
ITEM 23. Exhibits:
(a) (1) Agreement and Declaration of Trust - Incorporated
by reference to Exhibit 1(a) to Post-Effective
Amendment No. 28 of Registrant's Registration
statement on Form N-1A (File Nos. 33-12988 and
811-05088) filed with the Securities and Exchange
Commission on January 30, 1998.
(2) Amendment No. 1 to Agreement and Declaration of
Trust of Registrant dated June 29, 1987 -
Incorporated by reference to Exhibit 1(b) to Post-
Effective Amendment No. 28 of Registrant's
Registration statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on January 30,
1998.
(3) Amendment No. 2 to Agreement and Declaration of
Trust of Registrant dated April 21, 1993 -
Incorporated by reference to Exhibit 1(c) to Post-
Effective Amendment No. 28 of Registrant's
Registration statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on January 30,
1998.
(b) (1) By-Laws of the Registrant - Incorporated by
reference to Exhibit 2 to Post-Effective Amendment
No. 26 of the Registrant's Registration Statement
on Form N-1A (File Nos. 33-12988 and 811-05088)
filed with the Securities and Exchange Commission
on August 28, 1997.
(2) Amendment to By-Laws dated October 16, 1991 -
Incorporated by reference to Exhibit 2 to Post-
Effective Amendment No. 26 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on August 28,
1997.
(c) Not applicable.
(d) Investment Advisory Agreement between the Registrant
and Alliance Capital Management L.P. - Incorporated by
reference to Exhibit 5 to Post-Effective Amendment
No. 26 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-12988 and 811-05088) filed with
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the Securities and Exchange Commission on August 28,
1997.
(e) Not applicable.
(f) Not applicable.
(g) Custodian Agreement between the Registrant and State
Street Bank and Trust Company dated July 25, 1988, as
amended through July 17, 1996 - Incorporated by
reference to Exhibit 6 to Post Effective Amendment
No. 21 to the Registrant's Registration Statement on
Form N-1A (File Nos. 33-12988 and 811-05088) filed with
the Securities and Exchange Commission on September 1,
1996.
(h) (1) Transfer Agent Agreement between the Registrant
and State Street Bank and Trust Company -
Incorporated by reference to Exhibit 9 to Post-
Effective Amendment No. 17 to the Registrant's
Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the
Securities and Exchange Commission on August 30,
1995.
(2) Accounting Agreement between Equitable Capital
Management Corporation and State Street Bank and
Trust Company - Incorporated by reference to
Exhibit 9 to Post-Effective Amendment No. 27 to
the Registrant's Registration Statement on Form
N-1A (File Nos. 33-12988 and 811-05088) filed with
the Securities and Exchange Commission on
October 31, 1997.
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Not applicable.
(o) Rule 18f-3 Plan - Incorporated by reference to
Exhibit 18 to Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on Form N-1A (File
Nos. 33-12988 and 811-05088) filed with the Securities
and Exchange Commission on January 31, 1996.
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Other Exhibits - Powers of Attorney of John D. Carifa,
Ruth Block, Richard W. Couper, William H. Foulk, Jr.,
Brenton W. Harries and Donald J. Robinson -
Incorporated by reference to Other Exhibits to Post-
Effective Amendment No. 28 of Registrant's Registration
statement on Form N-1A (File Nos. 33-12988 and
811-05088) filed with the Securities and Exchange
Commission on January 30, 1998.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT.
As of November 9, 1998, the Registrant, The Alliance
Portfolios, believes that no person is directly or
indirectly controlled by or under common control with
the Registrant.
ITEM 25. INDEMNIFICATION.
Paragraph (n) of Section 3, Article IV of the
Registrant's Agreement and Declaration of Trust
provides in relevant part that the Trustees of the
Trust have the power:
"(n) To purchase and pay for entirely out of
Trust property such insurance as they may deem
necessary or appropriate for the conduct of the
business, including without limitation, insurance
policies insuring the assets of the Trust and
payment of distributions and principal on its
portfolio investments, and insurance policies
insuring the Shareholders, Trustees, officers,
employees, agents, investment advisers or
managers, principal underwriters, or independent
contractors of the Trust individually against all
claims and liabilities of every nature arising by
reason of holding, being or having held any such
office or position, or by reason of any action
alleged to have been taken or omitted by any such
person as Shareholder, Trustee, officer, employee,
agent, investment adviser or manager, principal
underwriter, or independent contractor, including
any action taken or omitted that may be determined
to constitute negligence, whether or not the Trust
would have the power to indemnify such person
against such liability;"
Section 2 of Article VII of the Registrant's Agreement and
Declaration of Trust provides in relevant part:
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"Limitation of Liability
Section 2. The Trustees shall not be responsible or
liable in any event for any neglect or wrongdoing of
any officer, agent, employee, manager or principal
underwriter of the Trust, nor shall any Trustee be
responsible for the act or omission of any other
Trustee, but nothing herein contained shall protect any
Trustee against any liability to which he or she 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 or her
office."
Article VIII of the Registrant's Agreement and Declaration of
Trust provides in relevant part:
ARTICLE VIII
Indemnification
"Section 1. The Trust shall indemnify each of its
Trustees and officers (including persons who serve at
the Trust's request as directors, officers or trustees
of another organization in which the Trust has any
interest as a shareholder, creditor or otherwise)
(hereinafter referred to as a "Covered Person") against
all liabilities and expenses, including but not limited
to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
reasonably incurred by any Covered Person in connection
with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, before any
court or administrative or legislative body, in which
such Covered Person may be or may have been involved as
a party or otherwise or with which such Covered Person
may be or may have been threatened, while in office or
thereafter, by reason of being or having been such a
Covered Person except with respect to any matter as to
which such Covered Person shall have been finally
adjudicated in any such action, suit or other
proceeding to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Covered Person's
office. Expenses, including counsel fees so incurred
by any such Covered Person (but excluding amounts paid
in satisfaction of judgments, in compromise or as fines
or penalties), shall be paid from time to time by the
Trust in advance of the final disposition of any such
action, suit or proceeding upon receipt of an
undertaking by or on behalf of such Covered Person to
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repay amounts so paid to the Trust if it is ultimately
determined that indemnification of such expenses is not
authorized under this Article, provided, however, that
either (a) such Covered Person shall have provided
appropriate security for such undertaking, (b) the
Trust shall be insured against losses arising from any
such advance payments or (c) either a majority of the
disinterested Trustees acting on the matter (provided
that a majority of the disinterested Trustees then in
office act on the matter), or independent legal counsel
in a written opinion, shall have determined, based upon
a review of readily available facts (as opposed to a
full trial type inquiry) that there is reason to
believe that such Covered Person will be found entitled
to indemnification under this Article.
"Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or
otherwise) without an adjudication by a court, or by
any other body before which the proceeding was brought,
that such Covered Person is liable to the Trust or its
Shareholders by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the
duties involved in the conduct of his or her office,
indemnification shall be provided if (a) approved as in
the best interests of the Trust, after notice that it
involves such indemnification, by at least a majority
of the disinterested Trustees acting on the matter
(provided that a majority of the disinterested Trustees
then in office act on the matter) upon a determination,
based upon a review of readily available facts (as
opposed to a full trial type inquiry) that such Covered
Person is not liable to the Trust or its Shareholders
by reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of his or her office, or (b) there has
been obtained an opinion in writing of independent
legal counsel, based upon a review of readily available
facts (as opposed to a full trial type inquiry) to the
effect that such indemnification would not protect such
Person against any liability to the Trust 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. Any approval pursuant to this Section shall
not prevent the recovery from any Covered Person in
accordance with this Section as indemnification if such
Covered Person is subsequently adjudicated by a Court
of competent jurisdiction to have been liable to the
Trust or its Shareholders by reason or willful
misfeasance, bad faith, gross negligence or reckless
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disregard of the duties involved in the conduct of such
Covered Person's office.
Section 3. The right of indemnification hereby
provided shall not be exclusive of or affect any other
rights to which such Covered Person may be entitled. As
used in this Article VIII, the term "Covered Person"
shall include such person's heirs, executors and
administrators and a "disinterested Trustee" is a
Trustee who is not an "interested person" of the Trust
as defined in Section 2(a)(19) of the Investment
Company Act of 1940, as amended, (or who has been
exempted from being an "interested person" by any rule,
regulation or order of the Commission) and against whom
none of such actions, suits or other proceedings or
another action, suit or proceeding on the same or
similar grounds is then or has been pending. Nothing
contained in this Article shall affect any rights to
indemnification to which personnel of the Trust, other
than Trustees or officers, and other persons may be
entitled by contract or otherwise under law, nor the
power of the Trust to purchase and maintain liability
insurance on behalf of any such person.
Section 2 of Article IX of the Registrant's Agreement
and Declaration of Trust provides in relevant part:
"TRUSTEE'S GOOD FAITH ACTION, EXPERT ADVICE, NO BOND OR
SURETY
Section 2. The exercise by the Trustees of their
powers and discretions hereunder shall be binding upon
everyone interested. A Trustee shall be liable for his
or her own willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved
in the conduct of the office of Trustee, and for
nothing else, and shall not be liable for errors of
judgment or mistakes of fact or law. The Trustees may
take advice of counsel or other experts with respect to
the meaning and operation of this Declaration of Trust,
and shall be under no liability for any act or omission
in accordance with such advice or for failing to follow
such advice. The Trustees shall not be required to
give any bond as such, nor any surety if a bond is
required."
The Investment Advisory Agreement between the
Registrant and Alliance Capital Management L.P.
provides that Alliance Capital Management L.P. will not
be liable under such agreement for any mistake of
judgment or in any event whatsoever except for lack of
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good faith and that nothing therein shall be deemed to
protect, or purport to protect, Alliance Capital
Management L.P. against any liability to the Registrant
or its shareholders to which it would otherwise be
subject by reason or willful misfeasance, bad faith or
gross negligence in the performance of its duties
thereunder, or by reason or reckless disregard of its
obligations or duties thereunder.
The Distribution Services Agreement between the
Registrant and Alliance Fund Distributors, Inc.
provides that the Registrant will indemnify, defend and
hold Alliance Fund Distributors, Inc., and any person
who controls it within the meaning of Section 15 of the
Investment Company Act of 1940, free and harmless from
and against any and all claims, demands, liabilities
and expenses which Alliance Fund Distributors, Inc. or
any controlling person may incur arising out of or
based upon any alleged untrue statement of a material
fact contained in Registrant's Registration Statement,
Prospectus or Statement of Additional Information or
arising out of, or based upon, any alleged omission to
state a material fact required to be stated in any one
of the foregoing or necessary to make the statements in
any one of the foregoing not misleading, provided that
nothing therein shall be so construed as to protect
Alliance Fund Distributors, Inc. against any liability
to Registrant or its security holders to which it would
otherwise be subject by reason or willful misfeasance,
bad faith or gross negligence in the performance of its
duties thereunder, or by reason of reckless disregard
of its obligations or duties thereunder.
The foregoing summaries are qualified by the entire
text of Registrant's Agreement and Declaration of
Trust, the Advisory Agreement between the Registrant
and Alliance Capital Management L.P. and the
Distribution Services Agreement between the Registrant
and Alliance Fund Distributors, Inc.
The Registrant participates in a joint directors and
officers liability policy for the benefit of its
Trustees and officers.
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be
permitted to Trustees, Officers and controlling persons
of the Trust pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed
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in the Act, and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Trust of
expenses incurred or paid by a Trustee, Officer or
controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted
by such Trustee, Officer or controlling person in
connection with the securities being registered, the
Trust will, unless in the opinion of its counsel the
matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against
public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF ADVISER.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectuses and in the Statements of Additional
Information constituting Parts A and B, respectively,
of this Registration Statement are incorporated by
reference herein.
The information as to the directors and executive
officers of Alliance Capital Management Corporation,
the general partner of Alliance Capital Management
L.P., set forth in Alliance Capital Management L.P.'s
Form ADV filed with the Securities and Exchange
Commission on April 21, 1988 (File No. 801-32361) and
amended through the date hereof, is incorporated by
reference herein.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Alliance Fund Distributors, Inc., the Registrant's
Principal Underwriter in connection with the sale of
shares of the Registrant. Alliance Fund Distributors,
Inc. also acts as Principal Underwriter or Distributor
for the following investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
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Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and Officers of
Alliance Fund Distributors, Inc., the principal place
of business of which is 1345 Avenue of the Americas,
New York, New York, 10105.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
Michael J. Laughlin Director and Chairman
John D. Carifa Director
Robert L. Errico Director and President
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
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Edmund P. Bergan, Jr. Senior Vice President, Secretary
General Counsel and
Secretary
Richard A. Davies Senior Vice President
and Managing Director
Robert H. Joseph, Jr. Senior Vice President
and Chief Financial Officer
Anne S. Drennan Senior Vice President
and Treasurer
Karen J. Bullot Senior Vice President
James S. Comforti Senior Vice President
James L. Cronin Senior Vice President
Daniel J. Dart Senior Vice President
Byron M. Davis Senior Vice President
Mark J. Dunbar Senior Vice President
Donald N. Fritts Senior Vice President
Bradley F. Hanson Senior Vice President
Richard E. Khaleel Senior Vice President
Stephen R. Laut Senior Vice President
Susan L. Matteson-King Senior Vice President
Daniel D. McGinley Senior Vice President
Antonios G. Poleondakis Senior Vice President
Robert E. Powers Senior Vice President
Kevin A. Rowell Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
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William C. White Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President and
Controller
Ricardo Arreola Vice President
Jamie A. Atkinson Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Timothy W. Call Vice President
Kevin T. Cannon Vice President
John R. Carl Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
John W. Cronin Vice President
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Joseph C. Gallagher Vice President
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Andrew L. Gangolf Vice President and Assistant
Assistant General Secretary
Counsel
Alex G. Garcia Vice President
Mark D. Gersten Vice President Treasurer and
Chief
Financial
Officer
John Grambone Vice President
Charles M. Greenberg Vice President
Alan Halfenger Vice President
William B. Hanigan Vice President
Michael S. Hart Vice President
Scott F. Heyer Vice President
Timothy A. Hill Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Michael J. Hutten Vice President
Scott Hutton Vice President
Richard D. Keppler Vice President
Donna M. Lamback Vice President
P. Dean Lampe Vice President
Henry Michael Lesmeister Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
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Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
James J. Posch Vice President
Domenick Pugliese Vice President and Assistant
Assistant General Secretary
Counsel
Bruce W. Reitz Vice President
Karen C. Satterberg Vice President
John P. Schmidt Vice President
Robert C. Schultz Vice President
Richard J. Sidell Vice President
Clara Sierra Vice President
Teris A. Sinclair Vice President
Scott C. Sipple Vice President
Martine H. Stansbery, Jr. Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
David R. Turnbough Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
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Mark E. Westmoreland Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Secretary
Counsel
Patrick Look Assistant Vice
President and
Assistant Treasurer
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio Assistant Vice
President
Charles M. Barrett Assistant Vice
President
Robert F. Brendli Assistant Vice
President
John M. Capeci Assistant Vice
President
Maria L. Carreras Assistant Vice
President
John P. Chase Assistant Vice
President
Jean A. Coomber Assistant Vice
President
Russell R. Corby Assistant Vice
President
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
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John E. English Assistant Vice
President
Duff C. Ferguson Assistant Vice
President
Theresa Iosca Assistant Vice
President
Erik A. Jorgensen Assistant Vice
President
Eric G. Kalender Assistant Vice
President
Edward W. Kelly Assistant Vice
President
Victor Kopelakis Assistant Vice
President
Michael Laino Assistant Vice
President
Nicholas J. Lapi Assistant Vice
President
Kristine J. Luisi Assistant Vice
President
Kathryn Austin Masters Assistant Vice
President
Richard F. Meier Assistant Vice
President
Richard J. Olszewski Assistant Vice
President
Catherine N. Peterson Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
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Mark V. Spina Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Eileen Stauber Assistant Vice
President
Vincent T. Strangio Assistant Vice
President
Margaret M. Tompkins Assistant Vice
President
Marie R. Vogel Assistant Vice
President
Wesley S. Williams Assistant Vice
President
Matthew Witschel Assistant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
ITEM 28. Location of Accounts and Records.
The accounts, books and other documents required to be
maintained by Section 31(a) of the Investment Company
Act of 1940 and the Rules thereunder are maintained as
follows: journals, ledgers, securities records and
other original records are maintained principally at
the offices of Alliance Fund Services, Inc., 500 Plaza
Drive, Secaucus, New Jersey 07094 and at the offices
of State Street Bank and Trust Company, the
Registrant's Custodian, 225 Franklin Street, Boston,
Massachusetts 02110. All other records so required to
be maintained are maintained at the offices of Alliance
Capital Management L.P., 1345 Avenue of the Americas,
New York, New York 10105.
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ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
The Registrant undertakes to furnish each person to
whom a prospectus is delivered with a copy of the
Registrant's latest annual report to shareholders, upon
request and without charge.
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********************
NOTICE
A copy of the Agreement and Declaration of Trust of The
Alliance Portfolios (the "Trust") is on file with the Secretary
of State of The Commonwealth of Massachusetts and notice is
hereby given that this Registration Statement has been executed
on behalf of the Trust by an officer of the Trust as an officer
and by its Trustees as trustees and not individually and the
obligations of or arising out of this Registration Statement are
not binding upon any of the Trustees, officers or shareholders
individually but are binding only upon the assets and property of
the Trust.
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SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 22nd day of December, 1998.
THE ALLIANCE PORTFOLIOS
By /s/John D. Carifa
______________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
l933, as amended, this Amendment to the Registration Statement
has been signed below by the following persons in the capacities
and on the dates indicated:
Signature Title Date
1) Principal Executive Officer
/s/ John D. Carifa Chairman December 22, 1998
_______________________ and President
John D. Carifa
2) Principal Financial and
Accounting Officer
/s/ Mark D. Gersten Treasurer December 22, 1998
________________________ and Chief
Mark D. Gersten Financial
Officer
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All of the Trustees
Ruth Block
John D. Carifa
Richard W. Couper
William H. Foulk, Jr.
Brenton W. Harries
Donald J. Robinson
by /s/ Edmund P. Bergan, Jr. December 22, 1998
________________________
(Attorney-in-fact)
Edmund P. Bergan, Jr.
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EXHIBIT INDEX
Exhibit
No. Description
None.
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00250184.BF8
