<PAGE>
As filed with the Securities and Exchange Commission
on February 26, 1999
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. 34
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 36
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:
J.B. Kittredge
Ropes & Gray
One International Place
Boston, MA 02116
It is proposed that this filing will become effective (check
appropriate box)
immediately upon filing pursuant to paragraph (b)
X on March 1, 1999 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
<PAGE>
This Post-Effective Amendment No. 34 relates solely to Alliance
Short Term U.S. Government Fund. No information contained in the
Registrant's Registration Statement relating to Alliance
Conservative Investors Fund, Alliance Growth Investors Fund or
Alliance Growth Fund is amended or superseded hereby.
<PAGE>
The Alliance Prospectus and Application
Bond Funds
March 1, 1999
The Alliance Bond Funds provide a U.S. Government Funds
broad selection of investment
alternatives to investors seeking o Alliance Short-Term U.S. Government
high current income. Fund
o Alliance U.S. Government Portfolio
o Alliance Limited Maturity Government
Fund
Mortgage Fund
o Alliance Mortgage Securities Income
Fund
Multi-Market Fund
o Alliance Multi-Market Strategy Trust
Global Bond Funds
o Alliance North American Government
Income Trust
o Alliance Global Dollar Government
Fund
o Alliance Global Strategic Income
Trust
Corporate Bond Funds
o Alliance Corporate Bond Portfolio
o Alliance High Yield Fund
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.
Alliance Capital {LOGO]
<PAGE>
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Table Of Contents
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Page
RISK/RETURN SUMMARY ....................................................... 3
U.S. Government Funds ..................................................... 4
Mortgage Fund ............................................................. 7
Multi-Market Fund ......................................................... 8
Global Bond Funds ......................................................... 9
Corporate Bond Funds ...................................................... 12
Summary of Principal Risks ................................................ 14
Principal Risks by Fund ................................................... 16
FEES AND EXPENSES OF THE FUNDS ............................................ 17
GLOSSARY .................................................................. 19
DESCRIPTION OF THE FUNDS .................................................. 20
Investment Objectives and Policies ........................................ 20
Description of Investment Practices ....................................... 26
Additional Risk Considerations ............................................ 37
MANAGEMENT OF THE FUNDS ................................................... 41
PURCHASE AND SALE OF SHARES ............................................... 42
How The Funds Value Their Shares .......................................... 42
How To Buy Shares ......................................................... 42
How To Exchange Shares .................................................... 43
How To Sell Shares ........................................................ 43
DIVIDENDS, DISTRIBUTIONS AND TAXES ........................................ 43
DISTRIBUTION ARRANGEMENTS ................................................. 44
GENERAL INFORMATION ....................................................... 46
FINANCIAL HIGHLIGHTS ...................................................... 47
APPENDIX A: BOND RATINGS .................................................. A-1
APPENDIX B: GENERAL INFORMATION ABOUT
CANADA, MEXICO AND ARGENTINA ............................................ B-1
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.
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, principal risks and fees. Each Fund's Summary page includes a short
discussion of some of the principal risks of investing in that Fund. A further
discussion of these and other risks is on pages 14-16.
More detailed descriptions of the Funds, including the risks associated with
investing in the Funds, can be found further back in this Prospectus. Please be
sure to read this additional information BEFORE you invest. Each of the Funds
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:
o how the Fund's average annual returns for one, five, and 10 years (or over
the life of the Fund if the Fund is less than 10 years old) compare to
those of a broad based securities market index; and
o changes in the Fund's performance from year to year over 10 years (or over
the life of the Fund if the Fund is less than 10 years old).
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:
o You may lose money by investing in the Funds.
o An investment in the Funds 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
<PAGE>
U.S. GOVERNMENT FUNDS
The U.S. Government Funds offer a selection of alternatives to investors seeking
high current income consistent with the preservation of capital through
investments primarily in U.S. Government securities.
Alliance Short-Term U.S. Government Fund
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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 AND RISKS:
The Fund invests at least 65% of its total assets in U.S. Government securities,
including mortgage-related securities, 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.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund may invest in mortgage-related
securities, it is subject to the risk that mortgage loans will be prepaid when
interest rates decline, forcing the Fund to reinvest in securities with lower
interest rates. For this and other reasons, mortgage-related securities may
have significantly greater price and yield volatility than traditional debt
securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Since
1 Year 5 Years Inception
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Class A -0.42% 2.79% 3.74%
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Class B 0.37% 2.97% 3.77%
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Class C 2.24% 2.93% 3.69%
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Lehman Brothers
1-3 Year
Government
Bond Index 6.97% 5.96% 5.99%
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The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Since Inception returns are from inception of Class A and
Class B shares (5/4/92). Index returns are from month-end following inception of
Class A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(8/2/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total returns for
Class C since its actual inception date was 2.89%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 5.86%.
BAR CHART
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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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a 6.13 -1.70 7.22 4.66 4.54 3.95
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 2.35%, 1st quarter, 1995; and Worst quarter was down -1.62%,
1st quarter, 1994.
4
<PAGE>
Alliance U.S. Government Portfolio
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OBJECTIVE:
The Fund's investment objective is a high level of current income that is
consistent with prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
The Fund invests primarily in U.S. Government securities, including
mortgage-related securities, 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.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund may invest in mortgage-related
and asset-backed securities, it is subject to the risk that mortgage loans or
other obligations will be prepaid when interest rates decline, forcing the Fund
to reinvest in securities with lower interest rates. For this and other
reasons, mortgage-related and asset-backed securities may have significantly
greater price and yield volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A 3.94% 4.76% 7.51%
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Class B 4.80% 4.90% 7.29%
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Class C 6.80% 4.90% 7.29%
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Lehman Brothers
Government
Bond Index 9.85% 7.18% 9.17%
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The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Index returns are from 12/31/88.
Performance information for periods prior to the inception of Class B shares
(9/30/91) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C since their
actual inception dates were 6.38% and 5.12%, respectively. Index returns for the
comparable periods (which date from month-end following applicable Class
inception date) were 8.18% and 7.38%, respectively.
BAR CHART
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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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
12.52 7.88 15.74 6.03 9.72 -4.38 16.58 0.34 8.55 8.60
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 7.69%, 2nd quarter, 1989; and Worst quarter was down -3.41%,
1st quarter, 1994.
5
<PAGE>
Alliance Limited Maturity Government Fund
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OBJECTIVE:
The Fund's investment objective is the highest level of current income
consistent with low volatility of net asset value.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
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:
o high-quality asset-backed securities, including mortgage-related
securities that are not U.S. Government securities;
o treasury securities issued by private issuers;
o certificates of deposit, bankers' acceptances, and interest-bearing
savings deposits of banks with assets of more than $1 billion;
o higher quality commercial paper or, if unrated, commercial paper issued by
companies that have high-quality debt issues outstanding; and
o high-quality debt securities of corporate issuers.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, leveraging risk, liquidity risk and market risk. Because the Fund
may invest in mortgage-related and asset-backed securities, it is subject to the
risk that mortgage loans or other obligations will be prepaid when interest
rates decline, forcing the Fund to reinvest in securities with lower interest
rates. For this and other reasons, mortgage-related and asset-backed
securities may have significantly greater price and yield volatility than
traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A 2.17% 4.07% 4.48%
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Class B 2.95% 4.21% 4.54%
- --------------------------------------------------------------------------------
Class C 4.96% 4.22% 4.43%
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Lehman Brothers
Government
Bond Index 9.85% 7.18% 7.94%
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The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Since Inception returns are from inception of Class A and
Class B shares (6/1/92). Index returns are from month-end of inception of Class
A and Class B shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C since its actual inception date was 4.21%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 7.38%.
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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a 6.21 0.26 7.08 4.01 7.03 6.70
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 4.21%, 3rd quarter, 1998; and Worst quarter was down -0.65%,
4th quarter, 1994.
6
<PAGE>
MORTGAGE FUND
The Mortgage Fund offers investors seeking high current income the alternative
of investing in a diversified portfolio of mortgage-related securities.
Alliance Mortgage Securities Income Fund
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OBJECTIVE:
The Fund's investment objective is a high level of current income to the extent
consistent with prudent investment risk.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
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 debt securities is
expected to vary between two and ten years.
The Fund also may invest up to 35% of its total assets in:
o U.S. Government securities;
o qualifying bank deposits;
o prime commercial paper or, if unrated, commercial paper issued by
companies that have high-quality debt issues outstanding;
o high-grade debt securities secured by mortgages on commercial real estate
or residential rental properties; and
o high-grade asset-backed securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, leveraging risk, derivatives risk, and market risk. Because the
Fund may invest in mortgage-related securities, it is subject to the risk that
mortgage loans will be prepaid when interest rates decline, forcing the Fund to
reinvest in securities with lower interest rates. For this and other reasons,
mortgage-related securities may have significantly greater price and yield
volatility than traditional debt securities.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A 1.36% 4.39% 7.66%
- --------------------------------------------------------------------------------
Class B 2.07% 4.51% 7.37%
- --------------------------------------------------------------------------------
Class C 4.05% 4.51% 7.37%
- --------------------------------------------------------------------------------
Lehman Brothers
Mortgage-Backed
Securities Index 6.96% 7.23% 9.13%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Index returns are from 12/31/88.
Performance information for periods prior to the inception of Class B shares
(1/30/92) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C since their
actual inception dates were 5.84% and 4.76%, respectively. Index returns for the
comparable periods (which date from month-end following applicable Class
inception date) were 9.28% and 6.95%, respectively.
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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
11.00 10.95 15.44 7.73 10.14 -6.14 15.35 4.23 8.40 5.82
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.90%, 4th quarter, 1990; and Worst quarter was down -4.30%,
1st quarter, 1994.
7
<PAGE>
MULTI-MARKET FUND
The Multi-Market Fund offers investors seeking high current income the
alternative of investing in a portfolio of securities denominated in the U.S.
Dollar and selected foreign currencies.
Alliance Multi-Market Strategy Trust
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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 having remaining
maturities of not more than five years.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
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 limits its
investments in a single currency other than the U.S. Dollar to 25% of its net
assets, except for the Euro in which the Fund may invest up to 50% of its net
assets.
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:
o use derivatives strategies;
o invest in prime commercial paper or unrated paper of equivalent quality;
o enter into repurchase agreements; and
o invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in debt
securities denominated in foreign currencies have foreign risk and currency
risk. In addition, the Fund is "non-diversified" meaning that it invests more
of its assets in a smaller number of issuers than many other funds. Changes
in the value of a single security may have a more significant effect, either
negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
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Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A 1.72% 3.10% 3.47%
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Class B 2.46% 3.17% 3.41%
- --------------------------------------------------------------------------------
Class C 4.25% 3.15% 3.25%
- --------------------------------------------------------------------------------
Merrill Lynch
1-3 Year
Government
Bond Index 6.97% 5.99% 6.50%
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The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Since Inception returns are from inception of Class A and
Class B shares (5/29/91). Index returns are from month-end of inception of Class
A shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect the
higher expense ratio of Class C shares. The average annual total return for
Class C since its actual inception date was 3.95%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 5.86%.
BAR CHART
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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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a -2.49 10.91 -12.77 6.00 16.19 6.71 6.17
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 5.46%, 2nd quarter, 1995; and Worst quarter was down -8.19%,
4th quarter, 1994.
8
<PAGE>
GLOBAL BOND FUNDS
The Global Bond Funds offer a selection of alternatives to investors seeking a
high level of current income through investments primarily in foreign government
securities.
Alliance North American Government Income Trust
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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
governments of the United States, Canada, or Mexico, their political
subdivisions (including Canadian Provinces but excluding states of the United
States), agencies, instrumentalities or authorities.
PRINCIPAL INVESTMENT STRATEGIES AND RISKS:
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 debt securities issued by Argentine government entities. 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 assets
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:
o use derivative strategies; and
o invest in variable, floating, and inverse floating rate instruments.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. The Fund's investments in debt
securities of Canada, Mexico, and Argentina have foreign risk and currency risk.
Your investment also has the risk that market changes or other events affecting
these countries, including potential instability and unpredictable economic
conditions, may have a more significant effect on the Fund's net asset value. In
addition, the Fund is "non-diversified" meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year 5 Years Inception
- --------------------------------------------------------------------------------
Class A 1.99% 5.88% 7.89%
- --------------------------------------------------------------------------------
Class B 2.90% 5.89% 7.79%
- --------------------------------------------------------------------------------
Class C 4.78% 5.89% 7.70%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27% 8.14%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Since Inception returns are from inception of Class A and
Class B shares (3/27/92). Index returns are from month-end of inception of Class
A shares.
Performance information for periods prior to the inception of Class C shares
(5/3/93) is the performance of the Fund's Class A shares adjusted to reflect
the higher expense ratio of Class C shares. The average annual total return
for Class C since its inception date was 7.11%. The index return for the
comparable period (which dates from month-end following the Class C inception
date) was 7.34%.
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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a 18.64 -30.24 31.01 24.20 14.98 6.53
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 17.24%, 2nd quarter, 1995; and Worst quarter was down
- -23.19%, 4th quarter, 1994.
9
<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 AND RISKS:
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 less 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
debt securities. All of the Fund's investments in sovereign and other debt
securities will be U.S. Dollar-denominated. The Fund also may invest up to 30%
of its total 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:
o for U.S. fixed-income securities, nine to 15 years;
o for non-U.S. fixed-income securities, 15 to 25 years; and
o 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:
o use derivatives strategies;
o invest in structured securities;
o invest in fixed and floating rate loans to sovereign debt issuers;
o enter into repurchase agreements; and
o invest in variable, floating, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk and leveraging risk. Because the Fund invests in
lower-rated securities, it has significantly more risk than other types of bond
funds and its returns will be more volatile. The Fund's investments in foreign
securities have foreign risk, currency risk and country or geographic risk.
Because the Fund invests in emerging markets and in developing countries, the
Fund's returns will be significantly more volatile and may differ substantially
from returns in the U.S. bond markets generally. Your investment also has the
risk that market changes or other factors affecting emerging markets and
developing countries, including political instability and unpredictable economic
conditions, may have a significant effect on the Fund's net asset value. In
addition, the Fund is "non-diversified" meaning that it invests more of its
assets in a smaller number of issuers than many other funds. Changes in the
value of a single security may have a more significant effect, either negative
or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------------------------
Class A -25.37% 4.39%
- --------------------------------------------------------------------------------
Class B -24.77% 4.49%
- --------------------------------------------------------------------------------
Class C -23.37% 4.52%
- --------------------------------------------------------------------------------
J.P. Morgan Emerging
Markets Bond Index -11.04% 9.70%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period.
* Inception Dates: 2/25/94 for Class A, Class B, and Class C shares; Index
return is from 2/28/94.
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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a n/a n/a 25.47 39.44 9.01 -22.05
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 26.16%, 2nd quarter, 1995; and Worst quarter was down
- -28.68%, 3rd quarter, 1998.
10
<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 AND RISKS:
The Fund primarily invests in debt securities of U.S. and non-U.S. companies,
U.S. Government and foreign governments, 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 debt 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 total 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:
o use derivatives strategies;
o invest in structured securities;
o invest in Eurodollar instruments and foreign currencies;
o invest in asset-backed and mortgage-related securities;
o enter into repurchase agreements; and
o invest in floating, variable, and inverse floating rate securities.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, market risk, and leveraging risk. The Fund's investments in foreign
issuers have foreign risk and currency risk. To the extent the Fund invests in
lower-rated securities, your investment is subject to more risk than a fund that
invests primarily in higher-rated securities. The Fund's use of derivatives
strategies has derivatives risk. In addition, the Fund is "non-diversified"
meaning that it invests more of its assets in a smaller number of issuers than
many other funds. Changes in the value of a single security may have a more
significant effect, either negative or positive, on the Fund's net asset value.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception
- --------------------------------------------------------------------------------
Class A -2.31% 11.07%
- --------------------------------------------------------------------------------
Class B -1.53% 11.31%
- --------------------------------------------------------------------------------
Class C 0.32% 11.94%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond Index 8.69% 7.26%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Since Inception returns are from inception of Class A
shares (1/9/96). Index returns are from month-end of inception of Class A
shares.
Performance information for periods prior to the inception of Class B shares and
Class C shares (3/21/96) is the performance of the Fund's Class A shares
adjusted to reflect the higher expense ratio of Class B and Class C shares. The
average annual total returns for Class B and Class C since their actual
inception dates were 11.89% and 12.19%, respectively. The index return for the
comparable period (which date from month-end following applicable Class
inception date) was 8.68%.
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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a n/a n/a n/a n/a 14.96 1.09
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.86%, 2nd quarter, 1997; and Worst quarter was down -5.68%,
3rd quarter, 1998.
11
<PAGE>
CORPORATE BOND FUNDS
The Corporate Bond Funds offer a selection of alternatives to investors seeking
to maximize current income through investments in corporate bonds.
Alliance 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 AND RISKS:
The Fund primarily invests in corporate bonds. The Fund may invest up to 50% of
its total assets in foreign debt securities, primarily corporate debt securities
and sovereign debt obligations. All of the Fund's investments, whether foreign
or domestic, will be U.S. Dollar denominated. The Fund also may invest in
income-producing equity securities. While the Fund invests primarily (currently
65%) in investment grade debt securities, it also may invest a significant
amount of its total assets in lower-rated debt 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.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund emphasizes investments with a
relatively long average maturity and duration, its returns may be more volatile
than other corporate bond funds. To the extent the Fund invests in lower-rated
securities, your investment is subject to more credit risk than a fund that
invests solely in higher-rated securities. The Fund's investments in foreign
debt obligations have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
- --------------------------------------------------------------------------------
Class A -4.29% 5.63% 10.65%
- --------------------------------------------------------------------------------
Class B -3.54% 5.82% 10.37%
- --------------------------------------------------------------------------------
Class C -1.63% 5.84% 10.38%
- --------------------------------------------------------------------------------
Lehman Brothers
Aggregate Bond
Index 8.69% 7.27% 9.26%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period. Index returns are from 12/31/88.
Performance information for periods prior to the inception of Class B shares
(1/8/93) and Class C shares (5/3/93) is the performance of the Fund's Class A
shares adjusted to reflect the higher expense ratio of Class B and Class C
shares. The average annual total returns for Class B and Class C since their
actual inception dates were 9.57% and 7.95%, respectively. Index returns for the
comparable periods (which date from month-end following applicable class
inception date) were 7.45% and 7.34%, respectively.
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.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
13.06 5.54 18.05 13.07 31.09 -12.75 27.98 10.02 11.81 -0.03
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 15.61%, 2nd quarter, 1995; and Worst quarter was down
- -8.42%, 1st quarter, 1994.
12
<PAGE>
Alliance High Yield Fund
- --------------------------------------------------------------------------------
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 debt
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.
Among the principal risks of investing in the Fund are interest rate risk,
credit risk, and market risk. Because the Fund invests in lower-rated
securities, it has significantly more risk than other types of bond funds and
its returns will be more volatile. The Fund's investments in foreign securities
have foreign risk and currency risk.
The table and bar chart provide an indication of the historical risk of an
investment in the Fund.
PERFORMANCE TABLE
- --------------------------------------------------------------------------------
Since
1 Year Inception*
- --------------------------------------------------------------------------------
Class A -5.83% 9.72%
- --------------------------------------------------------------------------------
Class B -5.80% 10.21%
- --------------------------------------------------------------------------------
Class C -3.16% 11.86%
- --------------------------------------------------------------------------------
First Boston
High Yield Index 0.58% 5.95%
- --------------------------------------------------------------------------------
The average annual total returns in the performance table for the periods ended
December 31, 1998 reflect imposition of the maximum front-end or contingent
deferred sales charges and conversion of Class B shares to Class A shares after
the applicable period.
* Inception Dates: 4/22/97 for Class A, Class B, and Class C shares; Index
return is from 4/30/97.
BAR CHART
- --------------------------------------------------------------------------------
The annual return in the bar chart is for the Fund's Class A shares and does not
reflect sales loads. If sales loads were reflected, returns would be less than
those shown.
[GRAPHIC OMITTED]
[The following table was depicted as a bar graph in the printed material.]
Calendar Year End
89 90 91 92 93 94 95 96 97 98
-- -- -- -- -- -- -- -- -- --
n/a n/a n/a n/a n/a n/a n/a n/a n/a -1.69
You should consider an investment in the Fund as a long-term investment. The
Fund's returns will fluctuate over long and short periods. For example, during
the period shown in the bar chart, the Fund's:
Best quarter was up 6.29%, 1st quarter, 1998; and Worst quarter was down -9.63%,
3rd quarter, 1998.
13
<PAGE>
SUMMARY OF PRINCIPAL RISKS
The value of your investment in a Fund will change with changes in 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 Fund's portfolio as a whole.
These risks and the Funds subject to the risks appear in a chart at the end of
this section. All 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 the types of investments that appear in bold type
in the discussions under "Description of Investment Practices" or "Additional
Risk Considerations." These 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 debt securities, such as bonds, notes, and asset-backed
securities, or other income-producing securities. Debt securities are
obligations of the issuer to make payments of principal and/or interest on
future dates. 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 Alliance Short-Term U.S. Government, Alliance U.S.
Government and Alliance 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
Alliance Global Dollar Government, Alliance Global Strategic Income, Alliance
Corporate Bond and Alliance High Yield.
Interest rate risk is generally greater for Funds that invest in debt securities
with longer maturities, such as Alliance North American Government Income,
Alliance Global Dollar Government, Alliance Global Strategic Income and Alliance
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 Alliance Short-Term U.S. Government, Alliance U.S. Government and
Alliance 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 Funds must reinvest their assets in debt securities
with lower interest rates. Increased interest rate risk also is likely for
Alliance Global Dollar Government, Alliance Global Strategic Income and Alliance
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 Funds such as Alliance Mortgage Securities
Income, Alliance Global Dollar Government, Alliance Global Strategic Income,
Alliance Corporate Bond and Alliance 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 Alliance Global Dollar Government and Alliance 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 Alliance Multi-Market Strategy, Alliance North American
Government Income and Alliance 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 obligations,
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 Alliance Limited Maturity Government, Alliance Multi-Market Strategy,
Alliance North American Government Income, Alliance Global Dollar Government,
Alliance Global Strategic Income, Alliance Corporate Bond and Alliance High
Yield. These Funds' investments in 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.
14
<PAGE>
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 Alliance Global Dollar Government and Alliance 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 Alliance North American Government Income Trust and Alliance
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.
COUNTRY OR GEOGRAPHIC RISK
This is the risk of investments in issuers located in a particular country or
geographic region. Market changes or other factors affecting that country or
region, including political instability and unpredictable economic conditions,
may have a particularly significant effect on a Fund's net asset value. The
Funds particularly subject to this risk are Alliance Multi-Market Strategy and
Alliance North American Government Income Trust.
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 Alliance Limited Maturity Government, Alliance Multi-Market
Strategy, Alliance North American Government Income Trust, Alliance Global
Strategic Income and Alliance High Yield that invest in securities denominated
in, and receiving revenues in, foreign currencies 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. Alliance Multi-Market Strategy, Alliance North American Government Income
Trust, Alliance Global Dollar Government, and Alliance Global Strategic Income
are not "diversified." This means they can invest more of their 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 Alliance 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 portfolio, 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 Alliance
Global Dollar Government, Alliance Global Strategic Income and Alliance
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 analyses
in making investment decisions for the Funds, but there can be no guarantee that
its decisions 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.
15
<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>
- ---------------------------------------------------------------------------------------------------------------------------
Country or
Interest Credit Market Foreign Geographic Currency Diversifica- Leveraging
Fund Rate Risk Risk Risk Risk Risk Risk tion Risk Risk
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alliance Short-Term
U.S. Government o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance U.S. Government o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Limited
Maturity Government o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Mortgage
Securities Income o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Multi-Market
Strategy o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance North American
Government Income Trust o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Global
Dollar Government o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Global
Strategic Income o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance Corporate Bond o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
Alliance High Yield o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------
Derivatives Liquidity Manage-
Fund Risk Risk ment Risk
- -------------------------------------------------------------------
<S> <C> <C> <C>
Alliance Short-Term
U.S. Government o o o
- -------------------------------------------------------------------
Alliance U.S. Government o o o
- -------------------------------------------------------------------
Alliance Limited
Maturity Government o o o
- -------------------------------------------------------------------
Alliance Mortgage
Securities Income o o o
- -------------------------------------------------------------------
Alliance Multi-Market
Strategy o o o
- -------------------------------------------------------------------
Alliance North American
Government Income Trust o o o
- -------------------------------------------------------------------
Alliance Global
Dollar Government o o o
- -------------------------------------------------------------------
Alliance Global
Strategic Income o o o
- -------------------------------------------------------------------
Alliance Corporate Bond o o o
- -------------------------------------------------------------------
Alliance High Yield o o o
- -------------------------------------------------------------------
</TABLE>
16
<PAGE>
- --------------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
- --------------------------------------------------------------------------------
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)
<TABLE>
<CAPTION>
Class A Shares Class B Shares(a) Class B Shares(b) Class C Shares
-------------- ----------------- ----------------- --------------
<S> <C> <C> <C> <C>
Maximum Sales Charge (Load) Imposed on
Purchases (as a percentage of offering price) 4.25% None None None
Maximum Deferred Sales Charge (Load)
(as a percentage of original purchase price or
redemption proceeds, whichever is lower) None 3.0% during 4.0% during 1.0% during
the 1st year, the 1st year, the 1st year,
decreasing 1.0% decreasing 1.0% 0% thereafter
annually to 0% annually to 0%
after the 3rd after the 4th
year* year**
Exchange Fee None None None None
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) For all Funds except Alliance Global Strategic Income Trust and Alliance
High Yield Fund.
(b) For Alliance Global Strategic Income Trust and Alliance High Yield Fund.
* 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
EXAMPLES
The Examples are to help you compare the cost of investing in a Fund with the
cost of investing in other funds. They assume that you invest $10,000 in a Fund
for the time periods indicated and then redeem all of your shares at the end of
those periods. They also assume that your investment has a 5% return each year,
that the Fund's operating expenses stay the same, and that all dividends and
distributions are reinvested. Your actual costs may be higher or lower.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ----------------------------------------------------------- ------------------------------------------------------------------
Alliance Short-Term U.S.
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .55% .55% .55% After 1 Year $ 603 $ 559 $ 259 $ 359 $ 259
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 976 $ 896 $ 796 $ 796 $ 796
Other Expenses 1.54% 1.63% 1.58% After 5 Years $1,373 $1,360 $1,360 $1,360 $1,360
---- ---- ----
Interest Expense .42 .45 .45 After 10 Years $2,482 $2,554 $2,554 $2,895 $2,895
Total Fund Operating Expenses 2.18% 3.63% 3.58%
==== ==== ====
Waiver and/or Expense
Reimbursement +++ (.98)% (1.07)% (1.02)%
Net Expenses 1.83% 2.56% 2.56%
Alliance U.S. Government
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .55% .55% .55% After 1 Year $ 528 $ 479 $ 179 $ 279 $ 179
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 748 $ 654 $ 554 $ 554 $ 554
Other Expenses .21% .21% .21% After 5 Years $ 985 $ 954 $ 954 $ 954 $ 954
---- ---- ----
Total Fund Operating Expenses 1.06% 1.76% 1.76% After 10 Years $1,664 $1,719 $1,719 $2,073 $2,073
==== ==== ====
Alliance Limited Maturity
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .65% .65% .65% After 1 Year $ 741 $ 686 $ 386 $ 486 $ 386
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $1,389 $1,272 $1,172 $1,172 $1,172
Interest Expense 1.59% 1.45% 1.46% After 5 Years $2,060 $1,976 $1,976 $1,976 $1,976
Other Operating Expenses .73% .74% .73% After 10 Years $3,841 $3,837 $3,837 $4,070 $4,070
---- ---- ----
Total Fund Operating Expenses 3.27% 3.84% 3.84%
==== ==== ====
Alliance Mortgage Securities
Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .53% .53% .53% After 1 Year $ 618 $ 571 $ 271 $ 372 $ 272
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $1,023 $ 932 $ 832 $ 835 $ 835
Interest Expense .85% .83% .85% After 5 Years $1,452 $1,420 $1,420 $1,425 $1,425
Other Operating Expenses .31% .32% .31% After 10 Years $2,643 $2,694 $2,694 $3,022 $3,022
---- ---- ----
Total Fund Operating Expenses 1.99% 2.68% 2.69%
==== ==== ====
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- ----------------------------------------------------------- ------------------------------------------------------------------
Alliance Multi-Market
Strategy Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% After 1 Year $ 594 $ 544 $ 244 $ 364 $ 264
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 950 $ 851 $ 751 $ 811 $ 811
Other Expenses .84% .81% 1.01% After 5 Years $1,329 $1,285 $1,285 $1,385 $1,385
---- ---- ----
Total Fund Operating Expenses 1.74% 2.41% 2.61% After 10 Years $2,389 $2,429 $2,429 $2,944 $2,944
==== ==== ====
Alliance North American
Government Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .72% .72% .72% After 1 Year $ 623 $ 578 $ 278 $ 377 $ 277
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $1,037 $ 953 $ 853 $ 850 $ 850
Interest Expense .68% .68% .68% After 5 Years $1,477 $1,454 $1,454 $1,450 $1,450
Other Operating Expenses .34% .35% .34% After 10 Years $2,693 $2,754 $2,754 $3,070 $3,070
---- ---- ----
Total Fund Operating Expenses 2.04% 2.75% 2.74%
==== ==== ====
Alliance Global Dollar
Government Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .75% .75% .75% After 1 Year $ 569 $ 525 $ 225 $ 322 $ 222
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 873 $ 794 $ 694 $ 685 $ 685
Other Expenses .43% .47% .44% After 5 Years $1,199 $1,190 $1,190 $1,175 $1,175
---- ---- ----
Total Fund Operating Expenses 1.48% 2.22% 2.19% After 10 Years $2,118 $2,196 $2,196 $2,524 $2,524
==== ==== ====
Alliance Global Strategic
Income Trust Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .75% .75% .75% After 1 Year $ 609 $ 661 $ 261 $ 361 $ 261
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 994 $1,002 $ 802 $ 802 $ 802
Other Expenses 1.03% 1.01% 1.02% After 5 Years $1,403 $1,370 $1,370 $1,370 $1,370
---- ---- ----
Total Fund Operating Expenses 2.08% 2.76% 2.77% After 10 Years $2,543 $2,747 $2,747 $2,915 $2,915
==== ==== ====
Waiver and/or Expense
Reimbursement +++ (.19)% (.18)% (.19)%
Net Expenses 1.89% 2.58% 2.58%
Alliance Corporate Bond
Portfolio Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .55% .55% .55% After 1 Year $ 528 $ 478 $ 178 $ 278 $ 178
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 745 $ 651 $ 551 $ 551 $ 551
Other Expenses .20% .20% .20% After 5 Years $ 980 $ 949 $ 949 $ 949 $ 949
---- ---- ----
Total Fund Operating Expenses 1.05% 1.75% 1.75% After 10 Years $1,653 $1,708 $1,708 $2,062 $2,062
==== ==== ====
Alliance High Yield Fund Class A Class B Class C Class A Class B+ Class B++ Class C+ Class C++
------- ------- ------- ------- -------- --------- -------- ---------
Management Fees .75% .75% .75% After 1 Year $ 564 $ 616 $ 216 $ 316 $ 218
Rule 12b-1 Fees .30% 1.00% 1.00% After 3 Years $ 858 $ 867 $ 667 $ 667 $ 667
Other Expenses .41% .41% .41% After 5 Years $1,173 $1,144 $1,144 $1,144 $1,144
---- ---- ----
Total Fund Operating Expenses 1.46% 2.16% 2.16% After 10 Years $2,065 $2,284 $ 2,284 $2,462 $2,462
==== ==== ====
Waiver and/or Expense
Reimbursement +++ (.03)% (.03)% (.03)%
Net Expenses 1.43% 2.13% 2.13%
</TABLE>
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period and, with respect to shares held 10
years, conversion of Class B shares to Class A shares after 6 years, and
for Alliance Global Strategic Income Trust and Alliance High Yield Fund, 8
years.
+++ Reflects Alliance's contractual waiver of a portion of its advisory fee
and/or reimbursement of a portion of the Fund's operating expenses.
18
<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 as may be determined by Alliance to be of equivalent
quality) 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.
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.
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:
o ARMS, which are adjustable-rate mortgage securities;
o SMRS, which are stripped mortgage-related securities;
o CMOs, which are collateralized mortgage obligations;
o GNMA certificates, which are securities issued by the Government
National Mortgage Association or GNMA;
o FNMA certificates, which are securities issued by the Federal
National Mortgage Association or FNMA; and
o 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.
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 securities not backed by
the full faith and credit of the United States include certificates issued by
FNMA and FHLMC.
RATING AGENCIES AND RATED SECURITIES
Duff & Phelps is Duff & Phelps Credit Rating Company.
Fitch is Fitch IBCA, Inc.
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.
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."
Moody's is Moody's Investors Service, Inc.
NRSRO is a nationally recognized statistical rating organization.
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.
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.
19
<PAGE>
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.
- --------------------------------------------------------------------------------
Description Of The Funds
- --------------------------------------------------------------------------------
This section of the Prospectus provides a more complete description of each
Fund's investment objectives and principal strategies and risks. Of course,
there can be no assurance that any Fund will achieve its investment objective.
Please note that:
o Additional discussion of the Funds' investments, including the risks of
the investments, can be found in the discussion under Description of
Investment Practices following this section.
o The description of the principal risks for a Fund may include risks
described in the Summary of Principal Risks above. Additional information
about the risks of investing in a Fund can be found in the discussion
under Additional Risk Considerations.
o Additional descriptions of each Fund's strategies, investments, and risks
can be found in a Fund's Statement of Additional Information or SAI.
o Except as noted, (i) the Funds' investment objectives are "fundamental"
and cannot be changed without a shareholder vote, and (ii) the Funds'
investment policies are not fundamental and thus can be changed without a
shareholder vote.
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 invests at least 65% of its total assets in U.S. Government securities,
including mortgage-related securities, repurchase agreements and forward
commitments relating to U.S. Government securities. The Fund normally maintains
an average dollar-weighted portfolio maturity of not more than three years. In
periods of rising interest rates, the Fund may, to the extent it invests in
mortgage-related 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 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:
o invest in certain SMRS;
o invest in variable, floating, and inverse floating rate instruments;
o make short sales against the box;
o enter into various hedging transactions, such as interest rate swaps,
caps, and floors;
o purchase and sell futures contracts for hedging purposes;
o purchase and sell call and put options on futures contracts or on
securities, for hedging purposes or to earn additional income;
o enter into reverse repurchase agreements;
o purchase securities for future delivery;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
Alliance U.S. Government Portfolio
Alliance 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 its total assets in U.S.
Government securities, 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, that are determined by Alliance to have undergone similar credit
quality deterioration.
The Fund also may:
o enter into reverse repurchase agreements and dollar rolls;
20
<PAGE>
o enter into various hedging transactions, such as interest rate swaps,
caps, and floors;
o enter into forward contracts;
o purchase and sell futures contracts for hedging purposes;
o purchase call and put options on futures contracts or on securities for
hedging purposes; and
o enter into repurchase agreements.
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 invests at least 65% of its total assets
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:
o high quality asset-backed securities, including mortgage-related
securities that are not U.S. Government securities;
o treasury securities issued by private corporate issuers;
o qualifying bank deposits;
o higher quality commercial paper or, if unrated, issued by companies that
have high quality debt issues outstanding; and
o 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:
o enter into futures contracts and purchase and write options on futures
contracts;
o enter into forward commitments;
o enter into interest rate swaps, caps, and floors;
o invest in Eurodollar instruments;
o purchase and write put and call options on foreign currencies;
o invest in variable, floating, and inverse floating rate instruments;
o use reverse repurchase agreements and dollar rolls;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
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 its total assets in:
o U.S. Government securities;
o qualifying bank deposits;
o prime commercial paper or, if unrated, issued by companies that have an
outstanding high quality debt issue;
o high-grade debt securities secured by mortgages on commercial real estate
or residential rental properties; and
o high-grade asset-backed securities.
The Fund also may:
o enter into forward commitments;
o purchase put and call options written by others and write covered put and
call options for hedging purposes;
o enter into interest rate swaps, caps, and floors;
o enter into interest rate futures contracts;
o invest in variable, floating, and inverse floating rate instruments;
o make loans of portfolio securities; and
o enter into repurchase agreements.
21
<PAGE>
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.
The Fund limits its investments in a single currency other than the U.S. Dollar
to 25% of its net assets, except for the Euro in which the Fund may invest up to
50% 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 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. 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:
o U.S. Government securities;
o high-quality foreign government securities;
o obligations issued by supranational entities and corporate debt securities
having a high-quality rating;
o 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
o 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:
o invest in indexed commercial paper;
o enter into futures contracts and purchase and write options on futures
contracts;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o enter into interest rate swaps, caps, and floors;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
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.
22
<PAGE>
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 that 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, 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:
o enter into futures contracts and purchase and write options on futures
contracts for hedging purposes;
o purchase and write put and call options on foreign currencies;
o purchase or sell forward foreign currency exchange contracts;
o 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;
o enter into interest rate swaps, caps, and floors;
o enter into forward commitments;
o invest in variable, floating, and inverse floating rate instruments;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
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 the average
weighted maturity of the Fund's investments will be approximately:
o for U.S. fixed-income securities, nine to 15 years;
o for non-U.S. fixed-income securities, 15 to 25 years; and
o for sovereign debt obligations, longer than 25 years.
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
23
<PAGE>
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 also may 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:
o A and above .52%
o Baa or BBB 10.64%
o Ba or BB 48.50%
o B 36.21%
o CCC 1.18%
o C 2.95%
o Unrated 0%
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:
o invest in structured securities;
o 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;
o invest in other investment companies;
o invest in warrants;
o enter into interest rate swaps, caps, and floors;
o enter into forward commitments;
o enter into standby commitment agreements;
o make short sales of securities or maintain a short position;
o 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;
o purchase and sell exchange-traded options on any securities index of the
types of securities in which it may invest;
o invest in variable, floating, and inverse floating rate instruments;
o enter into reverse repurchase agreements and dollar rolls;
o make secured loans of its portfolio securities; and
o enter into repurchase agreements.
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 debt 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 Fund expects that the average weighted
maturity of its portfolio of fixed-income securities will 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 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
24
<PAGE>
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:
o invest in rights and warrants;
o invest in loan participations and assignments;
o invest in foreign currencies;
o purchase and write put and call options on securities and foreign
currencies;
o purchase or sell forward foreign exchange contracts;
o invest in variable, floating, and inverse floating rate instruments;
o invest in indexed commercial paper;
o invest in structured securities;
o purchase and sell securities on a forward commitment basis;
o enter into standby commitments;
o 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;
o invest in Eurodollar instruments;
o enter into interest rate swaps, caps, and floors; and
o make short sales of securities or maintain a short position;
o enter into reverse repurchase agreements and dollar rolls;
o make loans of portfolio securities; and
o enter into repurchase agreements.
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
Alliance Corporate Bond Portfolio
Alliance 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
Fund expects that the average weighted maturity of its portfolio of fixed-income
securities will 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 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 had 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):
o A or above 32.21%
o Baa or BBB 46.79%
o Ba or BB 18.22%
o B 2.05%
o CC .28%
o C .45%
o Unrated 0%
The Fund may invest up to 50% 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 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
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adversely affect current income. Substantially all of the Fund's investments,
however, will be income producing.
The Fund also may:
o invest in structured securities;
o 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;
o for hedging purposes, purchase put and call options written by others and
write covered put and call options;
o for hedging purposes, enter into various hedging transactions, such as
interest rate swaps, caps, and floors;
o invest in variable, floating, and inverse floating rate instruments;
o invest in zero coupon and pay-in-kind securities; and
o 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 debt securities, known
as "junk bonds." These securities involve greater volatility of price and risk
of principal and income than higher quality debt 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 debt
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 not invest 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):
o A and above 9.11%
o Ba or BB 4.23%
o B 72.65%
O CCC 1.62%
o Unrated 12.40%
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:
o U.S. Government securities;
o certificates of deposit, bankers' acceptances, bank notes, time deposits
and interest bearing savings deposits issued or guaranteed by certain
domestic and foreign banks;
o 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;
o 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 by Moody's; and
o floating rate or master demand notes.
The Fund also may:
o invest in mortgage-backed and asset-backed securities;
o invest in loan participations and assignments of loans to corporate,
governmental, or other borrowers originally made by institutional lenders
or lending syndicates;
o enter into forward commitments;
o write covered put and call options on debt securities, securities indices
and foreign currencies and purchase put or call options on debt
securities, securities indices and foreign currencies;
o purchase and sell futures contracts and related options on debt securities
and on indices of debt securities;
o enter into contracts for the purchase or sale of a specific currency for
hedging purposes only;
o make secured loans of portfolio securities; and
o enter into repurchase agreements.
DESCRIPTION OF INVESTMENT PRACTICES
This section describes certain investment practices and associated risks that
are common to a number of Funds.
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
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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 benefits 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. Alliance Multi-Market Strategy, Alliance High Yield, and Alliance
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.
There are four principal types of derivative instruments--options, futures,
forwards, and swaps--from which virtually any type of derivative transaction can
be created.
o 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).
o 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.
o 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.
o Swaps--A swap is a customized, privately negotiated agreement that
obligates two parties to exchange a series of cash flows at specified
intervals (payment dates) based upon or calculated by reference to changes
in specified prices or rates (interest rates in the case of interest rate
swaps, currency exchange rates in the case of currency swaps) for a
specified amount of an underlying asset (the "notional" principal amount).
The payment flows are netted against each other, with the difference being
paid by one party to the other. Except for currency swaps, the notional
principal amount is used solely to calculate the payment streams but is
not exchanged. With respect to currency swaps, actual principal amounts of
currencies may be exchanged by the counterparties at the initiation, and
again upon the termination, of the transaction.
Debt instruments that incorporate one or more of these building blocks for the
purpose of determining the principal amount of and/or rate of interest payable
on the debt instruments are often referred to as "structured securities." An
example of this type of structured security is indexed commercial paper. The
term is also used to describe certain securities issued in connection with the
restructuring of certain foreign obligations. 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.
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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.
o 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.
o Management Risk--Derivative products are highly specialized instruments
that require investment techniques and risk analyses different from those
associated with stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also of the
derivative itself, without the benefit of observing the performance of the
derivative under all possible market conditions. In particular, the use
and complexity of derivatives require the maintenance of adequate controls
to monitor the transactions entered into, the ability to assess the risk
that a derivative adds to a Fund's portfolio, and the ability to forecast
price, interest rate, or currency exchange rate movements correctly.
o 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.
o 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.
o 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.
o 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 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. Alliance
Limited Maturity Government and Alliance 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").
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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.
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 Alliance
Short-Term U.S. Government and Alliance Global Strategic Income, will be used
only for hedging purposes.
Alliance Limited Maturity Government, Alliance U.S. Government, Alliance
Multi-Market Strategy, Alliance North American Government Income and Alliance
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. Alliance Mortgage Securities Income will not
write or purchase options on futures contracts. Nor will Alliance Limited
Maturity Government, Alliance U.S. Government, Alliance Mortgage Securities
Income, Alliance Multi-Market Strategy, Alliance North American Government
Income or Alliance 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, Alliance Mortgage Securities Income and
Alliance 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 swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments) computed based on a contractually-based
principal (or "notional") amount. Interest rate swaps are entered into on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments).
Interest rate caps and floors are similar to options in that the purchase of an
interest rate cap or floor entitles the purchaser, to the extent that a
specified index exceeds (in the case of a cap) or falls below (in the case of a
floor) a predetermined interest rate, to receive payments of interest on a
notional amount from the party selling the interest rate cap or floor. A Fund
may enter into interest rate swaps, caps, and floors on either an asset-based or
liability-based basis, depending upon whether it is hedging its assets or
liabilities.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund that is permitted to enter into such transactions.
Alliance Multi-Market Strategy, Alliance North American Government Income and
Alliance Global Strategic Income may enter into interest rate swaps involving
payments in the same currency or in different currencies. Alliance Short-Term
U.S. Government, Alliance U.S. Government, Alliance Limited Maturity Government,
Alliance Mortgage Securities Income, Alliance Global Dollar Government, Alliance
Global Strategic Income and Alliance 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 Alliance Multi-Market Strategy,
Alliance North American Government Income, and Alliance 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
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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 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.
Alliance Short-Term U.S. Government, Alliance U.S. Government, Alliance Mortgage
Securities Income, Alliance North American Government Income, Alliance Global
Dollar Government, Alliance Global Strategic Income, Alliance Corporate Bond,
and Alliance 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. Alliance Mortgage Securities Income, Alliance U.S. Government and Alliance
Corporate Bond will not purchase an option on a security if, immediately
thereafter, the aggregate cost of all outstanding options purchased by the Fund
would exceed 2% of the Fund's total assets. Nor will these Funds 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
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Bonds as a result of which the payment obligations of the issuer are
accelerated, the U.S. Treasury zero coupon obligations held as collateral for
the payment of principal will not be distributed to investors, nor will such
obligations be sold and the proceeds distributed. The collateral will be held by
the collateral agent to the scheduled maturity of the defaulted Brady Bonds,
which will continue to be outstanding, at which time the face amount of the
collateral will equal the principal payments that would have then been due on
the Brady Bonds in the normal course. In 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 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
Alliance Limited Maturity Government, Alliance North American Government Income,
Alliance Global Dollar Government or Alliance 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 Alliance 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 Alliance
Mortgage Securities Income, Alliance Multi-Market Strategy, and Alliance North
American Government Income, and 5% for Alliance Short-Term U.S. Government. As a
matter of fundamental policy, Alliance 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
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payments on such commercial paper in the currency in which such commercial paper
is denominated, but the amount of principal payable by the issuer at maturity
will change in proportion to the change (if any) in the exchange rate between
the two specified currencies between the date the instrument is issued and the
date the instrument matures. While such commercial paper entails the risk of
loss of principal, the potential for realizing gains as a result of changes in
foreign currency exchange rates enables a Fund to hedge (or cross-hedge) against
a decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. A Fund
will purchase such commercial paper for hedging purposes only, not for
speculation.
Investment in Other Investment Companies. Alliance 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 Alliance High Yield, 25% for
Alliance Short-Term U.S. Government and Alliance Global Strategic Income, and
20% for Alliance Limited Maturity Government, Alliance Mortgage Securities
Income, Alliance Multi-Market Strategy, Alliance North American Government
Income and Alliance 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 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
Alliance Global Dollar Government and Alliance Global Strategic Income, or
foreign government securities, with respect to Alliance Corporate Bond and
Alliance 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.
Alliance Global Dollar Government and Alliance Global Strategic Income may
invest up to 25%, and Alliance 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 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
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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 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
mortgage-backed bonds or pass-through securities, with each class receiving
different proportions of the principal and interest payments from the underlying
assets. A common type of SMRS has one class of interest-only securities 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 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
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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 also can 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 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-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.
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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. Alliance 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, Alliance Limited Maturity Government
and Alliance U.S. Government do not expect to engage in reverse repurchase
agreements and dollar rolls with respect to greater than 50% of their total
assets. Reverse repurchase agreements and dollar rolls together with any
borrowings by Alliance Global Dollar Government will not exceed 33% of its total
assets less liabilities (other than amounts borrowed). Alliance 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 Alliance Global Strategic Income will not exceed 25% of its
total assets.
Rights and Warrants. Rights and warrants are option securities permitting their
holders to subscribe for other securities. Alliance Global Dollar Government may
invest in warrants, and Alliance 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.
Alliance 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. Alliance
Short-Term U.S. Government and Alliance Global Dollar Government each may make
short sales only against the box and only for the purpose of deferring
realization of a 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 Alliance Global Dollar
Government, and 10% of total assets, with respect to Alliance Short-Term U.S.
Government, would be held as collateral for short sales.
Alliance 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 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 a gain or loss for U.S. federal income tax
purposes, Alliance 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.
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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 Alliance 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.
Structured Securities. Structured securities in which Alliance Global Dollar
Government, Alliance Global Strategic Income and Alliance 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 Alliance Global Dollar Government and Alliance
Global Strategic Income, or foreign government securities, with respect to
Alliance 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. Alliance Global Dollar Government may invest up to 25% of its total
assets, and Alliance Global Strategic Income and Alliance 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 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
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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).
Alliance Global Strategic Income and Alliance 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.
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. While the Funds are investing for temporary
defensive purposes, they may not meet their investment objectives.
ADDITIONAL RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. Certain of these risks may be heightened when investing in
emerging markets.
Currency Considerations. Those Funds that invest some portion of their assets in
securities denominated in, and receive revenues in, foreign currencies will be
adversely affected by reductions in the value of those currencies relative to
the U.S. Dollar. These changes will affect a Fund's net assets, distributions
and income. If the value of the foreign currencies in which a Fund receives
income falls relative to the U.S. Dollar between receipt of the income and the
making of Fund distributions, a Fund may be required to liquidate securities in
order to make distributions if the Fund has insufficient cash in U.S. Dollars to
meet the distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if an
exchange rate declines between the time a Fund incurs expenses in U.S. Dollars
and the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, a Fund may engage in certain
currency hedging transactions, 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.
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In the event of an increase in rates on U.S. Government securities or other
changed market conditions, to the point where leverage by Alliance Multi-Market
Strategy, Alliance Global Strategic Income or Alliance 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 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 deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
A Fund also could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures or seek local governmental approvals
or other actions, any of which may involve additional costs to a Fund. 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 Alliance North American Government Income's
investments in the securities of Canadian issuers or investments denominated in
Canadian Dollars. The factors described above are more likely to have a material
adverse effect on the Fund's investments in the securities of Mexican and other
non-Canadian foreign issuers,
38
<PAGE>
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, Alliance 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 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
Alliance North American Government Income, Alliance Global Dollar Government,
Alliance Global Strategic Income, Alliance Corporate Bond and Alliance 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 Alliance Global Dollar Government and
Alliance 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 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
39
<PAGE>
obligations. The country's economic status, as reflected in, among other things,
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
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 Alliance Global Dollar Government and Alliance 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. 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. Should any of the computer systems employed by
the Funds' major service providers fail to process Year 2000 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 prices of securities held by the Funds
decline as a result of real or perceived problems relating to the Year 2000, 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, 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 in early 1999. 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.
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.
40
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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 $286 billion (of which approximately $118 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 54
registered investment companies, with more than 118 separate portfolios, managed
by Alliance currently have over 3.6 million shareholder accounts. As of December
31, 1998, Alliance was retained as an investment manager for employee benefit
plan assets of 35 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 average daily net assets:
Fee as a
percentage of
average daily Fiscal
Fund net assets* Year Ending
- ---- ----------- ---------
Short-Term U.S.
Government 0 8/31/98
U.S. Government
Portfolio .55 6/30/98
Limited Maturity
Government .65 11/30/98
Mortgage Securities
Income .53 12/31/98
Multi-Market Strategy .60 10/31/98
North American
Government Income .72 11/30/98
Global Dollar
Government .75 8/31/98
Global Strategic
Income .75 10/31/98
Corporate Bond .55 6/30/98
High Yield .75 8/31/98
- ----------
* Fees are stated net of any waivers and/or reimbursements. See the "Fee
Table" at the beginning of the Prospectus for more information about fee
waivers.
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 for the Fund's portfolio, and each
person's principal occupation during the past five years.
Principal occupation
Employee; time period; during the past
Fund title with ACMC five years*
- --------------------------------------------------------------------------------
Short-Term U.S. Jeffrey S. Phlegar; Associated with
Government since 1997; Alliance
Senior Vice President
U.S. Government Wayne D. Lyski; Associated with
since 1983; Alliance
Executive Vice President
Jeffrey S. Phlegar; (see above)
since 1997; (see above)
Limited Maturity Jeffrey S. Phlegar; (see above)
Government since 1997; (see above)
Mortgage Securities Jeffrey S. Phlegar; (see above)
Income since 1997; (see above)
Multi-Market Strategy Douglas J. Peebles; Associated with
since inception; Alliance
Senior Vice President
North American Wayne D. Lyski; since (see above)
Government Income inception; (see above)
Global Dollar Wayne D. Lyski; since (see above)
Government inception; (see above)
Global Strategic Wayne D. Lyski; since (see above)
Income inception; (see above)
Douglas J. Peebles; since (see above)
inception; (see above)
Corporate Bond Wayne D. Lyski; since (see above)
1987; (see above)
Paul J. DeNoon; Associated with
since January 1992; Alliance
Senior Vice President
High Yield Wayne C. Tappe; Associated with
since 1991; Alliance
Senior Vice President
Nelson Jantzen; Associated with
since 1991; Alliance
Senior Vice President
- --------------------------------------------------------------------------------
* Unless indicated otherwise, persons associated with Alliance have been
employed in a portfolio management, research or investment capacity.
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
Alliance 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.
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Tappe, who together with Nelson Jantzen is primarily responsible for the
day-to-day management of Alliance 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 Alliance High
Yield and the Lipper High Current Yield Mutual Funds Average as a comparative
benchmark. As of December 31, 1998, the assets in the Historical Portfolio
totalled approximately $612 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.
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 Alliance 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 Alliance 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 -5.15% 11.36% 9.99% 11.17% 10.49%
Lipper High Current
Yield Mutual Funds
Average -0.44 8.21 7.37 9.34 8.97
Alliance High Yield -5.83 n/a n/a n/a 9.72
Cumulative Rates of Return
Periods Ending December 31, 1998
- --------------------------------------------------------------------------------
Portfolio/Benchmark 1 Year 3 Years 5 Years 10 Years Inception
- --------------------------------------------------------------------------------
Historical Portfolio -5.15% 38.11% 61.01% 188.22% 231.11%
Lipper High Current
Yield Mutual Funds
Average -0.44 26.80 43.00 145.62 182.21
Alliance High Yield -5.83 n/a n/a n/a 17.01
- --------------------------------------------------------------------------------
PURCHASE AND SALE OF SHARES
- --------------------------------------------------------------------------------
HOW THE FUNDS VALUE THEIR SHARES
The Funds' net asset value or NAV is calculated at 4:00 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 Funds' 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 deferred sales charge or CDSC. See the Distribution
Arrangements section of this Prospectus 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:
o Initial $250
o Subsequent $50
o Automatic Investment Program $25
If you are an existing Fund shareholder, you may purchase 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
42
<PAGE>
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-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, your redemption payment may be delayed until the Fund
is reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 15 days).
o 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.
o 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 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
- --------------------------------------------------------------------------------
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 net asset value
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.
43
<PAGE>
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 a capital gain.
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 adviser about the federal, state, and local tax consequences in your
particular circumstances.
- --------------------------------------------------------------------------------
DISTRIBUTION ARRANGEMENTS
- --------------------------------------------------------------------------------
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
---------------------------------------------------
As % of Commission to
Net Amount As % of Dealer/Agent as %
Amount Purchased Invested Offering Price of 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 Alliance Global Strategic Income and Alliance High Yield) after
purchase. The CDSC varies depending on the number of years you hold the shares.
The CDSC amounts are:
Alliance Global Strategic Income and Alliance High Yield:
Years Since Purchase CDSC
-------------------- ----
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth None
All Other Funds:
Years 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
44
<PAGE>
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 (except
for Alliance Global Strategic Income Trust and Alliance High Yield which
automatically convert to Class A shares eight 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
Commission 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:
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 except for Alliance Global Strategic Income Trust and Alliance High Yield
Fund's Class B shares which convert to Class A shares after eight years). The
higher fees mean a higher expense ratio, so Class B and Class C shares pay
correspondingly lower dividends and may have a lower net asset value 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
shares 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,
bi-monthly, or quarterly systematic withdrawal plan. See the Fund's SAI for
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
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.
45
<PAGE>
- --------------------------------------------------------------------------------
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
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, Class B or Class 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 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.
46
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past 5 years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
share of each Fund. The total returns in the table represent 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 Pricewaterhouse Coopers LLP, the independent accountants for Alliance
Short-Term U.S. Government Fund, and by Ernst & Young LLP, the independent
accountants for Alliance U.S. Government Portfolio, Alliance Limited Maturity
Government Fund, Alliance Mortgage Securities Income Fund, Alliance Multi-Market
Strategy Trust, Alliance North American Government Income Trust, Alliance Global
Dollar Government Fund, Alliance Global Strategic Income Trust, Alliance
Corporate Bond Portfolio, and Alliance High Yield Fund, whose reports, along
with each Fund's financial statements, are included in the SAI, which is
avaliable upon request.
47
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------ ------------- ----------- --------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Short-Term U.S. Government+
Class A
Year Ended 8/31/98 ....... $ 9.63 $ .49(h) $ (.11) $ .38 $ (.50) $ 0.00
Year Ended 8/31/97 ....... 9.66 .47(h) .03 .50 (.46) 0.00
Year Ended 8/31/96 ....... 9.70 .47 (.02) .45 (.49) 0.00
Year Ended 8/31/95 ....... 9.67 .42 .05 .47 (.41) 0.00
Period Ended 8/31/94** ... 9.77 .14 (.09) .05 (.12) 0.00
Year Ended 4/30/94 ....... 10.22 .35 (.29) .06 (.42) 0.00
Class B
Year Ended 8/31/98 ....... $ 9.74 $ .42(h) $ (.08) $ .34 $ (.43) $ 0.00
Year Ended 8/31/97 ....... 9.77 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 ....... 9.81 .41 (.03) .38 (.42) 0.00
Year Ended 8/31/95 ....... 9.78 .36 .04 .40 (.34) 0.00
Period Ended 8/31/94** ... 9.88 .10 (.07) .03 (.11) 0.00
Year Ended 4/30/94 ....... 10.31 .40 (.39) .01 (.35) 0.00
Class C
Year Ended 8/31/98 ....... $ 9.73 $ .42(h) $ (.08) $ .34 $ (.43) $ 0.00
Year Ended 8/31/97 ....... 9.76 .41(h) .02 .43 (.39) 0.00
Year Ended 8/31/96 ....... 9.80 .40 (.02) .38 (.42) 0.00
Year Ended 8/31/95 ....... 9.77 .34 .06 .40 (.34) 0.00
Period Ended 8/31/94** ... 9.87 .10 (.07) .03 (.11) 0.00
8/2/93++ to 4/30/94 ...... 10.34 .26 (.42) (.16) (.25) 0.00
U.S. Government
Class A
7/1/98 to 12/31/98 ....... $ 7.57 $ .26(h) $ .12 $ .38 $ (.28) $ 0.00
Year Ended 6/30/98 ....... 7.41 .54(h) .18 .72 (.54) 0.00
Year Ended 6/30/97 ....... 7.52 .57(h) (.10) .47 (.57) 0.00
Year Ended 6/30/96 ....... 7.96 .58 (.44) .14 (.58) 0.00
Year Ended 6/30/95 ....... 7.84 .64 .13 .77 (.65) 0.00
Year Ended 6/30/94 ....... 8.64 .65 (.80) (.15) (.65) 0.00
Class B
7/1/98 to 12/31/98 ....... $ 7.57 $ .24(h) $ .11 $ .35 $ (.25) $ 0.00
Year Ended 6/30/98 ....... 7.41 .48(h) .18 .66 (.48) 0.00
Year Ended 6/30/97 ....... 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 ....... 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 ....... 7.84 .58 .13 .71 (.59) 0.00
Year Ended 6/30/94 ....... 8.64 .59 (.80) (.21) (.59) 0.00
Class C
7/1/98 to 12/31/98 ....... $ 7.57 $ .24(h) $ .11 $ .35 $ (.25) $ 0.00
Year Ended 6/30/98 ....... 7.41 .48(h) .18 .66 (.48) 0.00
Year Ended 6/30/97 ....... 7.52 .52(h) (.10) .42 (.52) 0.00
Year Ended 6/30/96 ....... 7.96 .52 (.44) .08 (.52) 0.00
Year Ended 6/30/95 ....... 7.83 .58 .14 .72 (.59) 0.00
Year Ended 6/30/94 ....... 8.64 .59 (.81) (.22) (.59) 0.00
Limited Maturity Government
Class A
Year Ended 11/30/98 ...... $ 9.44 $ .47(h) $ .17 $ .64 $ (.47) $ 0.00
Year Ended 11/30/97 ...... 9.45 .51(h) .02 .53 (.52) 0.00
Year Ended 11/30/96 ...... 9.52 .51(h) (.04) .47 (.51) 0.00
Year Ended 11/30/95 ...... 9.51 .52(h) .02 .54 (.50) 0.00
Year Ended 11/30/94 ...... 9.94 .42 (.32) .10 (.48) (.01)
Class B
Year Ended 11/30/98 ...... $ 9.44 $ .39(h) $ .19 $ .58 $ (.39) $ 0.00
Year Ended 11/30/97 ...... 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 ...... 9.52 .44(h) (.04) .40 (.44) 0.00
Year Ended 11/30/95 ...... 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 ...... 9.94 .39 (.35) .04 (.42) (.01)
Class C
Year Ended 11/30/98 ...... $ 9.44 $ .39(h) $ .19 $ .58 $ (.39) $ 0.00
Year Ended 11/30/97 ...... 9.45 .45(h) .01 .46 (.45) 0.00
Year Ended 11/30/96 ...... 9.52 .45(h) (.05) .40 (.45) 0.00
Year Ended 11/30/95 ...... 9.52 .46(h) .01 .47 (.44) 0.00
Year Ended 11/30/94 ...... 9.94 .37 (.33) .04 (.42) (.01)
Mortgage Securities Income
Class A
Year Ended 12/31/98 ...... $ 8.63 $ .52(h) $ (.03) $ .49 $ (.52) $ 0.00
Year Ended 12/31/97 ...... 8.51 .54(h) .15 .69 (.54) 0.00
Year Ended 12/31/96 ...... 8.75 .54(h) (.19) .35 (.51) 0.00
Year Ended 12/31/95 ...... 8.13 .57(h) .64 1.21 (.57) 0.00
Year Ended 12/31/94 ...... 9.29 .57 (1.13) (.56) (.58) 0.00
Class B
Year Ended 12/31/98 ...... $ 8.63 $ .45(h) $ (.02) $ .43 $ (.45) $ 0.00
Year Ended 12/31/97 ...... 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 ...... 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 ...... 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 ...... 9.29 .51 (1.14) (.63) (.51) 0.00
Class C
Year Ended 12/31/98 ...... $ 8.63 $ .46(h) $ (.03) $ .43 $ (.46) $ 0.00
Year Ended 12/31/97 ...... 8.51 .48(h) .15 .63 (.48) 0.00
Year Ended 12/31/96 ...... 8.75 .48(h) (.19) .29 (.46) 0.00
Year Ended 12/31/95 ...... 8.13 .51(h) .64 1.15 (.51) 0.00
Year Ended 12/31/94 ...... 9.29 .51 (1.14) (.63) (.51) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52.
48
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets Ratio of Net
in Excess Total Investment At End Of Ratio Investment
of Net Return Dividends Net Asset Return Period of Expenses Income (Loss) Portfolio
Investment of and Value End Based on Net (000's To Average To Average Turnover
Income Capital Distributions of Period Asset Value (b) omitted) Net Assets Net Assets Rate
------ ------- ------------- --------- --------------- -------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ (.03) $ (.53) $ 9.48 4.04% $ 5,535 1.83%(d)(e)(g) 5.00% 206%
0.00 (.07) (.53) 9.63 5.29 3,901 1.41(d)(e) 4.90 65
0.00 0.00 (.49) 9.66 4.71 3,455 1.53(d)(e) 4.85 110
(.03) 0.00 (.44) 9.70 5.14 2,997 1.40(d) 4.56 15
(.03)(a) 0.00 (.15)(c) 9.67 .53 2,272 1.40*(d) 3.98* 144
(.09)(a) 0.00 (.51)(c) 9.77 .52 2,003 1.27(d) 4.41 55
$ 0.00 $ (.03) $ (.46) $ 9.62 3.52% $ 10,827 2.56%(d)(e)(g) 4.49% 206%
0.00 (.07) (.46) 9.74 4.45 6,458 2.11(d)(e) 4.13 65
0.00 0.00 (.42) 9.77 3.89 6,781 2.23(d)(e) 4.11 110
(.03) 0.00 (.37) 9.81 4.32 6,380 2.10(d) 3.82 15
(.02)(a) 0.00 (.13)(c) 9.78 .28 6,281 2.10*(d) 3.22* 144
(.09)(a) 0.00 (.44)(c) 9.88 .03 7,184 2.05(d) 3.12 55
$ 0.00 $ (.03) $ (.46) $ 9.61 3.53% $ 5,074 2.56%(d)(e)(g) 4.48% 206%
0.00 (.07) (.46) 9.73 4.45 5,012 2.11(d)(e) 4.15 65
0.00 0.00 (.42) 9.76 3.90 4,850 2.22(d)(e) 4.11 110
(.03) 0.00 (.37) 9.80 4.33 5,180 2.10(d) 3.80 15
(.02)(a) 0.00 (.13)(c) 9.77 .28 7,128 2.10*(d) 3.26* 144
(.06)(a) 0.00 (.31)(c) 9.87 (1.56) 8,763 2.10*(d) 2.60* 55
$ 0.00 $ 0.00 $ (.28) $ 7.67 4.87% $396,102 1.07% 6.82% 97%
0.00 (.02) (.56) 7.57 10.02 352,749 1.06 7.08 153
0.00 (.01) (.58) 7.41 6.49 354,782 1.02 7.66 330
0.00 0.00 (.58) 7.52 1.74 397,894 1.01 7.38 334
0.00 0.00 (.65) 7.96 10.37 463,660 1.01 8.27 190
0.00 0.00 (.65) 7.84 (1.93) 482,595 1.02 7.76 188
$ 0.00 $ 0.00 $ (.25) $ 7.67 4.49% $425,326 1.78% 6.10% 97%
0.00 (.02) (.50) 7.57 9.20 390,523 1.76 6.37 153
0.00 (.01) (.53) 7.41 5.69 471,889 1.73 6.95 330
0.00 0.00 (.52) 7.52 1.01 628,628 1.72 6.67 334
0.00 0.00 (.59) 7.96 9.52 774,097 1.72 7.57 190
0.00 0.00 (.59) 7.84 (2.63) 756,282 1.72 7.04 188
$ 0.00 $ 0.00 $ (.25) $ 7.67 4.49% $143,824 1.77% 6.09% 97%
0.00 (.02) (.50) 7.57 9.21 114,392 1.76 6.38 153
0.00 (.01) (.53) 7.41 5.69 115,607 1.72 6.96 330
0.00 0.00 (.52) 7.52 1.01 166,075 1.71 6.68 334
0.00 0.00 (.59) 7.96 9.67 181,948 1.71 7.59 190
0.00 0.00 (.59) 7.83 (2.75) 231,859 1.70 6.97 188
$ (.07) $ 0.00 $ (.54) $ 9.54 6.94% $ 41,493 3.27% 4.74% 500%
0.00 (.02) (.54) 9.44 5.79 16,197 2.41(e) 5.52 249
0.00 (.03) (.54) 9.45 5.11 16,248 2.22(e) 5.44 159
0.00 (.03) (.53) 9.52 5.91 27,887 2.14(e) 5.53 293
0.00 (.04) (.53) 9.51 1.03 43,173 1.34(e) 4.78 375
$ (.08) $ 0.00 $ (.47) $ 9.55 6.30% $ 33,591 3.84% 4.10% 500%
0.00 (.02) (.47) 9.44 5.04 33,613 3.14(e) 4.80 249
0.00 (.03) (.47) 9.45 4.36 50,386 2.94(e) 4.73 159
0.00 (.03) (.47) 9.52 5.05 84,362 2.85(e) 4.83 293
0.00 (.03) (.46) 9.52 .42 136,458 2.08(e) 4.12 375
$ (.08) $ 0.00 $ (.47) $ 9.55 6.30% $ 28,562 3.84% 4.11% 500%
0.00 (.02) (.47) 9.44 5.05 28,738 3.13(e) 4.82 249
0.00 (.02) (.47) 9.45 4.38 43,457 2.92(e) 4.75 159
0.00 (.03) (.47) 9.52 5.06 68,459 2.85(e) 4.84 293
0.00 (.03) (.46) 9.52 .42 141,838 2.04(e) 4.10 375
$ (.04) $ 0.00 $ (.56) $ 8.56 5.82% $469,750 1.99% 6.06% 202%
(.03) 0.00 (.57) 8.63 8.40 372,494 1.41(e) 6.30 184
0.00 (.08) (.59) 8.51 4.23 412,899 1.68(e) 6.38 208
0.00 (.02) (.59) 8.75 15.34 502,390 1.66(e) 6.77 285
0.00 (.02) (.60) 8.13 (6.14) 553,889 1.29(e) 6.77 438
$ (.05) $ 0.00 $ (.50) $ 8.56 5.04% $126,879 2.68% 5.33% 202%
(.03) 0.00 (.51) 8.63 7.60 323,916 2.14(e) 5.60 184
0.00 (.07) (.53) 8.51 3.46 477,196 2.37(e) 5.66 208
0.00 (.02) (.53) 8.75 14.48 737,593 2.37(e) 6.06 285
0.00 (.02) (.53) 8.13 (6.84) 921,418 2.00(e) 6.05 438
$ (.04) $ 0.00 $ (.50) $ 8.56 5.04% $ 23,728 2.69% 5.35% 202%
(.03) 0.00 (.51) 8.63 7.60 27,859 2.12(e) 5.61 184
0.00 (.07) (.53) 8.51 3.46 35,355 2.38(e) 5.67 208
0.00 (.02) (.53) 8.75 14.46 45,558 2.35(e) 6.07 285
0.00 (.02) (.53) 8.13 (6.84) 58,338 1.97(e) 6.06 438
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52.
49
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------ ------------- ----------- --------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Multi-Market Strategy
Class A
Year Ended 10/31/98 ...... $ 7.11 $ .44(h) $ .02 $ .46 $ (.44) $ 0.00
Year Ended 10/31/97 ...... 7.23 .47(h) .08 .55 (.47) 0.00
Year Ended 10/31/96 ...... 6.83 .59(h) .48 1.07 (.67) 0.00
Year Ended 10/31/95 ...... 8.04 .77(h) (1.31) (.54) 0.00 0.00
Year Ended 10/31/94 ...... 8.94 .85 (1.08) (.23) (.09) 0.00
Class B
Year Ended 10/31/98 ...... $ 7.11 $ .36(h) $ .05 $ .41 $ (.36) $ 0.00
Year Ended 10/31/97 ...... 7.23 .42(h) .06 .48 (.42) 0.00
Year Ended 10/31/96 ...... 6.83 .53(h) .47 1.00 (.60) 0.00
Year Ended 10/31/95 ...... 8.04 .44(h) (1.05) (.61) 0.00 0.00
Year Ended 10/31/94 ...... 8.94 .88 (1.18) (.30) (.08) 0.00
Class C
Year Ended 10/31/98 ...... $ 7.11 $ .25(h) $ .16 $ .41 $ (.41) $ 0.00
Year Ended 10/31/97 ...... 7.23 .42(h) .07 .49 (.42) 0.00
Year Ended 10/31/96 ...... 6.83 .54(h) .47 1.01 (.61) 0.00
Year Ended 10/31/95 ...... 8.04 .44(h) (1.04) (.60) 0.00 0.00
Year Ended 10/31/94 ...... 8.94 .46 (.75) (.29) (.09) 0.00
North American Government Income
Class A
Year Ended 11/30/98 ...... $ 8.02 $ .87(h) $ (.33) $ .54 $ (.87) $ 0.00
Year Ended 11/30/97 ...... 8.01 1.03(h) (.05) .98 (.97) 0.00
Year Ended 11/30/96 ...... 6.75 1.09(h) 1.14 2.23 (.75) 0.00
Year Ended 11/30/95 ...... 8.13 1.18(h) (1.59) (.41) 0.00 0.00
Year Ended 11/30/94 ...... 10.35 1.02 (2.12) (1.10) (.91) 0.00
Class B
Year Ended 11/30/98 ...... $ 8.02 $ .81(h) $ (.32) $ .49 $ (.81) $ 0.00
Year Ended 11/30/97 ...... 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 ...... 6.75 1.04(h) 1.12 2.16 (.69) 0.00
Year Ended 11/30/95 ...... 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 ...... 10.35 .96 (2.13) (1.17) (.84) 0.00
Class C
Year Ended 11/30/98 ...... $ 8.02 $ .82(h) $ (.33) $ .49 $ (.82) $ 0.00
Year Ended 11/30/97 ...... 8.01 .98(h) (.07) .91 (.90) 0.00
Year Ended 11/30/96 ...... 6.75 1.05(h) 1.11 2.16 (.69) 0.00
Year Ended 11/30/95 ...... 8.13 1.13(h) (1.61) (.48) 0.00 0.00
Year Ended 11/30/94 ...... 10.34 .96 (2.12) (1.16) (.84) 0.00
Global Dollar Government
Class A
Year Ended 8/31/98 ....... $10.64 $ .73(h) $(4.03) $(3.30) $ (.73) $(1.37)
Year Ended 8/31/97 ....... 10.01 .88(h) 1.85 2.73 (.95) (1.15)
Year Ended 8/31/96 ....... 8.02 .84 2.10 2.94 (.95) 0.00
Year Ended 8/31/95 ....... 9.14 .86 (1.10) (.24) (.88) 0.00
2/25/94+ to 8/31/94 ...... 10.00 .45 (.86) (.41) (.45) 0.00
Class B
Year Ended 8/31/98 ....... $10.64 $ .67(h) $(4.05) $(3.38) $ (.67) $(1.36)
Year Ended 8/31/97 ....... 10.01 .81(h) 1.84 2.65 (.87) (1.15)
Year Ended 8/31/96 ....... 8.02 .78 2.08 2.86 (.87) 0.00
Year Ended 8/31/95 ....... 9.14 .80 (1.11) (.31) (.81) 0.00
2/25/94+ to 8/31/94 ...... 10.00 .42 (.86) (.44) (.42) 0.00
Class C
Year Ended 8/31/98 ....... $10.64 $ .67(h) $(4.05) $(3.38) $ (.67) $(1.36)
Year Ended 8/31/97 ....... 10.01 .82(h) 1.84 2.66 (.88) (1.15)
Year Ended 8/31/96 ....... 8.02 .77 2.10 2.87 (.88) 0.00
Year Ended 8/31/95 ....... 9.14 .79 (1.10) (.31) (.81) 0.00
2/25/94+ to 8/31/94 ...... 10.00 .42 (.86) (.44) (.42)
0.00
Global Strategic Income
Class A
Year Ended 10/31/98 ...... $11.46 $ .78(h) $ (.64) $ .14 $ (.78) $ (.36)
Year Ended 10/31/97 ...... 10.83 .74(h) 1.02 1.76 (.75) (.10)
1/9/96+ to 10/31/96 ...... 10.00 .69(h) .95 1.64 (.81) 0.00
Class B
Year Ended 10/31/98 ...... $11.46 $ .69(h) $ (.63) $ .06 $ (.69) $ (.36)
Year Ended 10/31/97 ...... 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 .... 9.97 .41(h) 1.01 1.42 (.56) 0.00
Class C
Year Ended 10/31/98 ...... $11.46 $ .68(h) $ (.62) $ .06 $ (.68) $ (.36)
Year Ended 10/31/97 ...... 10.83 .66(h) 1.03 1.69 (.67) (.10)
3/25/96++ to 10/31/96 .... 9.97 .39(h) 1.03 1.42 (.56) 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52.
50
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets Ratio of Net
in Excess Total Investment At End Of Ratio Investment
of Net Return Dividends Net Asset Return Period of Expenses Income (Loss) Portfolio
Investment of and Value End Based on Net (000's To Average To Average Turnover
Income Capital Distributions of Period Asset Value (b) omitted) Net Assets Net Assets Rate
------ ------- ------------- --------- --------------- -------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ (.42) $ (.07) $ (.93) $ 6.64 6.90% $ 95,568 1.74%(g) 6.46% 24%
(.20) 0.00 (.67) 7.11 7.82 96,133 1.58(g) 6.50 173
0.00 0.00 (.67) 7.23 16.37 68,776 1.64(f) 8.40 215
0.00 (.67) (.67) 6.83 (6.47) 76,837 1.60(f) 8.56 400
0.00 (.58) (.67) 8.04 (2.64) 52,385 1.41(f) 7.17 605
$ (.43) $ (.07) $ (.86) $ 6.66 6.24% $ 7,217 2.41%(g) 5.64% 24%
(.18) 0.00 (.60) 7.11 6.90 29,949 2.29(g) 5.79 173
0.00 0.00 (.60) 7.23 15.35 88,427 2.35(f) 7.69 215
0.00 (.60) (.60) 6.83 (7.31) 116,551 2.29(f) 7.53 400
0.00 (.52) (.60) 8.04 (3.35) 233,896 2.11(f) 6.44 605
$ (.42) $ (.04) $ (.87) $ 6.65 6.10% $ 16,518 2.61%(g) 5.28% 24%
(.19) 0.00 (.61) 7.11 6.92 1,203 2.28(g) 5.80 173
0.00 0.00 (.61) 7.23 15.36 1,076 2.34(f) 7.62 215
0.00 (.61) (.61) 6.83 (7.29) 786 2.29(f) 7.55 400
0.00 (.52) (.61) 8.04 (3.34) 1,252 2.08(f) 6.10 605
$ (.07) $ (.03) $ (.97) $ 7.59 7.14% $740,066 2.04%(f) 11.17% 175%
0.00 0.00 (.97) 8.02 12.85 511,749 2.15(f) 12.78 118
0.00 (.22) (.97) 8.01 35.22 385,784 2.34(f) 14.82 166
0.00 (.97) (.97) 6.75 (3.59) 252,608 2.62(f) 18.09 180
0.00 (.21) (1.12) 8.13 (11.32) 303,538 1.70(f) 11.22 131
$ (.06) $ (.03) $ (.90) $ 7.61 6.46% $1,300,519 2.75%(f) 10.44% 175%
0.00 0.00 (.90) 8.02 11.88 1,378,407 2.86(f) 12.15 118
0.00 (.21) (.90) 8.01 33.96 1,329,719 3.05(f) 14.20 166
0.00 (.90) (.90) 6.75 (4.63) 1,123,074 3.33(f) 17.31 180
0.00 (.21) (1.05) 8.13 (11.89) 1,639,602 2.41(f) 10.53 131
$ (.05) $ (.03) $ (.90) $ 7.61 6.46% $276,073 2.74%(f) 10.45% 175%
0.00 0.00 (.90) 8.02 11.88 283,483 2.85(f) 12.14 118
0.00 (.21) (.90) 8.01 33.96 250,676 3.04(f) 14.22 166
0.00 (.90) (.90) 6.75 (4.63) 219,009 3.33(f) 17.32 180
0.00 (.21) (1.05) 8.13 (11.89) 369,714 2.39(f) 10.46 131
$ (.04) $ (.15) $(2.29) $ 5.05 (38.56)% $ 32,365 1.48% 8.51% 188%
0.00 0.00 (2.10) 10.64 30.04 37,416 1.55 8.49 314
0.00 0.00 (.95) 10.01 38.47 23,253 1.65 9.23 315
0.00 0.00 (.88) 8.02 (1.48) 12,020 1.93 11.25 301
0.00 0.00 (.45) 9.14 (3.77) 10,995 .75*(d) 9.82* 100
$ (.04) $ (.14) $(2.21) $ 5.05 (39.11)% $ 79,660 2.22% 7.78% 188%
0.00 0.00 (2.02) 10.64 29.14 93,377 2.26 7.81 314
0.00 0.00 (.87) 10.01 37.36 84,295 2.37 8.57 315
0.00 0.00 (.81) 8.02 (2.40) 62,406 2.64 10.52 301
0.00 0.00 (.42) 9.14 (4.17) 47,030 1.45*(d) 9.11* 100
$ (.04) $ (.14) $(2.21) $ 5.05 (39.09)% $ 23,711 2.19% 7.75% 188%
0.00 0.00 (2.03) 10.64 29.17 25,130 2.25 7.82 314
0.00 0.00 (.88) 10.01 37.40 14,511 2.35 8.52 315
0.00 0.00 (.81) 8.02 (2.36) 9,330 2.63 10.46 301
0.00 0.00 (.42) 9.14 (4.16) 10,404 1.45*(d) 9.05* 100
$ (.28) $ 0.00 $(1.42) $10.18 1.00% $ 24,576 1.89%(d) 7.08% 183%
(.28) 0.00 (1.13) 11.46 16.83 12,954 1.90(d) 6.56 417
0.00 0.00 (.81) 10.83 17.31 2,295 1.90*(d) 8.36* 282
$ (.30) $ 0.00 $(1.35) $10.17 .27% $ 58,058 2.58%(d) 6.41% 183%
(.29) 0.00 (1.06) 11.46 16.12 18,855 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 800 2.60*(d) 7.26* 282
$ (.31) $ 0.00 $(1.35) $10.17 .27% $ 16,067 2.58%(d) 6.43% 183%
(.29) 0.00 (1.06) 11.46 16.12 4,388 2.60(d) 5.86 417
0.00 0.00 (.56) 10.83 14.47 750 2.60*(d) 7.03* 282
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 52.
51
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------ ------------- ----------- --------------- ------ --------------
<S> <C> <C> <C> <C> <C> <C>
Corporate Bond
Class A
7/1/98 to 12/31/98 ....... $14.19 $ .54(h) $ (.92) $ (.38) $ (.61) $ 0.00
Year Ended 6/30/98 ....... 14.19 1.08(h) .12 1.20 (1.08) 0.00
Year Ended 6/30/97 ....... 13.29 1.15(h) .97 2.12 (1.22) 0.00
Year Ended 6/30/96 ....... 12.92 1.26 .27 1.53 (1.16) 0.00
Year Ended 6/30/95 ....... 12.51 1.19 .36 1.55 (1.14) 0.00
Year Ended 6/30/94 ....... 14.15 1.11 (1.36) (.25) (1.11) (.25)
Class B
7/1/98 to 12/31/98 ....... $14.19 $ .49(h) $ (.93) $ (.44) $ (.56) $ 0.00
Year Ended 6/30/98 ....... 14.19 .98(h) .13 1.11 (.98) 0.00
Year Ended 6/30/97 ....... 13.29 1.05(h) .98 2.03 (1.13) 0.00
Year Ended 6/30/96 ....... 12.92 1.15 .29 1.44 (1.07) 0.00
Year Ended 6/30/95 ....... 12.50 1.11 .36 1.47 (1.05) 0.00
Year Ended 6/30/94 ....... 14.15 1.02 (1.37) (.35) (1.04) (.25)
Class C
7/1/98 to 12/31/98 ....... $14.19 $ .48(h) $ (.91) $ (.43) $ (.56) $ 0.00
Year Ended 6/30/98 ....... 14.19 .99(h) .12 1.11 (.99) 0.00
Year Ended 6/30/97 ....... 13.29 1.04(h) .99 2.03 (1.13) 0.00
Year Ended 6/30/96 ....... 12.93 1.14 .29 1.43 (1.07) 0.00
Year Ended 6/30/95 ....... 12.50 1.10 .38 1.48 (1.05) 0.00
Year Ended 6/30/94 ....... 14.15 1.02 (1.37) (.35) (1.05) (.25)
High Yield
Class A
Year Ended 8/31/98 ....... $11.17 $ 1.03(h) $ (.27) $ .76 $(1.02) $ (.14)
4/22/97+ to 8/31/97 ...... 10.00 .37(h) 1.15 1.52 (.35) 0.00
Class B
Year Ended 8/31/98 ....... $11.17 $ .96(h) $ (.28) $ .68 $ (.95) $ (.14)
4/22/97+ to 8/31/97 ...... 10.00 .31(h) 1.19 1.50 (.33) 0.00
Class C
Year Ended 8/31/98 ....... $11.17 $ .96(h) $ (.28) $ .68 $ (.95) $ (.14)
4/22/97+ to 8/31/97 ...... 10.00 .32(h) 1.18 1.50 (.33) 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Prior to July 22, 1993, Equitable Capital Management Corporation
("Equitable") served as the investment adviser to The Alliance Portfolios
(the "Trust"), of which Alliance Short-Term U.S. Government is a series.
On July 22, 1993, Alliance acquired the business and substantially all of
the assets of Equitable and became investment adviser to the Trust.
+ Commencement of operations.
++ Commencement of distribution.
* Annualized.
** Reflects newly adopted fiscal year end.
(a) Includes with respect to Alliance Short-Term U.S. Government a return of
capital for the year ended April 30, 1994 of $(0.08) for Class A, $(0.08)
for Class B and $(0.05) for Class C and for the period ended August 31,
1994 of $(0.03) for Class A and $(0.02) for Class B and Class C.
(b) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and
a redemption on the last day of the period. Initial sales charge or
contingent deferred sales charge is not reflected in the calculation of
total investment return. Total investment returns calculated for periods
of less than one year are not annualized.
(c) "Total dividends and distributions" includes dividends in excess of net
investment income and return of capital. Alliance Short-Term U.S.
Government had dividends in excess of net investment income, for the year
ended April 30, 1994, with respect to Class A shares of $(.01); with
respect to Class B shares, $(.01); and with respect to Class C shares,
$(.01).
(d) Net of expenses assumed and/or waived/reimbursed. If Alliance Short-Term
U.S. Government had borne all expenses, the expense ratios would have been
with respect to Class A shares, 2.20% (annualized) for 1993, 2.17% for the
year ended April 30, 1994, 2.95% (annualized) for the period ended August
31, 1994, 3.71% for the year ended August 31, 1995, 3.04% for the year
ended August 31, 1996, 2.42% for the year ended August 31, 1997 and 2.81%
for the year ended August 31, 1998; with respect to Class B shares, 4.81%
(annualized) for 1993, 3.21% for the year ended April 30, 1994, 3.60%
(annualized) for the period ended August 31, 1994, 4.33% for the year
ended August 31, 1995, 3.74% for the year ended August 31, 1996, 3.10% for
the year ended August 31, 1997 and 3.63% for the year ended August 31,
1998; with respect to Class C shares, 3.10% (annualized) for the year
ended April 30, 1994, 3.64% (annualized) for the period ended August 31,
1994 (annualized), 4.23% for the year ended August 31, 1995, 3.72% for the
year ended August 31, 1996, 3.09% for the year ended August 31, 1997 and
3.58% for the year ended August 31, 1998. If Alliance Global Dollar
Government had borne all expenses for the period February 25, 1994 to
August 31, 1994, the expense ratios would have been with respect to Class
A shares, 1.91% (annualized); with respect to Class B shares, 2.63%
(annualized); and with respect to Class C shares, 2.59% (annualized). If
Alliance Global Strategic Income had borne all expenses for the respective
periods January 9, 1996 to October 31, 1996, its fiscal year ended 1997,
and its fiscal year ended in 1998, the expense ratio would have been with
respect to Class A shares, 19.20% (annualized), 4.06%, and 2.08%
respectively; with respect to Class B shares, 19.57% (annualized), 4.76%,
and 2.76% respectively; and with respect to Class C shares, 19.49%
(annualized), 4.77%, and 2.77% respectively. If Alliance High Yield had
borne all expenses for the respective periods April 22, 1997 to August 31,
1997 and the fiscal year ended August 31, 1998, the expense ratios would
have been with respect to Class A shares, 3.11% (annualized) and 1.46%,
respectively; with respect to Class B shares, 3.85% (annualized) and
2.16%, respectively; and with respect to Class C shares, 3.84%
(annualized) and 2.16%, respectively.
52
<PAGE>
<TABLE>
<CAPTION>
Distributions Total Net Assets Ratio of Net
in Excess Total Investment At End Of Ratio Investment
of Net Return Dividends Net Asset Return Period of Expenses Income (Loss) Portfolio
Investment of and Value End Based on Net (000's To Average To Average Turnover
Income Capital Distributions of Period Asset Value (b) omitted) Net Assets Net Assets Rate
------ ------- ------------- --------- --------------- -------- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.00 $ 0.00 $ (.61) $13.20 (2.82)% $496,701 1.10% 8.13% 118%
(.12) 0.00 (1.20) 14.19 8.66 510,397 1.05 7.52 244
0.00 0.00 (1.22) 14.19 16.59 370,845 1.12 8.34 307
0.00 0.00 (1.16) 13.29 12.14 277,369 1.20 9.46 389
0.00 0.00 (1.14) 12.92 13.26 230,750 1.24 9.70 387
(.03) 0.00 (1.39) 12.51 (2.58) 219,182 1.30 7.76 372
$ 0.00 $ 0.00 $ (.56) $13.19 (3.24)% $678,422 1.80% 7.42% 118%
(.13) 0.00 (1.11) 14.19 7.95 672,374 1.75 6.80 244
0.00 0.00 (1.13) 14.19 15.80 480,326 1.82 7.62 307
0.00 0.00 (1.07) 13.29 11.38 338,152 1.90 8.75 389
0.00 0.00 (1.05) 12.92 12.54 241,393 1.99 9.07 387
(.01) 0.00 (1.30) 12.50 (3.27) 184,129 2.00 7.03 372
$ 0.00 $ 0.00 $ (.56) $13.20 (3.17)% $247,791 1.80% 7.40% 118%
(.12) 0.00 (1.11) 14.19 7.95 254,530 1.75 6.83 244
0.00 0.00 (1.13) 14.19 15.80 174,762 1.82 7.61 307
0.00 0.00 (1.07) 13.29 11.30 83,095 1.90 8.74 389
0.00 0.00 (1.05) 12.93 12.62 51,028 1.84 8.95 387
0.00 0.00 (1.30) 12.50 (3.27) 50,860 1.99 6.98 372
$ (.01) $ 0.00 $(1.17) $10.76 6.42% $ 43,960 1.43%(d) 8.89% 311%
0.00 0.00 (.35) 11.17 15.33 5,889 1.70*(d) 8.04* 73
$ (.01) $ 0.00 $(1.10) $10.75 5.69% $269,426 2.13%(d) 8.18% 311%
0.00 0.00 (.33) 11.17 15.07 43,297 2.40*(d) 7.19* 73
$ (.01) $ 0.00 $(1.10) $10.75 5.69% $ 48,337 2.13%(d) 8.17% 311%
0.00 0.00 (.33) 11.17 15.07 7,575 2.40*(d) 7.24* 73
</TABLE>
- --------------------------------------------------------------------------------
(e) If Alliance Short-Term U.S. Government had not borne interest expenses,
the ratio of expenses to average net assets would have been with respect
to Class A shares, 1.40% for 1996, 1997, and 1998; with respect to Class B
shares, 2.10% for 1996, 1997, and 1998; and with respect to Class C
shares, 2.10% for 1996, 1997, and 1998. If Alliance Limited Maturity
Government had not borne interest expenses, the ratio of expenses (net of
interest expense) to average net assets would have been with respect to
Class A shares, 1.20% for 1994, 1.41% for 1995, 1.58% for 1996, 1.65% for
1997, and 1.68% for 1998; with respect to Class B shares, 1.91% for 1994,
2.11% for 1995, 2.30% for 1996, 2.39% for 1997, and 2.39% for 1998; with
respect to Class C shares, 1.89% for 1994, 2.10% for 1995, 2.29% for 1996,
2.37% for 1997, and 2.38% for 1998. If Alliance Mortgage Securities Income
Fund had not borne interest expense the ratio of expenses (net of interest
expense) to average net assets would have been with respect to Class A
shares .97% for 1994, 1.03% for 1995, 1.03% for 1996, 1.07% for 1997, and
1.14% for 1998; with respect to Class B shares, 1.68% for 1994, 1.74% for
1995, 1.74% for 1996, 1.78% for 1997, and 1.85% for 1998; with respect to
Class C shares 1.69% for 1994, 1.73% for 1995, 1.73% for 1996, 1.77% for
1997, and 1.84% for 1998.
(f) Includes interest expenses. If Alliance Multi-Market Strategy had not
borne interest expenses or loan fees, the ratio of expenses to average net
assets would have been with respect to Class A shares, 1.30% for 1994,
1.55% for 1995, and 1.60% for 1996; with respect to Class B shares, 2.01%
for 1994, 2.22% for 1995, and 2.31% for 1996; with respect to Class C
shares, 1.99% for 1994, 2.24% for 1995, and 2.30% for 1996. If Alliance
North American Government Income had not borne interest expenses, the
ratio of expenses (net of interest expenses) to average net assets would
have been with respect to Class A shares, 1.37% for 1994, 1.51% for 1995,
1.41% for 1996, 1.38% for 1997, and 1.36% for 1998; with respect to Class
B shares, 2.07% for 1994, 2.22% for 1995, 2.12% for 1996, 2.09% for 1997,
and 2.07% for 1998; and with respect to Class C shares, 2.06% for 1994,
2.21% for 1995, 2.12% for 1996, 2.08% for 1997, and 2.06% for 1998.
(g) Amounts do not reflect the impact of expense offset arrangement with the
transfer agent. Taking into account such expense offset arrangements, the
ratio of expenses to average net assets, absent the assumption and/or
waiver/reimbursement of expenses for Alliance Multi-Market Strategy the
ratio of expenses to average net assets would have been with respect to
Class A shares 1.73% for 1998, with respect to Class B shares 2.40% for
1998 and with respect to Class C shares 2.60% for 1998. For Alliance
Short-Term U.S. Government the ratio of expenses to average net assets
would have been with respect to Class A shares 1.82% for 1998, with
respect to Class B shares 2.55% for 1998 and with respect to Class C
shares 2.55% for 1998.
(h) Based on average shares outstanding.
53
<PAGE>
- --------------------------------------------------------------------------------
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.
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 -- 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
54
<PAGE>
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.
DUFF & PHELPS CREDIT RATING CO.
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+,AA, AA- -- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic
conditions.
A+, A, A- -- Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- -- Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
BB+, BB, BB- -- Below investment grade but deemed likely to meet obligations
when due. Present or prospective financial protection factors fluctuate
according to industry conditions or company fortunes. Overall quality may
move up or down frequently within this category.
B+, B, B- -- Below investment grade and possessing risk that obligations will
not be met when due. Financial protection factors will fluctutate widely
according to economic cycles, industry conditions and/or company fortunes.
Potential exists for frequent changes in the rating within this category
or into a higher or lower rating grade.
CCC -- Well below investment grade securities. Considerable uncertainty exists
as to timely payment of principal, 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 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.
55
<PAGE>
CCC -- Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD, D -- Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor.
DDD represents the highest potential for recovery on these bonds, and D
represents the lowest potential for recovery.
Plus (+) Minus (-) -- Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA, DDD, DD or D categories.
NR -- Indicates that Fitch does not rate the specific issue.
56
<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 February 22, 1999, the Canadian
Dollar-U.S. Dollar exchange rate was 1.4968:1. 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.
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.
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
57
<PAGE>
1996 and 1997, resulting in increases of 5.2% and 7.0%, respectively. The growth
rate for 1998 was 4.8%. 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. In 1998,
the inflation rate was 18.6%. 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. In 1998, the average annual Peso-Dollar
exchange rate was approximately 16% less than that in 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 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 1998, gross domestic product increased
an estimated 4.7% from 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 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.
58
<PAGE>
For more information about the Funds, the following documents are available upon
request:
Annual/Semi-Annual Reports to Shareholders
The Funds' 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
You also may find more information about Alliance and the Funds on the Internet
at: www.Alliancecapital.com.
59
ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
SHORT-TERM U.S. GOVERNMENT FUND
U.S. GOVERNMENT PORTFOLIO
LIMITED MATURITY GOVERNMENT FUND
MORTGAGE SECURITIES INCOME FUND
MULTI-MARKET STRATEGY TRUST
NORTH AMERICAN GOVERNMENT INCOME TRUST
GLOBAL DOLLAR GOVERNMENT FUND
GLOBAL STRATEGIC INCOME TRUST
CORPORATE BOND PORTFOLIO
HIGH YIELD FUND
TO OPEN YOUR NEW ALLIANCE ACCOUNT...
Please complete the application and mail it to:
ALLIANCE FUND SERVICES, INC.
P.O. BOX 1520
SECAUCUS, NEW JERSEY 07096-1520
For certified or overnight deliveries, send to:
ALLIANCE FUND SERVICES, INC.
500 PLAZA DRIVE
SECAUCUS, NEW JERSEY 07094
SECTION 1 YOUR ACCOUNT REGISTRATION (REQUIRED)
Complete one of the available choices. To ensure proper tax reporting to the
IRS:
* Individuals, Joint Tenants, Transfer on Death and Gift/Transfer to a Minor:
. Indicate your name(s) exactly as it appears on your social security
card.
* Transfer on Death:
. Ensure that your state participates
* Trust/Other:
. Indicate the name of the entity exactly as it appeared on the notice
you received from the IRS when your Employer Identification number
was assigned.
SECTION 2 YOUR ADDRESS (REQUIRED) Complete in full.
* Non-Resident Alien:
. Indicate your permanent country of residence.
SECTION 3 YOUR INITIAL INVESTMENT (REQUIRED)
For each Fund in which you are investing: 1 Write the three digit Fund number
in the column titled 'INDICATE THREE DIGIT FUND NUMBER LOCATED BELOW'.
2 Write the dollar amount of your initial purchase in the column titled
'INDICATE DOLLAR AMOUNT'. (If you are eligible for a reduced sales charge,
you must also complete Section 4F). 3 Check off a distribution option for
your dividends. 4 Check off a distribution option for your capital gains.
All distributions (dividends and capital gains) will be reinvested into
your fund account unless you direct otherwise. If you want distributions
sent directly to your bank account, then you must complete Section 4D and
attach a preprinted, voided check for that account. If you want your
distributions sent to a third party you must complete Section 4E.
SECTION 4 YOUR SHAREHOLDER OPTIONS (COMPLETE ONLY THOSE OPTIONS YOU WANT)
A. AUTOMATIC INVESTMENT PLANS (AIP) - You can make periodic investments into
any of your Alliance Funds in one of three ways. First, by a periodic
withdrawal ($25 minimum) directly from your bank account and invested into an
Alliance Fund. Second, you can direct your distributions (dividends and
capital gains) from one Alliance Fund into another Fund. Or third, you can
automatically exchange monthly ($25 minimum) shares of one Alliance Fund for
shares of another Fund. To elect one of these options, complete the
appropriate portion of Section 4A & 4D. If more than one dividend direction
or monthly exchange is desired, please call our Literature Center to obtain a
Shareholder Account Services Options Form for completion.
B. TELEPHONE TRANSACTIONS VIA EFT - Complete this option if you would like to
be able to transact via telephone between your fund account and your bank
account.
C. SYSTEMATIC WITHDRAWAL PLANS (SWP) - Complete this option if you wish to
periodically redeem dollars from one of your fund accounts. Payments can be
made via Electronic Funds Transfer (EFT) to your bank account or by check.
D. BANK INFORMATION - If you have elected any options that involve
transactions between your bank account and your fund account or have elected
cash distribution options and would like the payments sent to your bank
account, please tape a preprinted, voided check of the account you wish to use
to this section of the application.
E. THIRD PARTY PAYMENT DETAILS - If you have chosen cash distributions and/or
a Systematic Withdrawal Plan and would like the payments sent to a person
and/or address other than those provided in section 1 or 2, complete this
option. Medallion Signature Guarantee is required if your account is not
maintained by a broker dealer.
F. REDUCED CHARGES (CLASS A ONLY) - Complete if you would like to link fund
accounts that have combined balances that might exceed $100,000 so that future
purchases will receive discounts. Complete if you intend to purchase over
$100,000 within 13 months.
SECTION 5 SHAREHOLDER AUTHORIZATION (REQUIRED) All owners must sign. If it
is a custodial, corporate, or trust account, the custodian, an authorized
officer, or the trustee respectively must sign.
IF WE CAN ASSIST YOU IN ANY WAY, PLEASE DO NOT HESITATE TO CALL US AT: (800)
221-5672.
FOR LITERATURE CALL: (800) 227-4618
THE ALLIANCE BOND FUNDS SUBSCRIPTION APPLICATION
_______________________________________________________________________________
1. YOUR ACCOUNT REGISTRATION (Please Print in Capital Letters and Mark Check
Boxes Where Applicable)
__ Individual Account { __ Male __ Female } - or - __ Joint Account - or -
__ Transfer On Death { __ Male __ Female } - or - __ Gift/Transfer to a Minor
___________________________________________ ____ ____________________________
Owner or Custodian (First Name) (MI) (Last Name)
________________________________________________________________________
(First Name) Joint Owner*, Transfer On Death Beneficiary or Minor
____ ______________________________
(MI) (Last Name)
______________-____-_________________
Social Security Number of Owner or Minor (required to open account)
If Uniform Gift/Transfer to Minor Account: ________ Minor's State of Residence
If Joint Tenants Account: * The Account will be registered "Joint Tenants with
right of Survivorship" unless you indicate otherwise below:
__ In Common __ By Entirety __ Community Property
__ Trust - or - __ Corporation - or - Other________________________________
___________________________________________ ____ ____________________________
Name of Trustee if applicable (First Name) (MI) (Last Name)
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity
_______________________________________________________________________________
Name of Trust or Corporation or Other Entity continued
_________________________
Trust Dated (MM,DD,YYYY)
________________________________________
Tax ID Number (required to open account)
__ Employer ID Number - OR - __ Social Security Number
2. YOUR ADDRESS
__________________________ ___________________________________________________
Street Number Street Name
_______________________________________________ ______ ______________________
City State Zip code
____________________________ ________-________-____________
If Non-U.S., Specify Country Daytime Phone Number
__ U.S. Citizen __ Resident Alien __ Non-Resident Alien
90231GEN-TABFAPP-P1
1
3. YOUR INITIAL INVESTMENT
The minimum investment is $250 per fund.
The maximum investment in Class B is $250,000; Class C is $1,000,000.
I hereby subscribe for shares of the following Alliance Bond Fund(s) and elect
distribution options as indicated.
BROKER/DEALER USE ONLY: WIRE CONFIRM # _________________________
DIVIDEND AND CAPITAL GAIN DISTRIBUTION OPTIONS:
R REINVEST DISTRIBUTIONS into my fund account.
C SEND MY DISTRIBUTIONS IN CASH to the address I have provided in Section 2.
(Complete Section 4D for direct deposit to your bank account. Complete Section
4E for payment to a third party)
D DIRECT MY DISTRIBUTIONS TO ANOTHER ALLIANCE FUND. Complete the appropriate
portion of Section 4A to direct your distributions (dividends and capital
gains) to another Alliance Fund (the $250 minimum investment requirement
applies to Funds into which distributions are directed).
Indicate three digit Fund Indicate Dollar Distributions Options *Check One*
number located below Amount Dividends Capital Gains
- ------------------------- --------------- ---------------- ---------------
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
_______________ $______________ R C D R C D
TOTAL INVESTMENT $______________
MAKE ALL CHECKS PAYABLE TO: ALLIANCE FUNDS
ALLIANCE BOND FUND NAMES AND NUMBERS
_______________________________________________________________________________
For checkwriting privileges, please send the enclosed signature card with
your application. Checkwriting is offered on Class A and Class C shares
only, and is not offered on Corporate Bond Portfolio and High Yield Fund.
A Medallion Signature Guarantee is required if your account is not maintained
by a broker/dealer. For Class C shares, checkwriting may result in the
imposition of a contingent deferred sales charge against your account. The
minimum amount for checkwriting is $500.
<TABLE>
<CAPTION>
Initial Sales Contingent Deferred Asset-Based
Charge Sales Charge Sales Charge
A B C
------------- ------------------- --------------
<S> <C> <C> <C>
U.S. GOVERNMENT FUNDS
SHORT-TERM U.S. GOVERNMENT FUND 37 51 337
U.S. GOVERNMENT PORTFOLIO 46 76 346
LIMITED MATURITY GOVERNMENT FUND 88 89 388
MORTGAGE FUND
MORTGAGE SECURITIES INCOME FUND 52 63 352
MULTI-MARKET FUND
MULTI-MARKET STRATEGY TRUST 22 23 322
GLOBAL BOND FUNDS
NORTH AMERICAN GOVERNMENT INCOME TRUST 55 56 355
GLOBAL DOLLAR GOVERNMENT FUND 166 266 366
GLOBAL STRATEGIC INCOME TRUST 124 224 324
CORPORATE BOND FUNDS
CORPORATE BOND PORTFOLIO 95 295 395
HIGH YIELD FUND 103 203 303
</TABLE>
90231GEN-TABFAPP-P2
2
4. YOUR SHAREHOLDER OPTIONS
A. AUTOMATIC INVESTMENT PLANS (AIP)
__ WITHDRAW FROM MY BANK ACCOUNT VIA EFT*
I authorize Alliance to draw on my bank account for investment in my fund
account(s) as indicated below (Complete Section 4D also for the bank account
you wish to use).
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
* ELECTRONIC FUNDS TRANSFER. YOUR BANK MUST BE A MEMBER OF THE NATIONAL
AUTOMATED CLEARING HOUSE ASSOCIATION (NACHA)
__ DIRECT MY DISTRIBUTIONS
As indicated in Section 3, I would like my dividends and/or capital gains
directed to the same class of shares of another Alliance Fund.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
__ EXCHANGE MY SHARES MONTHLY
I authorize Alliance to transact monthly exchanges, within the same class of
shares, between my fund accounts as listed below.
FROM: ___________ ______________________________ - __
Fund Number Account Number (If existing)
______ ,___________.00 ________
Amount ($25 minimum) Day of Exchange**
TO: ___________ ______________________________ - __
Fund Number Account Number (If existing)
** SHARES EXCHANGED WILL BE REDEEMED AT THE NET ASSET VALUE ON THE "DAY OF
EXCHANGE" (IF THE "DAY OF EXCHANGE" IS NOT A FUND BUSINESS DAY, THE EXCHANGE
TRANSACTION WILL BE PROCESSED ON THE NEXT FUND BUSINESS DAY). THE EXCHANGE
PRIVILEGE IS NOT AVAILABLE IF SHOCK CERTIFICATES HAVE BEEN ISSUED.
B. PURCHASES AND REDEMPTIONS VIA EFT
You can call our toll-free number 1-800-221-5672 and instruct Alliance Fund
Services, Inc. in a recorded conversation to purchase, redeem or exchange
shares for your account. Purchase and redemption requests will be processed
via electronic funds transfer (EFT) to and from your bank account.
INSTRUCTIONS:
* Review the information in the Prospectus about telephone transaction
services.
* If you select the telephone purchase or redemption privilege, you must write
"VOID" across the face of a check from the bank account you wish to use and
attach it to Section 4D of this application.
__ PURCHASES AND REDEMPTIONS VIA EFT
I hereby authorize Alliance Fund Services, Inc. to effect the purchase and/or
redemption of Fund shares for my account according to my telephone instructions
or telephone instructions from my Broker/Agent, and to withdraw money or credit
money for such shares via EFT from the bank account I have selected. The
maximum redemption amount is $100,000 per day.
For shares recently purchased by check or electronic funds transfer,
redemption proceeds will not be made available until the Fund is reasonably
assured the check or electronic funds transfer has been collected, normally
for 15 calendar days after the purchase date.
90231GEN-TABFAPP-P3
3
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
C. SYSTEMATIC WITHDRAWAL PLANS (SWP)
In order to establish a SWP, you must reinvest all dividends and capital gains.
__ I authorize Alliance to transact periodic redemptions from my fund account
and send the proceeds to me as indicated below.
1- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
2- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
3- ___________ ______________________ ______ , _________.00 __
Fund Number Beginning Date (MM,DD) Amount ($25 minimum) Frequency
Frequency:
M = monthly
Q = quarterly
A = Annually
PLEASE SEND MY SWP PROCEEDS TO:
__ My Address of Record (via check)
__ My checking account-via EFT (complete section 4D)
Your bank must be a member of the National Automated Clearing House Association
(NACHA) in order for you to receive SWP proceeds directly into your bank
account. Otherwise payment will be made by check
__ The Payee and address specified in section 4E (via check)
(Medallion Signature Guarantee required)
D. BANK INFORMATION This bank account information will be used for:
__ Distributions (Section 3)
__ Telephone Transactions (Section 4B)
__ Automatic Investments (Section 4A)
__ Withdrawals (Section 4C)
PLEASE TAPE A PRE-PRINTED VOIDED CHECK HERE*
* THE ABOVE SERVICES CANNOT BE ESTABLISHED WITHOUT A PRE-PRINTED VOIDED CHECK.
FOR EFT TRANSACTIONS, THE FUND REQUIRES SIGNATURES OF BANK ACCOUNT OWNERS
EXACTLY AS THEY APPEAR ON BANK RECORDS. IF THE REGISTRATION AT THE BANK
DIFFERS FROM THAT ON THE ALLIANCE MUTUAL FUND, ALL PARTIES MUST SIGN IN SECTION
5.
VOID
ABA Routing Number
Check Number
Bank Account Number
______________________________
Your Bank's ABA Routing Number
______________________________________________
Your Bank Account Number
__ Checking Account __ Savings Account
90231GEN-TABFAPP-P4
4
4. YOUR SHAREHOLDER OPTIONS (CONTINUED)
E. THIRD PARTY PAYMENT DETAILS Your signature(s) in Section 5 must be
Medallion Signature Guaranteed if your account is not maintained by a
broker/dealer. This third party payee information will be used for:
__ Distributions (section 3) __ Systematic Withdrawals (section 4C)
_________________________________ _____ _____________________________________
Name (First Name) (MI) (Last Name)
___________________________ __________________________________________________
Street Number Street Name
______________________________________________ _____ ________________________
City State Zip code
F. REDUCED CHARGES (CLASS A ONLY) If you, your spouse or minor children
own shares in other Alliance Funds, you may be eligible for a reduced sales
charge. Please complete the Right of Accumulation section or the Statement
of Intent section.
__ A. RIGHT OF ACCUMULATION
Please link the tax identification numbers or account numbers listed below for
Right of Accumulation privileges, so that this and future purchases will
receive any discount for which they are eligible.
_________________________ _________________________ _________________________
Tax ID or Account Number Tax ID or Account Number Tax ID or Account Number
__ B. STATEMENT OF INTENT
I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
__ $100,000 __ $250,000 __ $500,000 __ $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
that an additional sales charge must be paid from my account.
DEALER/AGENT AUTHORIZATION - FOR SELECTED DEALERS OR AGENTS ONLY.
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 5, as well as the legal capacity of the
shareholder.
_________________________________________ ____________________________________
Dealer/Agent Firm Authorized Signature
____________________________________ ____ ___________________________________
Representative First Name MI Last Name
_________________________________________ ____________________________________
Dealer/Agent Firm Number Representative Number
_________________________________________ ____________________________________
Branch Number Branch Telephone Number
_______________________________________________________________________________
Branch Office Address
_______________________________________________ _____ _______________________
City State Zip Code
90231GEN-TABFAPP-P5
5
5. SHAREHOLDER AUTHORIZATION -- THIS SECTION MUST BE COMPLETED
TELEPHONE EXCHANGES AND REDEMPTIONS BY CHECK
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an authorized
employee of an investment dealer or agent requesting a redemption or exchange
on my behalf. (NOTE: Telephone exchanges may only be processed between
accounts that have identical registrations.) Telephone redemption checks will
only be mailed to the name and address of record; and the address must not have
changed within the last 30 days. The maximum telephone redemption amount is
$50,000. This service can be enacted once every 30 days.
__ I do not elect the telephone exchange service
__ I do not elect the telephone redemption by check service
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my
behalf, that the Fund reasonably believes to be genuine, and that neither the
Fund nor any such party will be responsible for the authenticity of such
telephone instructions. I understand that any or all of these privileges may
be discontinued by me or the Fund at any time. I understand and agree that the
Fund reserves the right to refuse any telephone instructions and that my
investment dealer or agent reserves the right to refuse to issue any telephone
instructions I may request.
For non-residents only: Under penalties of perjury, I certify that to the best
of my knowledge and belief, I qualify as a foreign person as indicated in
Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
I CERTIFY UNDER PENALTY OF PERJURY THAT THE NUMBER SHOWN IN SECTION 1 OF THIS
FORM IS MY CORRECT TAX IDENTIFICATION NUMBER OR I AM WAITING FOR A NUMBER TO BE
ISSUED TO ME AND THAT I HAVE NOT BEEN NOTIFIED THAT THIS ACCOUNT IS SUBJECT TO
BACKUP WITHHOLDING.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION
OF THIS DOCUMENT OTHER THAN THE CERTIFICATION REQUIRED TO AVOID BACKUP
WITHHOLDING.
______________________________________________________ _______________________
Signature Date
______________________________________________________ _______________________
Signature Date
Medallion Signature Guarantee required if completing Section 4E and your mutual
fund is not maintained by a broker dealer
90231GEN-TABFAPP-P6
6
SIGNATURE CARD
Dealer/Bank Name: _______________________________________
FUND ACCT. NO.:* ________________________________________
FUND NAME:* _____________________________________________
*Information Necessary to Complete Request
ACCOUNT NAME(S) AS REGISTERED:
_________________________________________________________
_________________________________________________________
SHAREHOLDER ADDRESS:
_________________________________________________________
_________________________________________________________
SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER:*
_________________________________________________________
AUTHORIZED SIGNATURES:
1. _________________________________________________________
2. _________________________________________________________
3. _________________________________________________________
Joint Accounts check one:
__ Either owner is authorized to sign Redemption Checks
__ All owners are required to sign Redemption Checks
(If no box is checked, only one signature will be required.)
Checkbooks are not transferable to other accounts. If you change account
numbers, change funds or change of ownership you must reapply for check-writing.
STATE STREET BANK AND TRUST COMPANY Subject to conditions on reverse side.
SIGNATURE CARD
The payment of funds is authorized by the signature(s) appearing on the reverse
side. Each signatory guarantees the genuineness of the other signatures.
STATE STREET BANK AND TRUST COMPANY (the "Bank") is hereby appointed agent by
the person(s) signing this card (the "Depositor(s)") and, as agent, is
authorized and directed, upon presentment of checks to the Bank.
(1) IF PERTAINING TO AN ALLIANCE DEPOSIT ACCOUNT (THE "ACCOUNT") - to direct
Alliance, which as the Depositor's agent and nominee maintains such Account on
the Depositors behalf at one or more depository institutions, to withdraw funds
from the Account in the amounts of such checks for deposit in this checking
account. Alliance hereby appointed the Depositor's agent and, where
appropriate, messenger for the purpose of effecting such withdrawals.
(2) IF PERTAINING TO AN ALLIANCE MUTUAL FUND (THE "FUND") - to transmit such
checks to the Fund or its transfer agent as requests to redeem shares
registered in the name of the Depositor(s) in the amounts of such checks for
deposit in this checking account.
This checking arrangement is subject to the applicable terms and restrictions,
including charges, set forth in the current Prospectus or Statement of
Additional Information for each Alliance mutual fund or deposit account as to
which the Depositor has arranged to redeem shares or withdraw funds by
check-writing. The Bank is further authorized to effect withdrawals or
redemptions to defray the Bank's charges relating to this checking arrangement.
The Depositor(s) agrees that he shall be subject to the rules and regulations
of the Bank pertaining to this checking arrangement as amended from time to
time, that the Bank has the right not to honor checks which do not meet the
Banks normal standards for checks presented to it, that the Bank and Alliance
have the right to change, modify or terminate this check-writing service at
any time; and that the Bank shall be liable only for its own negligence.
MEDALLION SIGNATURE GUARANTEE - Signatures must be guaranteed by an institution
that is an "eligible guarantor" as defined in Rule 17 Ad-15 of the Securities
Exchange Act of 1934. This would include such institutions such as banks and
brokerage firms.
Send this card with any necessary authorizing documentation to:
ALLIANCE FUND SERVICES
ATTN: CHECKWRITING DEPARTMENT
P.O. BOX 1520
SECAUCUS, NJ 07096-1520
MEDALLION SIGNATURE GUARANTEE (see reverse)
<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
November 2, 1998, as amended March 1, 1999
___________________________________________________________
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the Prospectus dated March 1,
1999, as revised from time to time, 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.
U.S. Treasury Bonds - Direct obligations of the U.S.
Treasury are issued in maturities of more than ten years from the
2
<PAGE>
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.
In a common structure, payments of principal, including
any principal prepayments, on the underlying mortgages are
3
<PAGE>
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.
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
4
<PAGE>
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,
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.
5
<PAGE>
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
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
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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 certain
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. Some 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
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
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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.
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
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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
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
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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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<PAGE>
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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<PAGE>
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
19
<PAGE>
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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<PAGE>
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,
21
<PAGE>
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.
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<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
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<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.
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<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
December 31, 1998, totaling more than $286 billion (of which more
than $118 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 54
registered investment companies managed by the Adviser,
comprising 118 separate investment portfolios, currently have
more than 3.6 million shareholder accounts. As of December 31,
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
December 31, 1998, the Adviser was retained as an investment
manager for employee benefit plan assets of 35 of the FORTUNE 100
companies.
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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 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
expenses of the Class A, Class B and Class C shares of the Fund,
32
<PAGE>
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
promotional expenses borne by the Fund in accordance with an
33
<PAGE>
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 are responsible for generally overseeing
the conduct of Fund business. Subject to such policies as the
Trustee may determine, the Adviser furnishes a continuing
investment program for the Fund and makes investment decisions on
its behalf. Subject to the control of the Trustees, the Adviser
also manages the Fund's other affairs and business. 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 1994. 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, 68, 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 BP Amoco Corporation (oil
and gas). Her address is P.O. Box 4623, Stamford, Connecticut
06903.
William H. Foulk, Jr., 66, is an Investment Adviser and
an independent consultant. He was formerly Senior Manager of
Barrett Associates, Inc., a registered investment adviser, with
which he had been associated since prior to 1994. His address is
Room 100, 2 Greenwich Plaza, Greenwich, Connecticut 06830.
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 1994. 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 1994. 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 1994. His address is 500 Plaza Drive,
Secaucus, New Jersey 07094.
Bruce W. Calvert, 52, Vice President, is the Vice
Chairman and Chief Executive Officer of ACMC, with which he has
been associated since prior to 1994. His address is 1345 Avenue
of the Americas, New York, New York 10105.
35
<PAGE>
Kathleen A. Corbet, 39, Vice President, is an Executive
Vice President of ACMC, with which she has been associated since
prior to 1994. Her address is 1345 Avenue of the Americas, New
York, New York 10105.
Wayne D. Lyski, 57, Vice President, is an Executive Vice
President of ACMC, with which he has been associated since prior
to 1994. 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 prior
to 1994. 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 1994. His address is 1345 Avenue of
the Americas, New York, New York 10105.
Emilie D. Wrapp, 43, Assistant Clerk, is a Vice
President and Assistant General Counsel of AFD, with which she
has been associated since prior to 1994. 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
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.
36
<PAGE>
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- 50 114
Ruth Block $4,407 $180,763 37 77
William H. Foulk, Jr. $4,407 $241,003 45 109
Brenton W. Harries $5,400 $ 92,000 2 18
Donald J. Robinson $ -0- $193,709 41 103
As of January 31, 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.
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-
37
<PAGE>
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.
______________________________________________________________
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
38
<PAGE>
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.
Alliance Fund Distributors, Inc. ("AFD" or the
"Principal Underwriter") is the principal underwriter of the
Fund's securities. The Fund continually offers its shares as
discussed in the Prospectus. AFD is under no obligation to sell
a particular number or amount of Fund shares. AFD and the
Adviser are affiliates within the meaning of the 1940 Act.
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 AFD 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 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.
39
<PAGE>
Each Plan may be terminated with respect to the class of
shares of the Fund to which the Plan relates by vote of a
majority of the Trustees who are not "interested persons" of the
Trust and who have no direct or indirect financial interest in
the operation of the Plans or in any agreement related to the
Plans (the "Qualified Trustees"), or by vote of a majority of the
outstanding voting securities of that class. Each Plan may be
amended by vote of the Trustees, including a majority of the
Qualified Trustees, cast in person at a meeting called for that
purpose. Any change in a Plan that would materially increase the
distribution costs to the class of shares of the Fund to which
the Plan relates requires approval by the affected class of
shareholders of the Fund. The Trustees review quarterly a
written report of such distribution costs and the purposes for
which such costs have been incurred with respect to the Fund's
Class A, Class B and Class C shares. For so long as the Plans
are in effect, selection and nomination of those Trustees who are
not interested persons of the Trust shall be committed to the
discretion of such disinterested persons.
The Plans may be terminated with respect to the Fund or
any class of shares thereof at any time on 60 days' written
notice without payment of any penalty by the Principal
Underwriter or by vote of a majority of the outstanding voting
securities of the Fund or that class (as appropriate) or by vote
of a majority of the Qualified Trustees.
The Plans will continue in effect with respect to the
Fund and each class of shares thereof for successive one-year
periods, provided that each such continuance is specifically
approved (i) by the vote of a majority of the Qualified Trustees
and (ii) by the vote of a majority of the entire Board of
Trustees cast in person at a meeting called for that purpose.
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.
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
40
<PAGE>
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
Interest,
Carrying or
Other
Financing
Charges $0 $7,662 $5,131
41
<PAGE>
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.
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
42
<PAGE>
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
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
43
<PAGE>
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.
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
44
<PAGE>
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,
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.
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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
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
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<PAGE>
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
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
____________________
** Advisor Class Shares are sold only to investors described
above in this section under "--General."
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<PAGE>
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.
Class A Shares
The public offering price of Class A shares is the net
asset value plus a sales charge, as set forth below:
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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
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
49
<PAGE>
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.
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
50
<PAGE>
employer. The term "purchase" also includes purchases by any
"company", as the term is defined in the 1940 Act, but does not
include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term "purchase"
does not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit
card holders of a company, policy holders of an insurance company,
customers of either a bank or broker-dealer or clients of an
investment adviser. A "purchase" may also include shares,
purchased at the same time through a single selected dealer or
agent, of any other "Alliance Mutual Fund." Currently, the
Alliance Mutual Funds include:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Greater China 97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
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.
51
<PAGE>
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.
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
52
<PAGE>
of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B,
Class C and/or Advisor Class shares) of the Fund or any other
Alliance Mutual Fund. Each purchase of shares under a Statement
of Intention will be made at the public offering price or prices
applicable at the time of such purchase to a single transaction of
the dollar amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at least
$100,000 in Class A shares of the Fund, the investor and the
investor's spouse each purchase shares of the Fund worth $20,000
(for a total of $40,000), it will 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
53
<PAGE>
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
(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
54
<PAGE>
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
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.
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<PAGE>
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
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.
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<PAGE>
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
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
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<PAGE>
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
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
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<PAGE>
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.
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
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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
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
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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.
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
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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
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
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(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
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
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below are applicable to Class A, Class B, Class C and Advisor
Class shares unless otherwise indicated. If you are an Advisor
Class shareholder through an account established under a fee-based
program, your fee-based program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares
of the Fund that are different from those described herein. A
transaction fee may be charged by your financial representative
with respect to the purchase, sale or exchange of Advisor Class
shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing Electronic Funds Transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives the
proceeds from the investor's bank. In electronic form, drafts can
be made on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should 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
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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
(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
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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
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:
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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.
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
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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.
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.
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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
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
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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
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.
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_______________________________________________________________
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
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-
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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.
Mortgage backed and asset backed securities may be valued at
prices obtained from a bond pricing service or at a price obtained
from one or more of the major broker/dealers in such securities.
In cases where broker/dealer quotes are obtained, the Adviser may
establish procedures whereby changes in market yields or spreads
are used to adjust, on a daily basis, a recently obtained quoted
bid price on a security.
All other assets of the Fund are valued in good faith at
fair value by, or in accordance with procedures established by,
the Board of Directors.
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
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<PAGE>
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
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 Subchapter M of 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
73
<PAGE>
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 over (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
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
74
<PAGE>
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 long-term 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.
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 the Fund'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 to be distributed, even when a Fund's net
asset value also reflects unrealized losses. 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.
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
75
<PAGE>
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
counsel for further information as to the U.S. tax consequences of
investing in the Fund.
76
<PAGE>
____________________________________________________________
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. The Fund is a series of the Trust. 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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<PAGE>
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 January 31, 1999:
Names and Addresses % of Class
Class A
MLPF&S 100,331 14.67%
For the Sole Benefit of its
Customers
Attn: Fund Admin (97B72)
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Alliance Plans Div/FTC 46,420 6.79%
C/F Albert AC Noakes IRA R/O
Heathersided-Heather Way
Storrington
West Sussex RH20 4DD
United Kingdom
Class B
MLPF&S 730,783 54.51%
For the Sole Benefit of its
Customers
Attn: Fund Admin (97B72)
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
Class C
MLPF&S 244,190 33.80%
For the Sole Benefit of its
Customers
Attn: Fund Admin (97B72)
4800 Deer Lake Drive East
2nd Floor
Jacksonville, FL 32246-6484
78
<PAGE>
Everen Clearing Corp. 62,598 8.74%
A/C 1551-5975
Marilyn Katherine Blake Tr.
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
Everen Clearing Corp. 63,486 8.86%
A/C 1554-9134
Todd A. Blake Tr.
111 East Kilbourn Avenue
Milwaukee, WI 53202-6611
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
respect to matters which would otherwise be voted on by two or
more series or classes as a single class, the Trustees may, in
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<PAGE>
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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<PAGE>
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 Fund calculates average annual total return
information in the Performance Table in the Risk/Return Summary
according to the Commission formula as described above. In
accordance with Commission guidelines, total return information
is presented for each class for the same time periods, i.e., the
1, 5 and 10 years (or over the life of the Fund, if the Fund is
less than 10 years old) ending on the last day of the most recent
calendar year. Since different classes may have first been sold
on different dates ("Actual Inception Dates"), in some cases this
can result in return information being presented for a class for
periods prior to its Actual Inception Date. Where return
information is presented for periods prior to the Actual
Inception Date of a Class (a "Younger Class"), such information
is calculated by using the historical performance of the class
with the earliest Actual Inception Date (the "Oldest Class").
For this purpose, the Fund calculates the difference in total
annual fund operating expenses (as a percentage of average net
assets) between the Younger Class and the Oldest Class for the
most recent fiscal year ended prior to March 1, 1999, divides the
difference by 12, and subtracts the result from the monthly
performance at net asset value (including reinvestment of all
dividends and distributions) of the Oldest Class for each month
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<PAGE>
prior to the Younger Class's Actual Inception Date for which
performance information is to be shown. The resulting "pro
forma" monthly performance information is used to calculate the
Younger Class's average annual returns for these periods. Any
conversion feature applicable to the Younger Class is assumed to
occur in accordance with the Actual Inception Date for that
class, not its hypothetical inception date.
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%*
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,
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<PAGE>
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.
84
<PAGE>
____________________________________________________________
FINANCIAL STATEMENTS AND REPORT
OF INDEPENDENT ACCOUNTANTS
____________________________________________________________
85
<PAGE>
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
ANNUAL REPORT
AUGUST 31, 1998
ALLIANCE CAPITAL
PORTFOLIO OF INVESTMENTS
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
MORTGAGE-RELATED SECURITIES-75.3%
COLLATERALIZED MORTGAGE OBLIGATIONS-40.6%
FIXED RATE-24.6%
CMC Securities Corp.
Series 1993-E Cl. ES4
5.75%, 11/25/08 $ 60 $ 60,265
Countrywide Funding Corp.
Series 1994-9 Cl. A2
6.50%, 5/25/24 565 564,450
Federal Home Loan Mortgage Corp.
Series 1903 Cl. B
6.75%, 10/15/03 600 599,628
Series 1923 Cl. B
7.00%, 1/15/23 600 604,500
Series 2072 Cl. CA
7.50%, 10/15/27 494 500,468
Federal National Mortgage Association
Series 1996-68 Cl. B
6.50%, 5/18/17 449 451,255
Series 1997-53 Cl. PA
6.50%, 10/18/15 500 500,940
Series 1997-24 Cl. C
7.00%, 9/18/22 414 416,714
Series 1997-42 Cl. EA
7.25%, 3/18/26 520 526,141
Government National Mortgage Association
Series 1996-25 Cl. A
7.50%, 7/20/17 407 407,200
ICI Funding Corp.
Series 1997-1 Cl. A2
9.00%, 3/25/28 345 348,496
Series 1997-2 Cl. 1A9
9.50%, 7/25/28 198 200,514
Residential Funding Mortgage
Securities Co.
Series 1992-S31 Cl. A4
7.50%, 9/25/06 86 85,413
------------
5,265,984
ADJUSTABLE RATE-16.0%
Bear Stearns Mortgage Securities, Inc.
Series 1996-8 Cl. A7
6.19%, 11/25/27 (a) 88 88,039
Commercial Loan Funding Trust
Series I Cl. A
5.89%, 8/15/05 (a) (b) 163 163,261
Federal Home Loan Mortgage Corp.
Series 1928 Cl. F
6.13%, 12/15/24 (a) 363 364,465
Federal National Mortgage Association
Series 1993-639 Cl. F
6.04%, 8/25/16 (a) 479 481,562
Series 1992-204 Cl. FA
6.44%, 10/25/22 (a) 535 545,711
Imperial CMB Trust
Series 1997-2 Cl. M1
6.19%, 12/25/27 (a) 497 496,693
Prudential Securities Financial Asset
Funding Corp.
Series 1993-7 Cl. A2
7.65%, 2/26/23 (a) 600 612,936
Salomon Brothers Mortgage
Securities VII, Inc.
Series 1996-AFF1 Cl. A1
6.16%, 1/25/26 (a) 360 360,529
Sears Mortgage Securities
Corp.
Series 1992-16B Cl. A2
6.71%, 9/25/22 (a) 324 326,031
------------
3,439,227
5
PORTFOLIO OF INVESTMENTS (CONTINUED)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Total Collateralized Mortgage Obligations
(cost $8,722,405) $ 8,705,211
FEDERAL NATIONAL MORTGAGE
ASSOCIATION-24.9%
5.96%, 5/01/27 (a) $ 149 151,887
7.48%, 7/01/25 (a) 1,017 1,043,087
7.50%, 12/01/99 900 925,308
7.51%, 1/01/27 (a) 184 186,233
7.58%, 6/01/26 (a) 360 368,174
7.60%, 9/01/27 (a) 327 333,917
7.64%, 11/01/26 (a) 400 409,329
8.00%, 10/01/99-12/01/99 865 886,706
12.00%, 3/01/13-5/01/15 899 1,035,189
Total Federal National Mortgage
Association
(cost $5,332,328) 5,339,830
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION-5.6%
6.88%, 4/20/23 (a) 484 493,579
7.00%, 11/20/26-12/20/26 (a) 681 691,147
Total Government National Mortgage
Association
(cost $1,187,032) 1,184,726
FEDERAL HOME LOAN MORTGAGE CORP.-4.2%
7.87%, 2/01/26 (a) 710 724,670
12.00%, 2/01/14 153 175,733
Total Federal Home Loan Mortgage Corp.
(cost $910,371) 900,403
Total Mortgage-Related Securities
(cost $16,152,136) 16,130,170
ASSET BACKED SECURITIES-9.6%
Access Financial Mortgage Loan Trust
Series 1997-3 Cl. A7
5.89%, 10/18/27 (a) 405 405,459
Advanta Credit Card Master Trust
Series 1996-C Cl. A
5.81%, 11/15/03 (a) 350 349,888
AFC Mortgage Loan Trust
Series 1998-2 Cl. 1A
5.75%, 7/25/28 (a) 391 390,912
Countrywide Home Equity Loan Trust
Series 1998-Cl. CTFS
5.83%, 10/15/24 (a) 400 400,000
Equicon Home Equity Loan Trust
Mortgage Loan
Series 1994-2 Cl. A7
6.24%, 11/18/25 (a) 293 292,711
ITT Federal Bank, fsb
Series 1994-P1 Cl. A1
7.68%, 6/25/24 (a) (b) 224 226,400
Total Asset Backed Securities
(cost $2,067,331) 2,065,370
REPURCHASE AGREEMENTS-15.5%
Goldman, Sachs & Co.
5.81%, dated 8/31/98,
$400,065 due 9/01/98,
collateralized by
$423,000 FGLMC,
7.00%, 2/01/28 400 400,000
PaineWebber, Inc.
5.70%, dated 8/31/98,
$975,154 due 9/01/98,
collateralized by
$983,000 FNMA,
6.50%, 8/01/13 975 975,000
6
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
PRINCIPAL
AMOUNT
(000) VALUE
- -------------------------------------------------------------------------------
Prudential Securities, Inc.
5.83%, dated 8/31/98,
$975,158 due 9/01/98,
collateralized by
$985,000 FHLM,
6.25%, 12/15/22 $ 975 $ 975,000
State Street Bank and Trust Co.
5.82%, dated 8/31/98,
$975,158 due 9/01/98,
collateralized by
$980,000 FNMA,
5.96%, 11/16/99 975 975,000
Total Repurchase Agreements
(cost $3,325,000) 3,325,000
TOTAL INVESTMENTS-100.4%
(cost $21,544,467) 21,520,540
Other assets less liabilities-(0.4%) (84,673)
NET ASSETS-100% $ 21,435,867
(a) Adjustable rate mortgages; stated interest rate in effect at August 31,
1998.
(b) Securities are exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At August 31, 1998,
these securities amounted to $389,661 or 1.8% of net assets.
See notes to financial statements.
7
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
ASSETS
Investments in securities, at value (cost $18,219,467) $ 18,195,540
Repurchase agreements (cost $3,325,000) 3,325,000
Cash 14,285
Receivable for shares of beneficial interest sold 1,739,336
Receivable for investment securities sold 1,217,912
Interest receivable 326,887
Receivable due from Adviser 36,875
Total assets 24,855,835
LIABILITIES
Payable for investment securities purchased 3,237,982
Payable for shares of beneficial interest redeemed 63,727
Dividends payable 27,533
Distribution fee payable 11,197
Accrued expenses 79,529
Total liabilities 3,419,968
NET ASSETS $ 21,435,867
COMPOSITION OF NET ASSETS
Shares of beneficial interest, at par $ 22
Additional paid-in capital 22,259,136
Distributions in excess of net investment income (42,209)
Accumulated net realized loss on investment transactions (750,635)
Net unrealized depreciation of investments and other assets (30,447)
$ 21,435,867
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share
($5,534,521/583,743 shares of beneficial interest
issued and outstanding) $9.48
Sales charge--4.25% of public offering price .42
Maximum offering price $9.90
CLASS B SHARES
Net asset value and offering price per share
($10,827,357/1,125,064 shares of beneficial interest
issued and outstanding) $9.62
CLASS C SHARES
Net asset value and offering price per share
($5,073,989/528,056 shares of beneficial interest
issued and outstanding) $9.61
See notes to financial statements.
8
STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
INVESTMENT INCOME
Interest $ 1,131,931
EXPENSES
Advisory fee $ 89,353
Distribution fee - Class A 15,938
Distribution fee - Class B 64,165
Distribution fee - Class C 45,169
Custodian 95,580
Audit and legal 37,999
Transfer agency 35,846
Registration 35,722
Printing 29,028
Trustees' fees 23,284
Miscellaneous 1,433
Total expenses 473,517
Less: expenses waived and reimbursed
by Adviser (See Note B) (167,832)
Less: expense offset arrangement (See Note B) (1,705)
Net expenses 303,980
Interest expense 71,757
Total expenses including interest expense 375,737
Net investment income 756,194
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investment transactions (133,830)
Net change in unrealized depreciation of
investments and other assets (28,689)
Net loss on investments (162,519)
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 593,675
See notes to financial statements.
9
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1998 1997
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Net investment income $ 756,194 $ 712,010
Net realized gain (loss) on investment
transactions (133,830) 41,888
Net change in unrealized depreciation of
investments and other assets (28,689) 5,742
Net increase in net assets from operations 593,675 759,640
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (274,620) (175,837)
Class B (281,947) (293,780)
Class C (199,627) (234,511)
Tax return of capital
Class A (18,747) (25,833)
Class B (19,247) (43,161)
Class C (13,628) (34,454)
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Net increase 6,278,281 333,768
Total increase 6,064,140 285,832
NET ASSETS
Beginning of year 15,371,727 15,085,895
End of year $ 21,435,867 $ 15,371,727
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1998 ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance Short-Term U.S. Government Fund (the "Fund"), a series of The Alliance
Portfolios (the "Trust"), organized as a Massachusetts Business Trust on March
29, 1987, is registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company. The Fund offers Class A,
Class B and Class C shares. Class A shares are sold with a front-end sales
charge of up to 4.25% for purchases not exceeding $1,000,000. With respect to
purchases of $1,000,000 or more, Class A shares redeemed within one year of
purchase will be subject to a contingent deferred sales charge of 1%. Class B
shares are currently sold with a contingent deferred sales charge which
declines from 3% to zero depending on the period of time the shares are held.
Class B shares will automatically convert to Class A shares six years after the
end of the calendar month of purchase. Class C shares are subject to a
contingent deferred sales charge of 1% on redemptions made within the first
year after purchase. All three classes of shares have identical voting,
dividend, liquidation and other rights, except that each class bears different
distribution expenses and has exclusive voting rights with respect to its
distribution plan. The financial statements have been prepared in conformity
with generally accepted accounting principles which require management to make
certain estimates and assumptions that affect the reported amounts of assets
and liabilities in the financial statements and amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies followed by the
Fund.
1. SECURITY VALUATION
Portfolio securities traded on a national securities exchange are valued at the
last sale price on such exchange on the day of valuation or, if there was no
sale on such day, the mean of the bid and asked prices on that day's closing.
Securities traded on the over-the-counter market are valued at the mean of the
current bid and asked prices reported by NASDAQ, the National Quotation Bureau
or other comparable sources deemed appropriate to reflect the fair market value
thereof. U.S. government securities and other debt securities which mature in
60 days or less are valued at amortized cost unless this method does not
represent fair value. Securities for which market quotations are not readily
available are valued at fair value as determined in good faith by the Trustees.
Fixed income securities may be valued on the basis of prices provided by a
pricing service when such prices are believed to reflect the fair market value
of such securities.
2. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if any, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
3. INVESTMENT INCOME AND INVESTMENT TRANSACTIONS
Interest income is accrued daily. Investment transactions are accounted for on
the date securities are purchased or sold. The Fund accretes discount as an
adjustment to interest income. Investment gains and losses are determined on
the identified cost basis.
4. INCOME AND EXPENSES
All income earned and expenses incurred by the Fund are borne on a pro-rata
basis by each settled class of shares, based on the proportionate interest in
the Fund represented by the shares of such class, except that the Fund's Class
B and Class C shares bear higher distribution fees and, in the case of Class B
shares, higher transfer agent fees than Class A. Expenses of the Trust are
charged to each Fund in proportion to settled shares.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
Income dividends and capital gains distributions are determined in accordance
with federal tax regulations and may differ from those determined in accordance
with generally accepted accounting principles. To the extent these differences
are permanent, such amounts are reclassified within the capital accounts based
on their federal tax basis treatment; temporary differences, do not require
such reclassification. During the current fiscal year, permanent differences,
primarily due to a tax return of capital resulted in a net decrease in
distributions in excess of net investment income and a corresponding decrease
in additional paid-in capital. This reclassification had no effect on net
assets.
11
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
6. REPURCHASE AGREEMENT
The Fund's custodian takes possession of collateral pledged for investments in
repurchase agreements, the market value of which is required to be at least
102% of the resale amount at the time of purchase. The value of the collateral
is marked-to-market on a daily basis and additional collateral is requested
from the counterparty, as necessary, to ensure that its value is at least equal
at all times to the total amount of the repurchase obligation, including
interest. If the seller defaults and the value of the collateral declines or if
bankruptcy proceedings commence with the respect to the seller of the security,
realization of the collateral by the Fund may be delayed or limited.
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under the terms of an investment advisory agreement, the Fund pays Alliance
Capital Management L.P. (the "Adviser"), an advisory fee at an annual rate of
.55 of 1% of the Fund's average daily net assets. Such fee is accrued daily and
paid monthly. The Adviser has agreed to voluntarily waive its fees and bear
certain expenses so that total operating expenses do not exceed on an annual
basis 1.40%, 2.10% and 2.10% of the daily average net assets for the Class A,
Class B and Class C shares, respectively. For the year ended August 31, 1998,
the Adviser waived all advisory fees and bore additional operating expenses in
the amount of $167,832.
The Fund compensates Alliance Fund Services, Inc., a wholly-owned subsidiary of
the Adviser, under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $20,680 for the year ended August 31, 1998.
In addition, for the year ended August 31, 1998, the Fund's expenses were
reduced by $1,705 under an expense offset arrangement with Alliance Fund
Services. Transfer agency fees reported in the statement of operations exclude
these credits.
Alliance Fund Distributors, Inc., (the "Distributor"), a wholly-owned
subsidiary of the Adviser, serves as the Distributor of the Fund's shares. The
Distributor received $18,771, and $2,286 in contingent deferred sales charges
imposed upon redemptions by shareholders of Class B and Class C shares,
respectively, for the year ended August 31, 1998.
Accrued expenses includes $14,676 owed to a Trustee under the Trust's deferred
compensation plan.
NOTE C: DISTRIBUTION PLANS
The Trust has adopted a plan of distribution for each class of shares of the
Fund pursuant to Rule 12b-1 under the Investment Company Act of 1940 (each a
"Plan" and collectively the "Plans"). Under the Plans, the Fund pays a
distribution fee to the Distributor at an annual rate of up to .50 of 1% of the
Fund's average daily net assets attributable to Class A shares and 1% of the
average daily net assets attributable to both Class B and Class C shares. The
Trustees currently limit payments under the Class A plan to .30 of 1% of the
Fund's aggregate average daily net assets attributable to Class A shares. The
Plan provides that the Distributor will use such payments in their entirety for
distribution assistance and promotional activites.
The Fund is not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. The purpose of the payments to the
Distributor under the Plans is to compensate the Distributor for its
distribution services with respect to the sale of the Fund's shares. Since the
Distributor's compensation is not directly tied to its expenses, the amount of
compensation received by it under the Plan during any year may be more or less
than its actual expenses. For this reason, the Plans are characterized by the
staff of the Securities and Exchange Commission as being of the "compensation"
variety.
In the event that a Plan is terminated or not continued, no distribution
services fees (other than current amounts accrued but not yet paid) would be
owed by the Fund to the Distributor with respect to the relevant class.
The Plans also provide that the Adviser may use its own resources to finance
the distribution of the Fund's shares.
12
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments
and U.S. government securities) aggregated $6,391,721 and $5,516,964,
respectively, for the year ended August 31, 1998. There were purchases of
$35,676,646 and sales of $30,455,402 of U.S. government and government agency
obligations for the year ended August 31, 1998.
At August 31, 1998, the cost of investments for federal income tax purposes was
the same as the cost for financial reporting purposes. Accordingly, gross
unrealized appreciation of investments was $28,566 and gross unrealized
depreciation of investments was $52,493 resulting in net unrealized
depreciation of $23,927.
At August 31, 1998, the Fund had net capital loss carryforward of $631,135 of
which $44,110 expires in the fiscal year ending 2001, $36,136 expires in the
fiscal year ending 2002, $522,417 expires in the fiscal year ending 2003,
$14,141 expires in the fiscal year ending 2004 and $14,331 expires in the
fiscal year ending 2006 to the extent provided by the regulations. To the
extent that this loss carryforward is used to offset future capital gains, it
is probable that the gains so offset will not be distributed to shareholders.
Capital losses incurred after October 31, within the Fund's fiscal year are
deemed to arise on the first business day of the following fiscal year. The
Fund incurred and elected to defer post October losses of $119,499 for the year
ended August 31, 1998.
NOTE E: SHARES OF BENEFICIAL INTEREST
There are an unlimited number of $0.00001 par value shares of beneficial
interest authorized, divided into three classes, designated Class A, Class B
and Class C shares. Transactions in shares of beneficial interest were as
follows:
SHARES AMOUNT
--------------------------- ------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31, AUGUST 31, AUGUST 31,
1998 1997 1998 1997
------------ ------------ -------------- --------------
CLASS A
Shares sold 2,479,220 271,217 $ 23,780,868 $ 2,618,771
Shares issued in
reinvestment of
dividends 19,158 15,376 183,032 148,473
Shares converted
from Class B 28,866 16,392 275,890 158,206
Shares redeemed (2,348,787) (255,414) (22,525,423) (2,466,879)
Net increase 178,457 47,571 $ 1,714,367 $ 458,571
CLASS B
Shares sold 1,141,000 658,962 $ 11,027,623 $ 6,439,331
Shares issued in
reinvestment of
dividends 22,555 24,392 218,460 238,244
Shares converted
to Class A (28,483) (16,203) (275,890) (158,206)
Shares redeemed (673,074) (698,307) (6,524,245) (6,822,354)
Net increase
(decrease) 461,998 (31,156) $ 4,445,948 $ (302,985)
CLASS C
Shares sold 408,212 434,159 $ 3,945,097 $ 4,238,239
Shares issued in
reinvestment of
dividends 19,127 18,955 185,026 184,964
Shares redeemed (414,401) (435,115) (4,012,157) (4,245,021)
Net increase 12,938 17,999 $ 117,966 $ 178,182
13
NOTES TO FINANCIAL STATEMENTS (CONT.)
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
NOTE F: REVERSE REPURCHASE AGREEMENTS
Under a reverse repurchase agreement, the Fund sells securities and agrees to
repurchase them at a mutually agreed upon date and price. At the time the Fund
enters into a reverse repurchase agreement, it will establish a segregated
account with the custodian containing cash, cash equivalents or liquid
high-grade debt securities having a value at least equal to the repurchase
price. As of August 31, 1998, the Fund had no reverse repurchase agreements
outstanding. For the year ended August 31, 1998, the maximum amount of reverse
repurchase agreements was $3,363,000, the average amount outstanding was
approximately $1,087,446, and the daily weighted average interest rate was
5.488%.
NOTE G: BANK BORROWING
A number of open-end mutual funds managed by the Adviser, including the Fund,
participate in a $750 million revolving credit facility (the "Facility") to
provide short-term financing if necessary, subject to certain restrictions in
connection with abnormal redemption activity. Commitment fees related to the
Facility are paid by the participating funds and are included in the
miscellaneous expenses in the statement of operations. The Fund did not utilize
the Facility during the year ended August 31, 1998.
14
FINANCIAL HIGHLIGHTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS A
------------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77 $10.22
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .49(c) .47(c) .47 .42 .14 .35
Net realized and unrealized gain (loss)
on investment transactions (.11) .03 (.02) .05 (.09) (.29)
Net increase in net asset
value from operations .38 .50 .45 .47 .05 .06
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.46) (.49) (.41) (.12) (.42)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.03) (.08)
Distributions from net realized gains -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.53) (.53) (.49) (.44) (.15) (.51)
Net asset value, end of period $ 9.48 $ 9.63 $ 9.66 $ 9.70 $ 9.67 $ 9.77
TOTAL RETURN
Total investment return based on net
asset value (d) 4.04% 5.29% 4.71% 5.14% .53% .52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,535 $3,901 $3,455 $2,997 $2,272 $2,003
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 1.41%(e) 1.40% 1.40% 1.40% 1.40%(f) 1.27%
Interest expense on reverse
repurchase agreements .42% .01% .13% -0- -0- -0-
Expenses, before waivers/reimbursements 2.81% 2.42% 3.04% 3.71% 2.95%(f) 2.17%
Net investment income 5.00% 4.90% 4.85% 4.56% 3.98%(f) 4.41%
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
See footnotes on page 17.
15
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS B
------------------------------------------------------------------------------
MAY 1, 1994
YEAR ENDED AUGUST 31, THROUGH YEAR ENDED
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88 $10.31
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .42(c) .41(c) .41 .36 .10 .40
Net realized and unrealized gain (loss)
on investment transactions (.08) .02 (.03) .04 (.07) (.39)
Net increase in net asset
value from operations .34 .43 .38 .40 .03 .01
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.39) (.42) (.34) (.11) (.35)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.02) (.08)
Distributions from net realized gains -0- -0- -0- -0- -0- -0-
Total dividends and distributions (.46) (.46) (.42) (.37) (.13) (.44)
Net asset value, end of period $ 9.62 $ 9.74 $ 9.77 $ 9.81 $ 9.78 $ 9.88
TOTAL RETURN
Total investment return based on net
asset value (d) 3.52% 4.45% 3.89% 4.32% .28% .03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $10,827 $6,458 $6,781 $6,380 $6,281 $7,184
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(e) 2.10% 2.10% 2.10% 2.10%(f) 2.05%
Interest expense on reverse
repurchase agreements .45% .01% .13% -0- -0- -0-
Expenses, before waivers/reimbursements 3.63% 3.10% 3.74% 4.33% 3.60%(f) 3.21%
Net investment income 4.49% 4.13% 4.11% 3.82% 3.22%(f) 3.12%
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
See footnotes on page 17.
16
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
SELECTED DATA FOR A SHARE OF BENEFICIAL INTEREST OUTSTANDING THROUGHOUT EACH
PERIOD
<TABLE>
<CAPTION>
CLASS C
------------------------------------------------------------------------------
AUGUST 2,
MAY 1, 1994 1993(G)
YEAR ENDED AUGUST 31, THROUGH TO
-------------------------------------------------- AUGUST 31, APRIL 30,
1998 1997 1996 1995 1994(A) 1994
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87 $10.34
INCOME FROM INVESTMENT OPERATIONS
Net investment income (b) .42(c) .41(c) .40 .34 .10 .26
Net realized and unrealized gain (loss)
on investment transactions (.08) .02 (.02) .06 (.07) (.42)
Net increase (decrease) in net asset
value from operations .34 .43 .38 .40 .03 (.16)
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.39) (.42) (.34) (.11) (.25)
Dividends in excess of net investment
income -0- -0- -0- (.03) -0- (.01)
Tax return of capital (.03) (.07) -0- -0- (.02) (.05)
Total dividends and distributions (.46) (.46) (.42) (.37) (.13) (.31)
Net asset value, end of period $ 9.61 $ 9.73 $ 9.76 $ 9.80 $ 9.77 $ 9.87
TOTAL RETURN
Total investment return based on net
asset value (d) 3.53% 4.45% 3.90% 4.33% .28% (1.56)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,074 $5,012 $4,850 $5,180 $7,128 $8,763
Ratios to average net assets of:
Expenses, net of waivers/reimbursements 2.11%(e) 2.10% 2.10% 2.10% 2.10%(f) 2.10%(f)
Interest expense on reverse
repurchase agreements .45% .01% .12% -0- -0- -0-
Expenses, before waivers/reimbursements 3.58% 3.09% 3.72% 4.23% 3.64%(f) 3.10%(f)
Net investment income 4.48% 4.15% 4.11% 3.80% 3.26%(f) 2.60%(f)
Portfolio turnover rate 206% 65% 110% 15% 144% 55%
</TABLE>
(a) The Fund changed its fiscal year end from April 30 to August 31.
(b) Net of fees waived and expenses reimbursed by Adviser.
(c) Based on average shares outstanding.
(d) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or contingent
deferred sales charges are not reflected in the calculation of total investment
return. Total investment return calculated for a period of less than one year
is not annualized.
(e) Ratio reflects expenses grossed up for expense offset arrangement with the
transfer agent. For the year ended August 31, 1998, the ratio of expenses net
of waivers and reimbursements would have been 1.40%, 2.10%, and 2.10% for Class
A, Class B and Class C shares, respectively.
(f) Annualized.
(g) Commencement of distribution.
17
REPORT OF INDEPENDENT ACCOUNTANTS ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
_______________________________________________________________________________
TO THE TRUSTEES AND SHAREHOLDERS OF
ALLIANCE SHORT-TERM U.S. GOVERNMENT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the portfolio of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Alliance Short-Term U.S.
Government Fund (one of the portfolios of The Alliance Portfolios, hereafter
referred to as the "Fund") at August 31, 1998, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended and the financial highlights for each of the
periods presented, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at August 31, 1998 by correspondence with the custodian and brokers,
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
October 7, 1998
18
<PAGE>
________________________________________________________________
APPENDIX A:
DESCRIPTION OF CORPORATE BOND RATINGS
________________________________________________________________
Description of the bond ratings of Moody's Investors
Service, Inc. are as follows:
Aaa-- Bonds which are rated Aaa are judged to be of the
best quality. They carry the smallest degree of investment risk
and are generally referred to as "gilt edge." Interest payments
are protected by a large or by an exceptionally stable margin, and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa-- Bonds which are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they
comprise what are generally known as high grade bonds. They are
rated lower than the best 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.
B-- Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
A-1
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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
obligation. While such debt will likely have some quality and
A-2
<PAGE>
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
quickly salable. As a class they are more sensitive in standing
A-3
<PAGE>
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
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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>
PART 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.
(3) Form of Expense Limitation Undertaking by Alliance
Capital Management L.P. - Filed herewith.
(i) Not applicable.
(j) Consent of Independent Auditors - Filed herewith.
(k) Not applicable.
(l) Not applicable.
(m) Not applicable.
(n) Financial Data Schedule - Incorporated by reference to
Exhibit 17 to Post-Effective Amendment No. 30 of
Registrant's Registration Statement on Form N-1A (File
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<PAGE>
Nos. 33-12988 and 811-05088) filed with the Securities
and Exchange Commission on October 30, 1998.
(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.
Other Exhibits - Powers of Attorney of John D. Carifa,
Ruth Block, 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
C-3
<PAGE>
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:
"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
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<PAGE>
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
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
C-5
<PAGE>
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
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
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<PAGE>
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
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.
C-7
<PAGE>
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
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. acts as Principal Underwriter or Distributor for
the following investment companies:
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
C-8
<PAGE>
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Global Dollar Government Fund, Inc.
Alliance Global Environment Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Greater China '97 Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance High Yield Fund, Inc.
Alliance Institutional Funds, Inc.
Alliance Institutional Reserves, Inc.
Alliance International Fund
Alliance International Premier Growth Fund, Inc.
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
Alliance Municipal Income Fund II
Alliance Municipal Trust
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance Select Investor Series, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Fund, Inc.
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
C-9
<PAGE>
Geoffrey L. Hyde Director and Senior
Vice President
Dave H. Williams Director
David Conine Executive Vice President
Richard K. Saccullo Executive Vice President
Edmund P. Bergan, Jr. Senior Vice President, Clerk
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
Benji A. Baer Senior Vice President
Karen J. Bullot Senior Vice President
John R. Carl 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
C-10
<PAGE>
Robert E. Powers Senior Vice President
Kevin A. Rowell Senior Vice President
Raymond S. Sclafani Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
Peter J. Szabo Senior Vice President
William C. White Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Gerard J. Friscia Vice President and
Controller
Ricardo Arreola Vice President
Jamie A. Atkinson Vice President
Kenneth F. Barkoff Vice President
Charles M. Barrett Vice President
Casimir F. Bolanowski Vice President
Michael E. Brannan Vice President
Robert F. Brendli Vice President
Christopher L. Butts Vice President
Timothy W. Call Vice President
Jonathan W. Cangalosi Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Russell R. Corby Vice President
John W. Cronin Vice President
C-11
<PAGE>
Richard W. Dabney Vice President
Stephen J. Demetrovits Vice President
John F. Dolan Vice President
John C. Endahl Vice President
John E. English Vice President
Sohaila S. Farsheed Vice President
Shawn C. Gage Vice President
Joseph C. Gallagher Vice President
Andrew L. Gangolf Vice President and Assistant
Assistant General Clerk
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
Brian R. Hoegee Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Michael J. Hutten Vice President
Scott Hutton Vice President
C-12
<PAGE>
Oscar J. Isoba Vice President
Richard D. Keppler Vice President
Donna M. Lamback Vice President
P. Dean Lampe Vice President
Nicholas J. Lapi Vice President
Henry Michael Lesmeister Vice President
Eric L. Levinson Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Jerry W. Lynn Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Jeffrey P. Mellas Vice President
Thomas F. Monnerat Vice President
Timothy S. Mulloy Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Peter J. O'Brien Vice President
John C. O'Connell Vice President
John J. O'Connor Vice President
Richard J. Olszewski Vice President
Catherine N. Peterson Vice President
James J. Posch Vice President
C-13
<PAGE>
Domenick Pugliese Vice President and Assistant
Assistant General Clerk
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
Vincent T. Strangio Vice President
Andrew D. Strauss Vice President
Michael J. Tobin Vice President
Joseph T. Tocyloski Vice President
David R. Turnbough Vice President
Martha D. Volcker Vice President
Patrick E. Walsh Vice President
Mark E. Westmoreland Vice President
David E. Willis Vice President
Emilie D. Wrapp Vice President and Assistant
Assistant General Clerk
Counsel
Patrick Look Assistant Vice
President and
Assistant Treasurer
C-14
<PAGE>
Michael W. Alexander Assistant Vice
President
Richard J. Appaluccio 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
Terri J. Daly Assistant Vice
President
Ralph A. DiMeglio Assistant Vice
President
Faith C. Deutsch Assistant Vice
President
Adam E. Engelhardt 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
C-15
<PAGE>
Michael Laino Assistant Vice
President
Evamarie C. Lombardo Assistant Vice
President
Kristine J. Luisi Assistant Vice
President
Kathryn Austin Masters Assistant Vice
President
Richard F. Meier Assistant Vice
President
Rizwan A. Raja Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Mark V. Spina Assistant Vice
President
Gayle S. Stamer Assistant Vice
President
Eileen Stauber Assistant Vice
President
Margaret M. Tompkins Assistant Vice
President
Marie R. Vogel Assistant Vice
President
Wesley S. Williams Assistant Vice
President
Matthew Witschel Assistant Vice
President
Christopher J. Zingaro Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable.
C-16
<PAGE>
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.
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.
C-17
<PAGE>
********************
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.
C-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, as amended, and the Investment Company Act of 1940, as
amended, the Registrant certifies that it meets all of the
requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Amendment to its
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York
and State of New York, on the 26th day of February, 1999.
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 February 26, 1999
_______________________ and President
John D. Carifa
2) Principal Financial and
Accounting Officer
/s/ Mark D. Gersten Treasurer February 26, 1999
________________________ and Chief
Mark D. Gersten Financial
Officer
C-19
<PAGE>
All of the Trustees
Ruth Block
John D. Carifa
William H. Foulk, Jr.
Brenton W. Harries
Donald J. Robinson
by /s/ Edmund P. Bergan, Jr. February 26, 1999
________________________
(Attorney-in-fact)
Edmund P. Bergan, Jr.
C-20
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
(h)(3) Form of Expense Limitation Undertaking
(j) Consent of Independent Auditors
C-21
00250184.BH9
<PAGE>
EXPENSE LIMITATION UNDERTAKING
ALLIANCE CAPITAL MANAGEMENT L.P.
1345 Avenue of the Americas
New York, New York 10105
February 1, 1999
[Name of Registrant]
1345 Avenue Of The Americas
New York, New York 10105
Dear Sirs:
Alliance Capital Management L.P. herewith undertakes
that for the Expense Limitation Period, as defined below, we
shall cause the aggregate operating expenses of every character
incurred by your [ ] portfolio (the "Portfolio") to be
limited to ___% of your aggregate average daily net assets (the
"Limitation"). To determine the amount of the Portfolio's
expenses in excess of the Limitation, the amount of allowable
fiscal-year-to-date expenses shall be computed daily by prorating
the Limitation based on the number of days elapsed within the
fiscal year of the Portfolio (the "Prorated Limitation"). The
Prorated Limitation shall be compared to the expenses of the
Portfolio recorded through the current day in order to produce
the allowable expenses to be recorded and accrued for the
Portfolio current day (the "Allowable Expenses"). If the
expenses of the Portfolio for the current day exceed the
Allowable Expenses, we shall be responsible for such excess and
<PAGE>
will for the current day (i) reduce our advisory fees and/or
(ii) reimburse the Fund accordingly.
For purposes of this Undertaking, the Expense Limitation
Period shall mean the period commencing on the date hereof and
terminating at the close of the Portfolio's fiscal year. The
Expense Limitation Period and the Undertaking given hereunder
will automatically be extended for additional one-year terms
unless we provide you with at least 60 days' notice prior to the
end of any Expense Limitation Period, of our determination not to
extend this Undertaking beyond its then current term.
We understand and intend that you will rely on this
Undertaking in preparing and filing a Registration Statement for
the Portfolio on Form N-1A with the Securities and Exchange
Commission, in accruing the Portfolio's expenses for purposes of
calculating its net asset value per share and for other purposes
and expressly permit you to do so.
Very truly yours,
ALLIANCE CAPITAL MANAGEMENT L.P.
By: Alliance Capital Management
Corporation, its general
partner
By: ___________________________
2
00250157.BW2
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional
Information constituting part of this Post-Effective
Amendment No. 34 to the registration statement on Form N-1A
(the "Registration Statement") of our report dated October
7, 1998, relating to the financial statements and financial
highlights of Alliance Short-Term U.S. Government Fund (the
"Fund"), which appears in such Statement of Additional
Information, and to the incorporation by reference of our
report into the Prospectus relating to Class A, Class B and
Class C shares of the Fund (the "Prospectus") which
constitutes part of this Registration Statement. We also
consent to the references to us under the headings
"Shareholder Services - Statement and Reports" and "General
Information - Independent Accountants" in such Statement of
Additional Information and to the reference to us under the
heading "Financial Highlights" in the Prospectus.
Pricewaterhouse Coopers LLP
1177 Avenue of the Americas
New York, New York
February 22, 1999
00250184.BI3
