<PAGE>
As filed with the Securities and Exchange
Commission on December 20, 1996
File Nos.
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.
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No.
_______________________________
Alliance High Yield Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:(212) 969-1000
_____________________________
EDMUND P. BERGAN, JR.
Alliance Capital Management L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
Bruce D. Senzel
Seward & Kissel
One Battery Park Plaza
New York, New York 10004
It is proposed that this filing will become effective (check
appropriate box)
<PAGE>
immediately upon filing pursuant to paragraph (b)
on (date) pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a)(1)
on (date) pursuant to paragraph (a)(1)
75 days after filing pursuant to paragraph (a)(2)
on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment.
The purpose of this Registration Statement is to register the
Registrant under the Investment Company Act of 1940, to register
the shares of the Registrant under the Securities Act of 1933 and
to declare pursuant to Section 24(f) of the Investment Company
Act of 1940 and Rule 24f-2 thereunder that an indefinite number
of its securities is being registered by this Registration
Statement.
The Registrant hereby amends this Registrant Statement under
the Securities Act of 1933 on such date or dates as may be
necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with the provisions of Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to
Section 8(a), may determine.
<PAGE>
CROSS REFERENCE SHEET
(as required by Rule 404(c))
N-1A Item No. Location in Prospectus
_____________ (Caption)
_______________________
PART A
Item 1. Cover Page........................ Cover Page
Item 2. Synopsis.......................... Expense Information
Item 3. Condensed Financial
Information....................... Not Applicable
Item 4. General Description
of Registrant..................... Description of the
Fund; General
Information
Item 5. Management of the Fund............ Management of the
Fund; General
Information
Item 6. Capital Stock and Other
Securities........................ Dividends,
Distributions and
Taxes; General
Information
Item 7. Purchase of Securities
Being Offered..................... Purchase and Sale of
Shares; General
Information
Item 8. Redemption or Repurchase.......... Purchase and Sale of
Shares; General
Information
Item 9. Pending Legal Proceedings......... Not Applicable
Location in Statement of
PART B Additional Information
______ (Caption)
________________________
Item 10. Cover Page........................ Cover Page
Item 11. Table of Contents................. Cover Page
<PAGE>
Item 12. General Information
and History....................... Management of the
Fund; General
Information
Item 13. Investment Objectives and
Policies.......................... Description of the
Fund
Item 14. Management of the Registrant ..... Management of the
Fund
Item 15. Control Persons and
Principal Holders of
Securities ....................... Not Applicable
Item 16. Investment Advisory and
Other Services.................... Management of the
Fund, Expenses of
the Fund, General
Information
Item 17. Brokerage Allocation and
Other Practices................... Portfolio
Transactions
Item 18. Capital Stock and Other
Securities........................ General Information
Item 19. Purchase, Redemption and Pricing
of Securities Being Offered....... Purchase of Shares;
Redemption and
Repurchase of
Shares; Dividends,
Distributions and
Taxes; Shareholder
Services
Item 20. Tax Status........................ Description of the
Fund, Dividends,
Distributions and
Taxes
Item 21. Underwriters...................... General Information
Item 22. Calculation of Performance
Data.............................. General Information
Item 23. Financial Statements.............. Not Applicable
00250233.AB8
<PAGE>
ALLIANCE
HIGH YIELD
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
Prospectus and Application
[ ], 1997
Table of Contents Page
The Fund at a Glance.....................................
Expense Information......................................
Glossary.................................................
Description of the Fund..................................
Investment Objective..................................
Investment Policies...................................
Additional Investment Practices.......................
Certain Risk Considerations...........................
Purchase and Sale of Shares..............................
Management of the Fund...................................
Dividends, Distributions and Taxes.......................
General Information......................................
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
<PAGE>
Alliance High Yield Fund, Inc. (the "Fund") seeks high
return by maximizing current income and, to the extent consistent
with that objective, capital appreciation. The Fund will pursue
this objective by investing primarily in a diversified mix of
high yield, below investment grade fixed-income securities
involving greater volatility of price and risk of loss of
principal and income than higher quality fixed income securities.
The Fund is a diversified open-end management investment
company. This Prospectus sets forth concisely the information
that a prospective investor should know about the Fund before
investing. A "Statement of Additional Information" for the Fund
dated ______________, 1997, which provides further information
regarding certain matters discussed in this Prospectus and other
matters which may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is
incorporated herein by reference. For a free copy, call or write
Alliance Fund Services, Inc. at the indicated address or call the
"For Literature" telephone number shown above.
The Fund offers three classes of shares. These shares
may be purchased, at the investor's choice, at a price equal to
their net asset value (i) plus an initial sales charge imposed at
the time of purchase ("Class A shares"), (ii) with a contingent
deferred sales charge imposed on most redemptions made within
four years of purchase ("Class B shares"), or (iii) without any
initial or contingent deferred sales charge as long as the shares
are held for one year or more ("Class C shares"). See "Purchase
and Sale of Shares."
An investment in these securities is not a deposit or
obligation of, or guaranteed or endorsed by, any bank and is not
federally insured by the Federal Deposit Insurance Corporation,
the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully
and to retain it for future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[ALLIANCE LOGO]
SMThese are registered marks used under license from the owner,
Alliance Capital Management L.P.
<PAGE>
The Fund At A Glance
The following summary is qualified in its entirety by the more
detailed information contained in this Prospectus.
The Fund's Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global
investment adviser providing diversified services to institutions
and individuals through a broad line of investments including
more than 100 mutual funds. Since 1971, Alliance has earned a
reputation as a leader in the investment world with over $[ ]
billion in assets under management as of December 31, 1996.
Alliance provides investment management services to employee
benefit plans for [ ] of the FORTUNE 100 companies.
The Fund
Seeks . . . high return by maximizing current income.
Invests principally in . . . high yield, fixed-income securities.
A Word About Risk . . .
The price of the Fund's shares will fluctuate daily as the prices
of the individual bonds in which it invests fluctuate, so that
your shares, when redeemed, may be worth more or less than their
original cost. Price fluctuations may be caused by changes in
the general level of interest rates or changes in bond credit
quality ratings. Changes in interest rates have a greater effect
on bonds with longer maturities than those with shorter
maturities. The Fund invests in high-yield, high-risk bonds that
are rated below investment grade and are considered to have
predominantly speculative characteristics. The prices of non-U.S.
Dollar denominated bonds also fluctuate with changes in foreign
exchange rates. Because the Fund invests its assets in non-U.S.
securities an investment in the Fund involves risks not
associated with Funds that invest primarily in securities of U.S.
issuers. While the Fund invests principally in fixed-income
securities, in order to achieve its investment objectives, the
Fund may at times use certain types of derivative instruments,
such as options, futures and forwards. These instruments involve
risks different from, and, in certain cases, greater than, the
risks presented by more traditional investments. These risks are
fully discussed in this Prospectus. See "Description of the Fund-
Additional Investment Practices" and "Certain Risk
Considerations."
<PAGE>
Getting Started. . .
Shares of the Fund are available through your financial
representative and most banks, insurance companies and brokerage
firms nationwide. Shares can be purchased for a minimum initial
investment of $250, and subsequent investments can be made for as
little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition,
the Fund offers several time and money saving services to
investors. Be sure to ask your financial representative about:
AUTOMATIC DIVIDEND REINVESTMENT
AUTOMATIC INVESTMENT PROGRAM
RETIREMENT PLANS
SHAREHOLDER COMMUNICATIONS
DIVIDEND DIRECTION PLANS
AUTO EXCHANGE
SYSTEMATIC WITHDRAWALS
A CHOICE OF PURCHASE PLANS
TELEPHONE TRANSACTIONS
24-HOUR INFORMATION
[ALLIANCE LOGO]
(R) These are registered marks used under license from
the owner, Alliance Capital Management L.P.
<PAGE>
_________________________________________________________________
EXPENSE INFORMATION
_________________________________________________________________
Shareholder Transaction Expenses are one of several factors to
consider when you invest in the Fund. The following table
summarizes your maximum transaction costs and estimated annual
expenses for each class of shares. The Example following the
table shows the cumulative expenses attributable to a
hypothetical $1,000 investment in each class for the periods
specified.
Class A Shares Class B Shares Class C Shares
Maximum sales charge imposed
on purchases (as a percentage
of offering price)....... 4.25%(a) None None
Sales charge imposed on
dividend reinvestments... None None None
Deferred sales charge (as
a percentage of original
purchase price or
redemption proceeds,
whichever is lower)...... None 3.0% during the 1% during the
first year, first year,
decreasing 1.0% 0% thereafter
annually to 0%
after the third
year(b)
Exchange fee............... None None None
____________________________________________________________
(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred
sales charge on redemptions within one year of purchase. See "Purchase
and Sale of Shares--How to Buy Shares"--page __.
(b) Class B shares automatically convert to Class A shares after six years.
See "Purchase and Sale of Shares--How to Buy Shares"--page __.
2
<PAGE>
Operating Expenses Class A Class B Class C
Management fees .75% .75% .75%
12b-1 fees .30% 1.00% 1.00%
Other expenses(a) [ ]% [ ]% [ ]%
Total fund operating expenses [ ]% [ ]% [ ]%
Example Class A Class B+ Class B++ Class C+ Class C++
After 1 year $[ ] $[ ] $[ ] $[ ] $[ ]
After 3 years $[ ] $[ ] $[ ] $[ ] $[ ]
___________________________________________________________
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to
Alliance Fund Services, Inc., an affiliate of Alliance, based
on a fixed dollar amount charged to the Fund for each
shareholder account.
The purpose of the foregoing table is to assist the investor in
understanding the various costs and expenses that an investor in
the Fund will bear directly or indirectly. Long-term
shareholders of the Fund may pay aggregate sales charges totaling
more than the economic equivalent of the maximum initial sales
charges permitted by the Conduct Rules of the National
Association of Securities Dealers, Inc. See "Management of the
Fund--Distribution Services Agreement." The Rule 12b-1 fee for
each class comprises a service fee not exceeding .25% of the
aggregate average daily net assets of the Fund attributable to
the class and an asset-based sales charge equal to the remaining
portion of the Rule 12b-1 fee. "Other expenses" are based on
estimated amounts for the Fund's current fiscal year. The
Example set forth above assumes reinvestment of all dividends and
distributions and utilizes a 5% annual rate of return as mandated
by Securities and Exchange Commission regulations. THE EXAMPLE
SHOULD NOT BE CONSIDERED REPRESENTATIVE OF PAST OR FUTURE
EXPENSES; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN.
3
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_________________________________________________________________
GLOSSARY
_________________________________________________________________
The following terms are used in this Prospectus. Many of these
terms are explained in greater detail under "Description of the
Fund--Additional Investment Practices."
Bonds are fixed, floating and variable rate debt obligations.
Debt Securities are bonds, debentures, notes, bills and
repurchase agreements.
Fixed-Income Securities are debt securities, convertible
securities and preferred stocks and include floating rate and
variable rate instruments. Fixed-income securities may be rated
(or if unrated, for purposes of the Fund's investment policies
may be determined by Alliance to be of equivalent quality to
those rated) Triple-A (Aaa or AAA), High Quality (Aa or AA or
above), High Grade (A or above) or Investment Grade (Baa or BBB
or above) by, as the case may be, Moody's, S&P, Duff & Phelps or
Fitch, or may be lower-rated securities, as defined below. In the
case of "split-rated" fixed-income securities (i.e., securities
assigned non-equivalent credit quality ratings, such as Baa by
Moody's but BB by S&P, or, to take another example, Ba by Moody's
and BB by S&P but B by Fitch), the Fund will use the rating
deemed by Alliance to be the most appropriate under the
circumstances.
Lower-Rated Securities are fixed-income securities rated Ba or BB
or below, or determined by Alliance to be of equivalent quality,
and are commonly referred to as "junk bonds."
Equity Securities are common and preferred stocks, securities
convertible into common and preferred stocks, and rights and
warrants to subscribe for the purchase of common and preferred
stocks.
Convertible Securities are bonds, debentures, corporate notes and
preferred stocks that are convertible into common and preferred
stock.
U.S. Government Securities are securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. These
securities include securities backed by the full faith and credit
of the United States, those supported by the right of the issuer
to borrow from the U.S. Treasury and those backed only by the
credit of the issuing agency itself. The first category includes
U.S. Treasury Securities (which are U.S. Treasury bills, notes
4
<PAGE>
and bonds) and certificates issued by GNMA (see below). U.S.
Government securities not backed by the full faith and credit of
the United States include certificates issued by FNMA and FHLMC
(see below).
Mortgage-Related Securities are pools of mortgage loans that are
assembled for sale to investors (such as mutual funds) by various
governmental, government-related and private organizations.
These securities include:
ARMS, which are adjustable-rate mortgage securities;
SMRS, which are stripped mortgage-related securities;
CMOS, which are collateralized mortgage obligations;
GNMA CERTIFICATES, which are securities issued by the
Government National Mortgage Association;
FNMA CERTIFICATES, which are securities issued by the
Federal National Mortgage Association; and
FHLMC CERTIFICATES, which are securities issued by the
Federal Home Loan Mortgage Corporation.
NRSRO is a nationally recognized securities rating organization.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, L.P.
Rule 144A Securities are securities that may be resold pursuant
to Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act").
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
Commission is the Securities and Exchange Commission.
Exchange is the New York Stock Exchange, Inc.
5
<PAGE>
_______________________________________________________________
DESCRIPTION OF THE FUND
_______________________________________________________________
The Fund is a diversified management investment company.
The Fund's investment objective is "fundamental" and cannot be
changed without a shareholder vote. Except as otherwise noted,
the Fund's investment policies are not fundamental and thus can
be changed without a shareholder vote. The Fund will not change
these policies without notifying its shareholders. There is no
guarantee that the Fund will achieve its investment objective.
Investment Objective
The Fund's fundamental investment objective is to
achieve high return by maximizing current income and, to the
extent consistent with that objective, capital appreciation.
The Fund will pursue this objective by investing primarily
in a diversified mix of high yield, below investment grade
fixed-income securities involving greater volatility of
price and risk of principal and income than higher quality
fixed-income securities. The below investment grade debt
securities in which the Fund may invest are known as "junk
bonds."
Investment Policies
The Fund attempts to achieve its objective by
investing primarily in a diversified mix of high yield,
below investment grade fixed-income securities involving
greater volatility of price and risk of principal and income
than higher fixed-income securities. The Fund will be
managed to maximize current income by taking advantage of
market developments, yield disparities and variations in the
creditworthiness of issuers. The Fund will use various
strategies in attempting to achieve its objective.
Ordinarily, the Fund will invest substantially all
its assets in fixed-income securities which have a high
current yield and that are either rated in the lower
categories by two or more NRSROs (i.e., rated Baa or lower
by Moody's or BBB or lower by S&P) or are unrated but deemed
by Alliance to be equivalent to such lower-rated securities.
The Fund will not, however, 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 are of equivalent quality as determined
by Alliance, 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
6
<PAGE>
more NRSROs or if unrated is of equivalent quality as
determined by Alliance. However, these restrictions will
not apply to (i) fixed-income securities which, in the
opinion of Alliance, have similar characteristics to
securities which are rated B3 or higher by Moody's or B- or
higher by S&P, or (ii) money market instruments of any
entity that has an unsecured issue of outstanding debt
which, in the opinion of Alliance, has similar
characteristics to securities which are so rated.
Certain of the Fund's investments will be in fixed-
income securities which are providing high current yields
because of risks other than credit. For example, the Fund
may invest in securities which have prepayment risks, and
non-U.S. dollar denominated foreign securities, which may
have currency risks.
See Appendix A, "Description of Bond Ratings," for
a description of each rating category. In the event that any
securities held by the Fund fall below those ratings, the
Fund will not be obligated to dispose of such securities and
may continue to hold such securities if, in the opinion of
Alliance, such investment is considered appropriate under
the circumstances.
A portion of the Fund's assets are also expected to
be invested in foreign securities, and 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. See "Certain
Risk Considerations -- Foreign Investment" and "--Currency
Considerations."
In addition, and although not to be emphasized, in
furtherance of its investment objective, the Fund may
(i) invest in mortgage-backed and asset-backed securities,
(ii) enter into repurchase agreements, (iii) invest in loan
participations and assignments of loans to corporate,
governmental, or other borrowers originally made by
institutional lenders or lending syndicates, (iv) enter into
forward commitments for the purchase or sale of securities
and purchase and sell securities on a when-issued or delayed
delivery basis, (v) write covered put and call options on
fixed-income securities, securities indices and foreign
currencies and purchase put or call options on fixed-income
securities, securities indices and foreign currencies,
(vi) purchase and sell futures contracts and related options
on debt securities and on indices of debt securities,
(vii) enter into contracts for the purchase or sale of a
specific currency for hedging purposes only, and (viii) lend
portfolio securities. For additional information on the
7
<PAGE>
uses, risks and costs of these practices, see "Additional
Investment Practices."
In addition to the foregoing, the Fund may from time to
time make investments in (1) U.S. Government Securities,
(2) certificates of deposit, bankers' acceptances, bank
notes, time deposits and interest bearing savings deposits
issued or guaranteed by certain domestic and foreign banks,
(3) commercial paper (rated at least A-1 by S&P or Prime-1
by Moody's or, if not rated, issued by domestic or foreign
companies having high quality outstanding debt securities)
and participation interests in loans extended by banks to
such companies, (4) 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 (5) floating rate or
master demand notes. For a description of these
investments, see the Fund's Statement of Additional
Information.
Additional Investment Practices
Derivatives. The Fund may use derivatives in
furtherance of its investment objectives. Derivatives are
financial contracts whose value depends on, or is derived
from, the value of an underlying asset, reference rate or
index. These assets, rates and indices may include bonds,
stocks, mortgages, commodities, interest rates, currency
exchange rates, bond indices and stock indices. Derivatives
can be used to earn income or protect against risk, or both.
For example, one party with unwanted risk may agree to pass
that risk to another party who is willing to accept the
risk, the second party being motivated, for example, by the
desire either to earn income in the form of a fee or premium
from the first party, or to reduce its own unwanted risk by
attempting to pass all or part of that risk to the first
party.
Derivatives can be used by investors such as the
Fund 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 these uses entails
greater risk than if derivatives were used solely for
hedging purposes. Derivatives are a valuable tool which,
when used properly, can provide significant benefit to Fund
shareholders. The Fund may take a significant position in
those derivatives that are within its investment policies
8
<PAGE>
if, in Alliance's judgment, this represents the most
effective response to current or anticipated market
conditions. Alliance's use of derivatives is subject to
continuous risk assessment and control from the standpoint
of the 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.
The basic types of derivative instruments in which
the Fund may invest are options, futures and forwards.
OPTIONS. An option, which may be standardized and
exchange-traded, or customized and privately negotiated, is
an agreement that, for a premium payment or fee, gives the
option holder (the buyer) the right but not the obligation
to buy or sell the underlying asset (or settle for cash an
amount based on an underlying asset, rate or index) at a
specified price (the exercise price) during a period of time
or on a specified date. A call option entitles the holder
to purchase, and a put option entitles the holder to sell,
the underlying asset (or settle for cash an amount based on
an underlying asset, rate or index). Likewise, when an
option is exercised the writer of the option is obligated to
sell (in the case of a call option) or to purchase (in the
case of a put option) the underlying asset (or settle for
cash an amount based on an underlying asset, rate or index).
FUTURES. A futures contract is an agreement that
obligates the buyer to buy and the seller to sell a
specified quantity of an underlying asset (or settle for
cash the value of a contract based on an underlying asset,
rate or index) at a specific price on the contract maturity
date. Futures contracts are standardized, exchange-traded
instruments and are fungible (i.e., considered to be perfect
substitutes for each other). This fungibility allows
futures contracts to be readily offset or cancelled through
the acquisition of equal but opposite positions, which is
the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not
require physical delivery of the underlying asset but
instead is settled for cash equal to the difference between
the values of the contract on the date it is entered into
and its maturity date.
FORWARDS. A forward contract is an obligation by
one party to buy, and the other party to sell, a specific
quantity of an underlying commodity or other tangible asset
9
<PAGE>
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.
The term "derivative" is also sometimes used to
describe securities involving rights to a portion of the
cash flows from an underlying pool of mortgages or other
assets from which payments are passed through to the owner
of, or that collateralize, the securities. These securities
are described below under "Additional Investment Practices-
- - - - -Mortgage-Related Securities."
Derivatives involve risks different from, and, in
certain cases, greater than, the risks presented by more
traditional investments. Following is a general discussion
of important risk factors and issues concerning the use of
derivatives that investors should understand before
investing in the Fund.
MARKET RISK. This is the general risk attendant to
all investments that the value of a particular investment
will change in a way detrimental to the Fund's interest.
MANAGEMENT RISK. Derivative products are highly
specialized instruments that require investment techniques
and risk analyses different from those associated with
stocks and bonds. The use of a derivative requires an
understanding not only of the underlying instrument but also
of the derivative itself, without the benefit of observing
the performance of the derivative under all possible market
conditions. In particular, the use and complexity of
derivatives require the maintenance of adequate controls to
monitor the transactions entered into, the ability to assess
the risk that a derivative adds to the Fund's portfolio, and
the ability to forecast price, interest rate or currency
exchange rate movements correctly.
CREDIT RISK. This is the risk that a loss may be
sustained by the Fund as a result of the failure of another
party to a derivative (usually referred to as a
"counterparty") to comply with the terms of the derivative
contract. The credit risk for exchange-traded derivatives
is generally less than for privately negotiated derivatives,
since the clearing house, which is the issuer or
counterparty to each exchange-traded derivative, provides a
guarantee of performance. This guarantee is supported by a
daily payment system (i.e., margin requirements) operated
by the clearing house in order to reduce overall credit
10
<PAGE>
risk. For privately negotiated derivatives, there is no
similar clearing agency guarantee. Therefore, the Fund
considers the creditworthiness of each counterparty to a
privately negotiated derivative in evaluating potential
credit risk.
LIQUIDITY RISK. Liquidity risk exists when a
particular instrument is difficult to purchase or sell. If
a derivative transaction is particularly large or if the
relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to
initiate a transaction or liquidate a position at an
advantageous price.
LEVERAGE RISK. Since many derivatives have a
leverage component, adverse changes in the value or level of
the underlying asset, rate or index can result in a loss
substantially greater than the amount invested in the
derivative itself. Certain derivatives have the potential
for unlimited loss, regardless of the size of the initial
investment.
OTHER RISKS. Other risks in using derivatives
include the risk of mispricing or improper valuation of
derivatives and the inability of derivatives to correlate
perfectly with underlying assets, rates and indices. Many
derivatives, in particular privately negotiated derivatives,
are complex and often valued subjectively. Improper
valuations can result in increased cash payment requirements
to counterparties or a loss of value to the 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, the 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 That May Be Used By the Fund.
Following is a description of specific derivatives which the
Fund may use.
OPTIONS ON SECURITIES. In purchasing an option on
securities, the 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, the
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
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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 the Fund
were permitted to expire without being sold or exercised,
its premium would represent a loss to the Fund.
The 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. A call option written by the 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 the 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 Fund may purchase or write privately negotiated
options on securities. If the Fund does so, it 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.
Alliance has adopted procedures for monitoring the
creditworthiness of such counterparties. Privately
negotiated options purchased or written by the Fund may be
illiquid, and it may not be possible for the Fund to effect
a closing transaction at an advantageous time.
OPTIONS ON SECURITIES INDICES. An option on a
securities index is similar to an option on a security
except that, rather than taking or making delivery of a
security at a specified price, an option on a securities
index gives the holder the right to receive, upon exercise
of the option, an amount of cash if the closing level of the
chosen index is greater than (in the case of a call) or less
than (in the case of a put) the exercise price of the
option.
OPTIONS ON FOREIGN CURRENCIES. The 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 the Fund and
against increases in the U.S. Dollar cost of such securities
to be acquired. The purchase of an option on a foreign
currency may constitute an effective hedge against
fluctuations in exchange rates, although if rates move
adversely, the Fund may forfeit the entire amount of the
premium plus related transaction costs.
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FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS.
Futures contracts that the Fund may buy and sell may include
futures contracts on fixed-income or other securities or
foreign currencies, and contracts based on interest rates or
financial indices, including any index of U.S. Government
securities, foreign government securities or corporate debt
securities. Options on futures contracts are options that
call for the delivery of futures contracts, upon exercise.
Options on futures contracts written or purchased by the
Fund will be traded on U.S. or foreign exchanges.
The Fund will not purchase or sell futures
contracts or options on futures contracts unless either (i)
the futures contracts or options thereon are for "bona fide
hedging" purposes (as that term is defined under the
Commodities Futures Trading Commission regulations) or (ii)
if for other purposes, the sum of amounts of initial margin
deposits and premiums required to establish non-hedging
positions would not exceed 5% of the Fund's liquidation
value.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. In
purchasing or selling forward contracts on foreign
currencies ("forward contracts"), the Fund attempts to
minimize the risk to it from adverse changes in the
relationship between the U.S. Dollar and other currencies.
The 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 the 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, the
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").
FORWARD COMMITMENTS. Forward commitments are
forward contracts for the purchase or sale of securities,
including purchases on a "when-issued" basis or purchases or
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sales on a "delayed delivery" basis. When forward
commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield
terms, is fixed at the time the commitment is made, but
payment for and delivery of the securities take place at a
later date. Normally, the settlement date occurs within two
months after the transaction, but settlements beyond two
months may be negotiated. Securities purchased or sold
under a forward commitment are subject to market
fluctuation, and no interest or dividends accrues to the
purchaser prior to the settlement date. At the time 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.
The use of forward commitments helps the Fund to
protect against anticipated changes in interest rates and
prices. For instance, in periods of rising interest rates
and falling bond prices, the Fund might sell securities in
its portfolio on a forward commitment basis to limit its
exposure to falling bond prices. In periods of falling
interest rates and rising bond prices, the Fund might sell a
security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis,
thereby obtaining the benefit of currently higher cash
yields.
The Fund's right to receive or deliver a security
under a forward commitment may be sold prior to the
settlement date. The Fund enters into forward commitments,
however, only with the intention of actually receiving
securities or delivering them, as the case may be. If the
Fund, however, chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or dispose of
its right to deliver or receive against a forward
commitment, it may realize a gain or incur a loss.
Mortgage-Related Securities. The mortgage-related
securities in which the Fund may invest typically are
securities representing interests in pools of mortgage loans
made to home owners. The mortgage loan pools may be
assembled for sale to investors (such as the Fund) by
governmental or private organizations. Mortgage-related
securities issued by GNMA are backed by the full faith and
credit of the United States; those issued by FNMA and FHLMC
are not so backed. Mortgage-related securities bear
interest at either a fixed rate or an adjustable rate
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determined by reference to an index rate. Mortgage-related
securities frequently provide for monthly payments that
consist of both interest and principal, unlike more
traditional debt securities, which normally do not provide
for periodic repayments of principal.
Securities representing interests in pools created
by private issuers generally offer a higher rate of interest
than securities representing interests in pools created by
governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments.
However, private issuers sometimes obtain committed loan
facilities, lines of credit, letters of credit, surety bonds
or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with
respect to their securities if borrowers on the underlying
mortgages fail to make their mortgage payments. The ratings
of such non-governmental securities are generally dependent
upon the ratings of the providers of such liquidity and
credit support and would be adversely affected if the rating
of such an enhancer were downgraded. A Fund may buy
mortgage-related securities without credit enhancement if
the securities meet the Fund's investment standards.
Although the market for mortgage-related securities is
becoming increasingly liquid, those of certain private
organizations may not be readily marketable.
One type of mortgage-related security is of the
"pass-through" variety. The holder of a pass-through
security is considered to own an undivided beneficial
interest in the underlying pool of mortgage loans and
receives a pro rata share of the monthly payments made by
the borrowers on their mortgage loans, net of any fees paid
to the issuer or guarantor of the securities. Prepayments
of mortgages resulting from the sale, refinancing or
foreclosure of the underlying properties are also paid to
the holders of these securities, which, as discussed below,
frequently causes these securities to experience
significantly greater price and yield volatility than
experienced by traditional fixed-income securities. Some
mortgage-related securities, such as securities issued by
GNMA, are referred to as "modified pass-through" securities.
The holders of these securities are entitled to the full and
timely payment of principal and interest, net of certain
fees, regardless of whether payments are actually made on
the underlying mortgages.
Another form of mortgage-related security is a "pay-
through" security, which is a debt obligation of the issuer
secured by a pool of mortgage loans pledged as collateral
that is legally required to be paid by the issuer regardless
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of whether payments are actually made on the underlying
mortgages. Collateralized mortgage obligations (CMOs) are
the predominant type of "pay-through" mortgage-related
security. In a CMO, a series of bonds or certificates is
issued in multiple classes. Each class of a CMO, often
referred to as a "tranche," is issued at a specific coupon
rate and has a stated maturity or final distribution date.
Principal prepayments on collateral underlying a CMO may
cause one or more branches 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. In a
common structure, payments of principal, including any
principal prepayments, on the underlying mortgages are
applied to the classes of the series of a CMO in the order
of their respective stated maturities or final distribution
dates, so that no payment of principal will be made on any
class of a CMO until all other classes having an earlier
stated maturity or final distribution date have been paid in
full. One or more tranches of a CMO may have coupon rates
that reset periodically, or "float," at a specified
increment over an index such as LIBOR. Floating-rate CMOs
may be backed by fixed or adjustable rate mortgages. To
date, fixed-rate mortgages have been more commonly utilized
for this purpose. Floating-rate CMOs are typically issued
with lifetime caps on the coupon rate thereon. These caps,
similar to the caps on adjustable-rate mortgages described
below, represent a ceiling beyond which the coupon rate on a
floating-rate CMO may not be increased regardless of
increases in the interest rate index to which the floating-
rate CMO is tied. The collateral securing the CMOs may
consist of a pool of mortgages, but may also consist of
mortgage-backed bonds or pass-through securities. CMOs may
be issued by a U.S. Government instrumentality or agency or
by a private issuer. Although payment of the principal of,
and interest on, the underlying collateral securing
privately issued CMOs may be guaranteed by GNMA, FNMA or
FHLMC, these CMOs represent obligations solely of the
private issuer and are not insured or guaranteed by GNMA,
FNMA, FHLMC, any other governmental agency or any other
person or entity.
Another type of mortgage-related security, known as
adjustable-rate mortgage securities (ARMS), bears interest
at a rate determined by reference to a predetermined
interest rate or index. There are two main categories of
rates or indices: (i) rates based on the yield on U.S.
Treasury securities and (ii) indices derived from a
calculated measure such as a cost of funds index or a moving
average of mortgage rates. Some rates and indices closely
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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). Furthermore, since many adjustable-rate
mortgages only reset on an annual basis, the values of ARMS
tend to fluctuate to the extent that changes in prevailing
interest rates are not immediately reflected in the interest
rates payable on the underlying adjustable-rate mortgages.
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, the
Fund may be unable to invest the proceeds from the early
payment of the mortgage-related securities in an investments
that provide as high a yield as the mortgage-related
securities. Early payments associated with mortgage-related
securities causes these securities to experience
significantly greater price and yield volatility than
experienced by traditional fixed-income securities. The
occurrence of mortgage prepayments is affected by the level
of general interest rates, general economic conditions and
other social and demographic factors. During periods of
falling interest rates, the rate of mortgage prepayments
tends to increase, thereby tending to decrease the life of
mortgage-related securities. 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, the
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Fund may not be able to realize the rate of return it
expected.
As with fixed-income securities generally, the
value of mortgage-related securities can also be adversely
affected by increases in general interest rates relative to
the yield provided by such securities. Such 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 the 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 tends to decline
during periods of rising interest rates.
Although the values of ARMS may not be affected by
rising interest rates as much as such rates affect the value
of fixed-rate mortgage securities, ARMS may still decline in
value as a result of rising interest rates. Although, as
described above, the yields on ARMS varies with changes in
the applicable interest rate or indices, 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
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credit card holder and the debtors are entitled to the
protection of a number of state and federal consumer credit
laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing
the balance due. There have also been proposals to cap the
interest rate that a credit card issuer may charge. In some
transactions, the value of the asset-backed security is
dependent on the performance of a third party acting as
credit enhancer or servicer. Furthermore, in some
transactions (such as those involving the securitization of
vehicle loans or leases) it may be administratively
burdensome to perfect the interest of the security issuer in
the underlying collateral and the underlying collateral may
become damaged or stolen.
Loan Participations and Assignments. The 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. The 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. The 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 the 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 the 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 foreign government
securities 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 the 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
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<PAGE>
make it more difficult for the Fund to assign a value to
these securities for purposes of valuing the Fund's
portfolio and calculating its net asset value.
Convertible Securities. Prior to conversion,
convertible securities have the same general characteristics
as non-convertible debt securities, which provide a stable
stream of income with generally higher yields than those of
equity securities of the same or similar issuers. The price
of a convertible security will normally vary with changes in
the price of the underlying stock, although the higher yield
tends to make the convertible security less volatile than
the underlying common stock. As with debt securities, the
market value of convertible securities tends to decline as
interest rates increase and increase as interest rates
decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt
securities of similar quality, they enable investors to
benefit from increases in the market price of the underlying
common stock. Convertible debt securities that are rated
Baa or lower by Moody's or BBB or lower by S&P, Duff &
Phelps or Fitch and comparable unrated securities may share
some or all of the risks of debt securities with those
ratings. For a description of these risks, see "Certain
Risk Considerations-Investment in Lower-Rated Fixed-Income
Securities."
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 the Fund
to keep all of its assets at work while retaining
"overnight" flexibility in pursuit of investments of a
longer-term nature. The Fund 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, the 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, the Fund
might be delayed in, or prevented from, selling the
collateral for its benefit.
Loans of Portfolio Securities. The Fund may make
secured loans of portfolio securities to brokers, dealers
and financial institutions, provided that liquid assets
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
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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 thereon and the Fund may
invest any cash collateral in portfolio securities, thereby
earning additional income, or receive an agreed upon amount
of income from a borrower that has delivered equivalent
collateral. 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.
The Fund may lend securities with a value of up to 50% of
its total assets to broker-dealers approved by the Fund's
Board of Directors. The Fund will not lend portfolio
securities to any officer, director, employee or affiliate
of the Fund or Alliance.
Illiquid Securities. The Fund will not maintain
more than 15% of its net assets in illiquid securities.
Illiquid securities generally include (i) direct placements
or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily
available market (e.g., when trading in the security is
suspended or, in the case of unlisted securities, when
market makers do not exist or will not entertain bids or
offers), including many currency swaps and any assets used
to cover currency swaps, (ii) over-the-counter options and
assets used to cover over-the-counter options, and
(iii) repurchase agreements not terminable within seven
days. Rule 144A securities that have legal or contractual
restrictions on resale but have a readily available market
are not deemed illiquid. Alliance will monitor the
liquidity of the Fund's Rule 144A portfolio securities under
the supervision of the Directors of the Fund. The Fund may
not be able to sell such securities and may not be able to
realize their full value upon sale.
Future Developments. The 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 than or
exceed those involved in the practices described above.
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Defensive Position. For temporary defensive
purposes, the Fund may invest in certain types of short-
term, liquid, high grade 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. Such securities may also include short-
term, foreign-currency denominated securities of the type
mentioned above issued by foreign governmental entities,
companies and supranational organizations. For a complete
description of the types of securities in which the Fund may
invest while in a temporary defensive position, see the
Fund's Statement of Additional Information.
Portfolio Turnover. Alliance anticipates that the
Fund's annual turnover rate will not exceed 500%, but is not
expected to exceed 200%. A 500% annual turnover rate would
occur if all the securities in the Fund's portfolio are
replaced five times in a period of one year. A high rate of
portfolio turnover involves correspondingly greater expenses
than a lower rate, which must be borne by the Fund and its
shareholders. High portfolio turnover also may result in
the realization of substantial net short-term capital gains.
See "Dividends, Distributions and Taxes" in the Statement of
Additional Information.
Certain Fundamental Investment Policies
The Fund may not (i) invest in any one industry if
that investment would make the Fund's holding in that
industry exceed 25% of the Fund's total assets and (ii) will
not make an investment unless, when considering all its
other investments, 75% of the value of its assets would
consist of cash, cash items, U.S. Government Securities,
securities of other investment companies and other
securities. These policies are fundamental and may not be
changed without the approval of the Fund's shareholders.
Additional investment restrictions with respect to the Fund
are set forth in its Statement of Additional Information.
Certain Risk Considerations
Fixed-Income Securities. 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 the Fund's securities
will generally rise, although if falling interest rates are
viewed as precursor to a recession, the values of the Fund's
securities may fall along with interest rates. Conversely,
during periods of rising interest rates, the values of the
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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 the 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 the 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 the Fund.
U.S. Corporate Fixed-Income Securities. The U.S.
corporate fixed-income securities in which the Fund invests
may include securities issued in connection with corporate
restructurings such as takeovers or leveraged buyouts, which
may pose particular risks. Securities issued to finance
corporate restructurings may have special credit risks due
to the highly leveraged conditions of the issuer. In
addition, such issuers may lose experienced management as a
result of the restructuring. Furthermore, the market price
of such securities may be more volatile to the extent that
expected benefits from the restructuring do not materialize.
The Fund may also invest in U.S. corporate fixed-income
securities that are not current in the payment of interest
or principal or are in default, so long as Alliance believes
such investment is consistent with the Fund's investment
objectives. The Fund's rights with respect to defaults on
such securities will be subject to applicable U.S.
bankruptcy, moratorium and other similar laws.
Foreign Investment. The securities markets of many
foreign countries are relatively small, with the majority of
market capitalization and trading volume concentrated in a
limited number of companies representing a small number of
industries. Consequently, if the Funds investment portfolio
includes such securities, the Fund 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
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<PAGE>
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 the 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. The Fund could
also be adversely affected by delays in, or a refusal to
grant, any required governmental approval for repatriation,
as well as by the application to it of other restrictions on
investment. Investing in local markets may require the Fund
to adopt special procedures or seek local governmental
approvals or other actions, any of which may involve
additional costs to the Fund. The liquidity of the Fund's
investments in any country in which any of these factors
exists could be affected, and Alliance will monitor the
effect of any such factor or factors on the 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 or
the Fund's investments in that country. In the event of
nationalizations, expropriation or other confiscation, the
24
<PAGE>
Fund could lose its entire investment in the country
involved. In addition, laws in foreign countries governing
business organizations, bankruptcy and insolvency may
provide less protection to security holders such as the Fund
than that provided by U.S. laws.
Currency Considerations. Because the Fund may
invest some portion of its assets in securities denominated
in, and which receive revenues in, foreign currencies, the
Fund will be adversely affected by reductions in the value
of those currencies relative to the U.S. Dollar. These
changes will affect the Fund's net assets, distributions and
income. If the value of the foreign currencies in which the
Fund receives income falls relative to the U.S. Dollar
between receipt of the income and the making of Fund
distributions, the Fund may be required to liquidate
securities in order to make distributions if 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 the 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, the Fund
may engage in certain currency hedging transactions, which
themselves, involve certain special risks. See "Additional
Investment Practices" above.
Securities Ratings. The ratings of fixed-income
securities by S&P, Moody's, Duff & Phelps and Fitch are a
generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's
standpoint. The rating of an issuer is heavily weighted by
past developments and does not necessarily reflect probable
future conditions. There is frequently a lag between the
time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in
credit risk of securities within each rating category.
Investment in Fixed-Income Securities Rated BAA and
BBB. Securities rated Baa or BBB are considered to have
speculative characteristics and share some of the same
characteristics as lower-rated securities, as described
below. Sustained periods of deteriorating economic
conditions or of rising interest rates are more likely to
lead to a weakening in the issuer's capacity to pay interest
and repay principal than in the case of higher-rated
securities.
25
<PAGE>
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,
the Fund may experience difficulty in valuing such
securities and, in turn, the Fund's assets.
Alliance will try to reduce the risk inherent in
investment in lower-rated securities through credit
analysis, diversification and attention to current
developments and trends in interest rates and economic and
political conditions. However, there can be no assurance
that losses will not occur. Since the risk of default is
higher for lower-rated securities, Alliance's research and
credit analysis are a correspondingly more important aspect
of its program for managing the Fund's securities than would
be the case if the 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 and cash flow prospects,
and the experience and managerial strength of the issuer.
Non-Rated Securities. Non-rated securities will
also be considered for investment by the Fund when Alliance
believes that the financial condition of the issuers of such
securities, or the protection afforded by the terms of the
26
<PAGE>
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.
_________________________________________________________________
PURCHASE AND SALE OF SHARES
_________________________________________________________________
HOW TO BUY SHARES
You can purchase shares of the Fund through broker-
dealers, banks or other financial intermediaries, or directly
through Alliance Fund Distributors, Inc. ("AFD"), the Fund's
principal underwriter. The minimum initial investment is $250.
The minimum for subsequent investments is $50. Investments of
$25 or more are allowed under the automatic investment program.
Share certificates are issued only upon request. See the
Subscription Application and Statement of Additional Information
for more information.
Existing shareholders may make subsequent purchases by
electronic funds transfer if they have completed the Telephone
Transactions section of the Subscription Application or the
Shareholder Options form obtained from Alliance Fund Services,
Inc. ("AFS"), the Fund's registrar, transfer agent and dividend
disbursing agent. Telephone purchase orders can be made by
calling (800) 221-5672, may not exceed $500,000, must be received
by the Fund by 3:00 p.m. Eastern time on a Fund business day and
will be made at the next business day's net asset value (less any
applicable sales charge).
The Fund offers three classes of shares through this
Prospectus, Class A, Class B and Class C. The Fund may refuse
any order to purchase shares. In this regard, the Fund reserves
the right to restrict purchases of Fund shares (including through
exchanges) when they appear to evidence a pattern of frequent
purchases and sales made in response to short-term
considerations.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus
an initial sales charge, as follows:
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<PAGE>
Initial Sales Charge
As % of As % of Commission to
Net Amount Offering Dealer/Agent as %
Amount Purchased Invested Price of Offering Price
Less than $100,000 4.44% 4.25% 4.00%
$100,000 to
less than $250,000 3.36 3.25 3.00
$250,000 to
less than $500,000 2.30 2.25 2.00
$500,000 to
less than $1,000,000 1.78 1.75 1.50
On purchases of $1,000,000 or more, you pay no initial
sales charge but may pay a contingent deferred sales charge (a
"CDSC") equal to 1% of the lesser of net asset value at the time
of redemption or original cost if you redeem within one year;
Alliance may pay the dealer or agent a fee of up to 1% of the
dollar amount purchased. Certain purchases of Class A shares may
qualify for reduced or eliminated sales charges in accordance
with the Fund's Combined Purchase Privilege, Cumulative Quantity
Discount, Statement of Intention, Privilege for Certain
Retirement Plans, Reinstatement Privilege and Sales at Net Asset
Value programs. Consult the Subscription Application and
Statement of Additional Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value
without an initial sales charge. However, you may pay a CDSC if
you redeem shares within three years after purchase. The amount
of the CDSC (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to
the number of years from the purchase of Class B shares until the
redemption of those shares. The amount of the CDSC on Class B
shares is set forth below.
Year Since Purchase CDSC
First................. 3.0%
Second................ 2.0%
Third................. 1.0%
Thereafter............ None
Class B shares are subject to higher distribution fees
than Class A shares for a period of six years (after which they
28
<PAGE>
convert to Class A shares). The higher fees mean a higher
expense ratio, so Class B shares pay correspondingly lower
dividends and may have a lower net asset value than Class A
shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial
sales charge. The Fund thus receives the full amount of your
purchase, and, if you hold your shares for one year or more, you
will receive the entire net asset value of your shares upon
redemption. Class C shares incur higher distribution fees than
Class A shares and do not convert to any other class of shares of
the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a
lower net asset value that Class A Shares.
Class C shares redeemed within one year of purchase will
be subject to a CDSC equal to 1% of the lesser of the original
cost of the shares being redeemed or net asset value at the time
of redemption.
Application of the CDSC
Shares obtained from dividend or distribution
reinvestment are not subject to the CDSC. The CDSC is deducted
from the amount of the redemption and is paid to AFD. The CDSC
will be waived on redemptions of shares following the death or
disability of a shareholder, to meet the requirements of certain
qualified retirement plans or pursuant to a monthly, bi-monthly
or quarterly systematic withdrawal plan. See the Statement of
Additional Information.
How the Fund Values its Shares
The net asset value of each class of shares in the Fund
is calculated by dividing the value of the Fund's net assets
allocable to that class by the outstanding shares of that class.
Shares are valued each day the Exchange is open as of the close
of regular trading (currently 4:00 p.m. Eastern time). The
securities in the Fund are valued at their current market value
determined on the basis of market quotations or, if such
quotations are not readily available, such other methods as the
Fund's Directors believe accurately reflect fair market value.
General
The decision as to which class of shares is most
beneficial to you depends on the amount and intended length of
your investment. If you are making a large investment, thus
qualifying for a reduced sales charge, you might consider Class A
29
<PAGE>
shares. If you are making a smaller investment, you might
consider Class B shares because 100% of your purchase is invested
immediately. If you are unsure of the length of your investment,
you might consider Class C shares because there is no initial
sales charge and, as long as the shares are held for one year or
more, no CDSC. Consult your financial agent. Dealers and agents
may receive different compensation for selling Class A, Class B
or Class C shares. There is no size limit on purchases of
Class A shares. The maximum purchase of Class B shares is
$250,000. The maximum purchase of Class C shares is $5,000,000.
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 Fund. Such additional amounts may be
utilized, in whole or in part, in some cases together with other
revenues of such dealers or agents, to provide additional
compensation to registered representatives who sell shares of the
Fund. On some occasions, such cash or other incentives will be
conditioned upon the sale of a specified minimum dollar amount of
the shares of the Fund and/or other Alliance Mutual Funds during
a specific period of time. Such incentives may take the form of
payment for attendance at seminars, meals, sporting events or
theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons
associated with a dealer or agent and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in the Fund to
the Fund on any day the Exchange is open, either directly or
through your financial intermediary. The price you will receive
is the net asset value (less any applicable CDSC) next calculated
after the Fund receives your request in proper form. Proceeds
generally will be sent to you within seven days. However, for
shares recently purchased by check or electronic funds transfer,
the Fund will not send proceeds until it is reasonably satisfied
that the check or electronic funds transfer has been collected
(which may take up to 15 days).
Selling Shares Through Your Broker
Your broker must receive your request before 4:00 p.m.
Eastern time, and your broker must transmit your request to the
Fund by 5:00 p.m. Eastern time, for you to receive that day's net
asset value (less any applicable CDSC). Your broker is
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<PAGE>
responsible for furnishing all necessary documentation to the
Fund and may charge you for this service.
Selling Shares Directly To the Fund
Send a signed letter of instruction or stock power form
to AFS, along with certificates, if any, that represent the
shares you want to sell. For your protection, signatures must be
guaranteed by a bank, a member firm of a national stock exchange
or other eligible guarantor institution. Stock power forms are
available from your financial intermediary, AFS and many
commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and
surviving joint owners. For details contact:
Alliance Fund Services , Inc.
P.O. Box 1520
Secaucus, NJ 07096-1520
(800) 221-5672
Alternatively, a request for redemption of shares for
which no stock certificates have been issued can also be made by
telephone to (800) 221-5672. Telephone redemption requests must
be made by 4:00 p.m. Eastern time on a Fund business day in order
to receive that day's net asset value, and, except for certain
omnibus accounts, may be made only once in any 30-day period. A
shareholder who has completed the Telephone Transactions section
of the Subscription Application, or the Shareholder Options form
obtained from AFS, can elect to have the proceeds of their
redemption sent to their bank via an electronic funds transfer.
Proceeds of telephone redemptions also may be sent by check to a
shareholder's address of record. Redemption requests by
electronic funds transfer may not exceed $100,000 and redemption
requests by check may not exceed $50,000. Telephone redemption
is not available for shares held in nominee or "street name"
accounts or retirement plan accounts or shares held by a
shareholder who has changed his or her address of record within
the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal
tax purposes. Under unusual circumstances, the Fund may suspend
redemptions or postpone payment for up to seven days or longer,
as permitted by federal securities law. The Fund reserves 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.
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<PAGE>
During drastic economic or market developments, you
might have difficulty in reaching AFS by telephone, in which
event you should issue written instructions to AFS. AFS is not
responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable
procedures to verify that telephone requests are genuine, and
could be liable for losses resulting from unauthorized
transactions if it failed to do so. Dealers and agents may
charge a commission for handling telephonic requests. The
telephone service may be suspended or terminated at any time
without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more
information about these services or your account, call AFS's
toll-free number, (800) 221-5672. Some services are described in
the attached Subscription Application. A shareholder manual
explaining all available services will be provided upon request.
To request a shareholder manual, call (800)227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of the Fund for shares of
the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by Alliance).
Exchanges of shares are made at the net asset value next
determined, without sales or service charges. Exchanges may be
made by telephone or written request. Telephone exchange
requests must be received by AFS by 4:00 p.m. Eastern time on a
Fund business day in order to receive that day's net asset value.
Shares will continue to age without regard to exchanges
for purpose of determining the CDSC, if any, upon redemption and,
in the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund
into which you are exchanging before submitting the request.
Call AFS at (800)221-5672 to exchange uncertificated shares. An
exchange is a taxable capital transaction for federal tax
purposes. The exchange service may be changed, suspended or
terminated on 60 days' written notice.
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<PAGE>
______________________________________________________________
MANAGEMENT OF THE FUND
______________________________________________________________
ADVISER
Alliance has been retained under an Advisory Agreement
(the "Advisory Agreement") to provide investment advice and, in
general, to conduct the management and investment program of the
Fund, subject to the general supervision and control of the
directors of the Fund.
Alliance is a leading international investment manager
supervising client accounts with assets as of December 31, 1996
of more than $[ ] billion (of which more than $[ ] 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 [52] registered investment
companies managed by Alliance comprising [110] separate
investment portfolios currently have over two million
shareholders. As of December 31, 1996 Alliance was an investment
manager of employee benefit plan assets for [ ] of the Fortune
100 companies.
Alliance Capital Management Corporation ("ACMC") the
sole general partner of, and the owner of a 1% general
partnership interest in, Alliance, is an indirect wholly-owned
subsidiary of The Equitable Life Assurance Society of the United
States ("Equitable"), one of the largest life insurance companies
in the United States, which is a wholly-owned subsidiary of the
Equitable Companies Incorporated, a holding company controlled by
AXA, a French insurance holding company. Certain information
concerning the ownership and control of Equitable by AXA is set
forth in the Fund's Statement of Additional Information under
"Management of the Fund."
Under the Advisory Agreement, the Fund pays Alliance a
fee at the annual rate of .75% of the Fund's average daily net
assets. The fee is accrued daily and paid monthly. The Fund has
entered into a distribution services agreement with Alliance Fund
Distributors, Inc. The agreement provides that Alliance may use
its own resources to finance the distribution of the Fund's
shares.
The employees who will be primarily responsible for the day
to-day management of the Fund's portfolio are Wayne C. Tappe and
Nelson Jantzen. Mr. Tappe is a Vice President of Alliance, with
33
<PAGE>
which he has been associated since prior to 1991.1 Mr. Jantzen
is a Senior Vice President of Alliance, with which he has been
associated since prior to 1991.
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 contemplated for the Fund.
See "Description of the Fund." Alliance since July 22, 1993, and
prior thereto, Equitable Capital, whose advisory business
Alliance acquired on that date, have served as investment adviser
to the Historical Portfolio since its inception in 1987.
The following tables set forth performance results for
the Historical Portfolio since its inception, together with
comparative benchmarks, including two unmanaged market indices
and a universe of managed portfolios. As of December 31, 1996
the assets in the Historical Portfolio totalled approximately
$[ ].
The performance data for the Historical Portfolio does
not reflect account charges applicable to the Contracts or
imposed at the insurance commpany separate account level and is
presented net of an advisory fee computed at the same rate as the
advisory fee payable to Alliance by the Fund. The actual fees
paid by the Historical Portfolio were at a different rate. The
performance data includes the cost of brokerage commissions, if
any, as well as operating costs other than advisory fees, but
does not include operating costs (except for the advisory fee) to
be incurred by the Fund. Furthermore, expenses associated with
the distribution of Class A, Class B and Class C shares of the
Fund in accordance with the plan pursuant to Rule 12b-1 approved
by the Fund's Board of Directors are excluded. Had the
Historical Portfolio incurred the significantly higher operating
expenses that the Fund is to incur as well as the distribution
expenses which the Historical Portfolio did not incur, the
Historical Portfolio would have had a higher expense ratio and
lower performance. The performance data also have not been
_________________________
1. Prior to July 22, 1993, he was associated with Equitable
Capital Management Corporation ("Equitable Capital"). On
that date Alliance acquired the business and substantially
all of the assets of Equitable Capital.
34
<PAGE>
adjusted for 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 Bond 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. 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. To the extent that asset-based sales
charges deducted by some funds have lowered the Lipper averages,
the performance data shown for the Historical Portfolio appears
relatively more favorable than the performance data for the
Lipper averages.
The Merrill Lynch High Yield Master Index ("Merrill
Lynch Index") represents an unmanaged group of securities widely
regarded by investors as representative of the high yield bond
market. The unmanaged market index does not reflect any asset-
based charges for investment management or other expenses.
The CS First Boston High Yield Index ("First Boston
Index") is an unmanaged, trader priced portfolio constructed to
mirror the public high yield debt market (revisions to the index
are effected weekly). The index does not reflect any asset-based
charges for investment management or other expenses.
The Merrill Lynch Index and the First Boston Index have
been adjusted, where necessary, to reflect the benefit of total
reinvestment of income, dividends and capital gains.
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.
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<PAGE>
HISTORICAL PORTFOLIO PERFORMANCE
Annualized Rates of Return
Periods Ending December 31, 1995
Since
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
Historical Portfolio........ [ ]% [ ]% [ ]% [ ]%
Lipper High Current Yield
Mutual Funds Average...... 16.44 10.18 16.58 8.98
Merrill Lynch Index......... 19.91 11.57 17.17 11.28
First Boston Index.......... [ ] [ ] [ ] [ ]
Cumulative Rates of Return
Periods Ending December 31, 1995
Since
Portfolio/Benchmark 1 Year 3 Years 5 Years Inception
Historical Portfolio........ [ ] [ ] [ ] [ ]
Lipper High Current Yield
Mutual Funds Average...... 16.44 33.90 116.45 118.26
Merrill Lynch Index......... 19.91 38.89 120.85 161.50
First Boston Index.......... [ ] [ ] [ ] [ ]
Expenses of the Fund
In addition to the payments to Alliance under the Advisory
Agreement described above, the Fund pays certain other costs,
including (i) custody, transfer and dividend disbursing expenses,
(ii) fees of the Directors who are not affiliated with Alliance,
(iii) legal and auditing expenses, (iv) clerical, accounting and
other office costs, (v) costs of printing the Fund's prospectuses
and shareholder reports, (vi) costs of maintaining the Fund's
existence, (vii) interest charges, taxes, brokerage fees and
commissions, (viii) costs of stationery and supplies,
(ix) expenses and fees related to registration and filing with
the Commission and with state regulatory authorities and (x) upon
the approval of the Board of Directors, costs of personnel of
Alliance or its affiliates rendering clerical, accounting and
other office services.
DISTRIBUTION SERVICES AGREEMENT
Rule 12b-1 adopted by the Commission under the 1940 Act
permits an investment company to pay expenses associated with the
distribution of its shares in accordance with a duly adopted
plan. The Fund has adopted a "Rule 12b-1 plan" (the "Plan") and
has entered into a Distribution Services Agreement (the
"Agreement") with AFD. Pursuant to the Plan, the Fund pays to
AFD for distribution expenses a Rule 12b-1 distribution services
fee, which may not exceed an annual rate of .30% of the Fund's
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<PAGE>
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. The Plan provides that a portion of the distribution
services fee in an amount not to exceed .25% of the aggregate
average daily net assets of the Fund attributable to each of
Class A, Class B and Class C shares constitutes a service fee
used for personal service and/or the maintenance of shareholder
accounts.
The Plan provides that AFD will use the distribution
services fee received from the Fund in its entirety for payments
(i) to compensate broker-dealers or other persons for providing
distribution assistance, (ii) to otherwise promote the sale of
shares of the Fund, and (iii) to compensate broker-dealers,
depository institutions and other financial intermediaries for
providing administrative, accounting and other services with
respect to the Fund's shareholders. In this regard, some
payments under the Plan are used to compensate financial
intermediaries with trail or maintenance commissions in an amount
equal to .25%, annualized, with respect to Class A shares and
Class B shares, and 1.00%, annualized, with respect to Class C
shares, of the assets maintained in the Fund by its customers.
Distribution services fees received from the Fund with respect to
Class A shares will not be used to pay any interest expenses,
carrying charges or other financing costs or allocation of
overhead of AFD. Distribution services fees received from the
Fund with respect to Class B and Class C shares may be used for
these purposes. The Plan also provides that Alliance may use its
own resources to finance the distribution of the Fund's shares.
The Fund is not obligated under the Plan to pay any
distribution services fee in excess of the amounts set forth
above. With respect to Class A shares of the Fund, distribution
expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent
fiscal years. AFD's compensation with respect to Class B and
Class C shares under the Plan is directly tied to the expenses
incurred by AFD. Actual distribution expenses for such Class B
and Class C shares for any given year, however, will probably
exceed the distribution services fees payable under the Plan with
respect to the class involved and payments received from CDSCs.
The excess will be carried forward by AFD and reimbursed from
distribution services fees payable and payments subsequently
received through CDSCs, so long as the Plan and the Agreement are
in effect.
The Plan is in compliance with rules of the National
Association of Securities Dealers, Inc. which effectively limit
the annual asset-based sales charges and service fees that a
37
<PAGE>
mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to
that class. The rules also limit the aggregate of all front-end,
deferred and asset-based sales charges imposed with respect to a
class of shares by a mutual fund that also charges a service fee
to 6.25% of cumulative gross sales of shares of that class, plus
interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may
limit the ability of a bank or other depository institution to
become an underwriter or distributor of securities. However, in
the opinion of the Fund's management, based on the advice of
counsel, these laws do not prohibit such depository institutions
from providing services for investment companies such as the
administrative, accounting and other services referred to in the
Agreement. In the event that a change in these laws prevented a
bank from providing such services, it is expected that other
service arrangements would be made and that shareholders would
not be adversely affected.
_________________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
_________________________________________________________________
Dividends and Distributions
Dividends on shares of the Fund from the Fund's net
investment income, if any, will be declared on each Fund business
day . Dividends on shares for Saturdays, Sundays and holidays
will be declared on the previous business day. The Fund pays
dividends on its shares after the close of business on the
twentieth day of each month or, if that day is not a business
day, the first business day thereafter. At your election (which
you may change at least 30 days prior to the record date for a
particular dividend or distribution), dividends and distributions
will be paid in cash or reinvested without charge in additional
shares of the same class having an aggregate net asset value as
of the payment date of the dividend or distribution equal to the
cash amount thereof.
If you receive an income dividend or capital gains
distribution in cash you may, within 120 days following the date
of its payment, reinvest the dividend or distribution in
additional shares without charge by returning to Alliance, with
appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will
be deemed to have elected to reinvest all subsequent dividends
and distributions in shares of the Fund.
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<PAGE>
Cash dividends can be paid by check or, if the
shareholder so elects, electronically via the ACH network. There
is no sales or other charge in connection with the reinvestment
of dividends and capital gains distributions. Dividends paid by
the Fund, if any, with respect to Class A, Class B and Class C
shares will be calculated in the same manner at the same time on
the same day and will be in the same amount, except that the
higher distribution services fees applicable to Class B and Class
C shares, and any incremental transfer agency costs relating to
Class B shares, will be borne exclusively by the class
to which they relate.
While it is the intention of the 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 the Fund of income and capital
gains from investments. There is no fixed dividend rate, and
there can be no assurance that the Fund will pay any dividends or
realize any capital gains. If you buy shares just before the
Fund deducts a distribution from its net asset value, you will
pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
FOREIGN INCOME TAXES
Investment income received by the Fund from sources
within foreign countries may be subject to foreign income taxes
withheld at the source. To the extent that the Fund is liable
for such foreign income taxes the 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 the
Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
The Fund intends to qualify to be taxed as a "regulated
investment company" under the Code. To the extent that the Fund
distributes its taxable income and net capital gain to its
shareholders, qualification as a regulated investment company
relieves the Fund of federal income and excise taxes on that part
of its taxable income, including net capital gains, which it pays
out to its shareholders. Dividends out of net ordinary income and
distributions of net short-term capital gains are taxable to the
recipient shareholders as ordinary income. In the case of
corporate shareholders, such dividends may be eligible for the
dividends-received deduction, but only to the extent of
qualifying dividends received by the Fund.
39
<PAGE>
The excess of net long-term capital gains over the net
short-term capital losses realized and distributed by the Fund to
its shareholders as capital gains distributions is taxable to the
shareholders as long-term capital gains, irrespective of the
length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the
dividends-received deduction referred to above.
Under the current federal tax law the amount of an
income dividend or capital gains distribution declared by the
Fund during October, November or December of a year to
shareholders of record as of a specified date in such a month
that is paid during January of the following year is includable
in the prior year's taxable income of shareholders that are
calendar year taxpayers.
Any dividend or distribution received by a shareholder
on shares of the Fund will have the effect of reducing the net
asset value of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder,
although in effect a return of capital to that particular
shareholder, would be taxable to him or her as described above.
If a shareholder held shares six months or less and during that
period received a distribution taxable to such shareholder as
long-term capital gain, any loss realized on the sale of such
shares during such six-month period would be a long-term capital
loss to the extent of such distribution.
A dividend or capital gains distribution with respect to
shares of the Fund held by a tax-deferred or qualified plan, such
as an individual retirement account, a section 403(b)(7)
retirement plan or corporate pension or profit-sharing plan, will
not be taxable to the plan. Distributions from such plans will be
taxable to individual participants under applicable tax rules
without regard to the character of the income earned by the
qualified plan. Distributions by the Fund may be subject to
state and local taxes.
The Fund will be required to withhold 31% of any
payments made to a shareholder if the shareholder has not
provided a certified taxpayer identification number to the Fund,
or the Secretary of the Treasury notifies the Fund that a
shareholder has not reported all interest and dividend income
required to be shown on the shareholder's Federal income tax
return.
Under certain circumstances, if the Fund realizes losses
from fluctuations in currency exchange rates after paying a
dividend, all or a portion of the dividend may subsequently be
40
<PAGE>
characterized as a return of capital. See "Dividends,
Distributions and Taxes" in the Statement of Additional
Information.
Shareholders will be advised annually as to the federal
tax status of dividends and capital gains distributions made by
the Fund for the preceding year. Shareholders are urged to
consult their tax advisers regarding their own tax situations.
______________________________________________________________
GENERAL INFORMATION
______________________________________________________________
Portfolio Transactions
Consistent with the Conduct Rules of the National
Association of Securities Dealers, Inc., and subject to seeking
best price and execution, the Fund may consider sales of its
shares as a factor in the selection of dealers to enter into
portfolio transactions with the Fund.
Organization
The Fund is a Maryland corporation organized on
December 19, 1996. It is anticipated that annual shareholder
meetings will not be held; shareholder meetings will be held only
when required by Federal or state law. Shareholders have
available certain procedures for the removal of directors.
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 additional classes of
shares. If an additional portfolio or class were established in
the Fund, each share of the portfolio or class would normally be
entitled to one vote for all purposes. Generally, shares of each
portfolio and class would vote as a single series or class on
matters, such as the election of Directors, that affect each
portfolio or class in substantially the same manner. Class A,
Class B and Class C shares have identical voting, dividend,
liquidation and other rights, except that each class bears its
own transfer agency expenses, each of Class A, Class B and
Class C shares bears its own distribution expenses and Class B
shares convert to Class A shares after six years. Each class of
shares votes separately with respect to the Fund's Rule 12b-1
41
<PAGE>
distribution plan and other matters for which separate class
voting is appropriate under applicable law. Shares are freely
transferable, are entitled to dividends as determined by the
Directors and, in liquidation of the Fund, are entitled to
receive the net assets of the Fund. Certain additional matters
relating to the Fund's organization are discussed in its
Statement of Additional Information.
Registrar, Transfer Agent and Dividend-Disbursing Agent
AFS, an indirect wholly-owned subsidiary of Alliance,
located at 500 Plaza Drive, Secaucus, New Jersey 07094, acts as
the Fund's registrar, transfer agent and dividend-disbursing
agent for a fee based upon the number of shareholder accounts
maintained for the Fund. The transfer agency fee with respect to
Class B shares will be higher than the transfer agency fee with
respect to Class A shares or Class C shares.
Principal Underwriter
AFD, an indirect wholly-owned subsidiary of Alliance,
located at 1345 Avenue of The Americas, New York, New York 10105,
is the Principal Underwriter of shares of the Fund.
Performance Information
From time to time, the Fund advertises its "total
return", which is computed separately for Class A, Class B and
Class C shares. Such advertisements disclose the Fund's average
annual compounded total return for the periods prescribed by the
Commission. The Fund's total return for each such period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of the investment at the end of the period. For
purposes 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 Fund shares are
assumed to have been paid. The Fund's advertisements may quote
performance rankings or ratings of the Fund by financial
publications or independent organizations such as Lipper and
Morningstar, Inc. or compare the Fund's performance to various
indices.
Additional Information
This Prospectus and the Statement of Additional
Information, which is incorporated by reference herein, do not
contain all the information set forth in the Registration
Statement filed by the Fund with the Commission under the
42
<PAGE>
Securities Act. Copies of the Registration Statement may be
obtained at a reasonable charge from the Commission or may be
examined, without charge, at the offices of the Commission in
Washington, D.C.
43
00250233.AA0
<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 payment and principal security
appear adequate for the present but certain protective elements
may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as
well.
Ba: Bonds which are rated Ba are judged to have
speculative elements; their future cannot be considered as well-
assured. Often the protection of interest and principal payments
may be very moderate and thereby not well safeguarded during both
good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack
characteristics of the desirable investment. Assurance of
interest and principal payments or of maintenance of other terms
of the contract over any long period of time may be small.
A-1
<PAGE>
Caa: Bonds which are rated Caa are of poor
standing. Such issues may be in default or there may be present
elements of danger with respect to principal or interest.
Ca: Bonds which are rated Ca represent obligations
which are speculative in a high degree. Such issues are often in
default or have other marked shortcomings.
C: Bonds which are rated C are the lowest rated
class of bonds and issues so rated can be regarded as having
extremely poor prospects of ever attaining any real investment
standing.
Absence of Rating- When no rating has been assigned
or where a rating has been suspended or withdrawn, it may be for
reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one
of the following:
1. An application for rating was not received or
accepted.
2. The issue or issuer belongs to a group of
securities or companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to
the issue or issuer.
4. The issue was privately placed, in which case
the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and
material circumstances arise, the effects of which preclude
satisfactory analysis; if there is no longer available reasonable
up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note-Moody's applies numerical modifiers, 1, 2 and
3 in each generic rating classification from Aa through B in its
corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category.
A-2
<PAGE>
STANDARD & POOR'S RATINGS SERVICES
AAA: Debt rated AAA has the highest rating
assigned by S&P. Capacity to pay interest and repay principal is
extremely strong.
AA: Debt rated AA has a very strong capacity to
pay interest and repay principal and differs from the highest
rated issues only in small degree.
A: Debt rated A has a strong capacity to pay
interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances
and economic conditions than debt in higher rated categories.
BBB: Debt rated BBB is regarded as having an
adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse
economic conditions or changing circumstances are more likely to
lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories.
BB, B, CCC, CC, C: Debt rated BB, B, CCC, CC and C
is regarded as having predominantly speculative characteristics
with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and CCC the highest.
While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or
major exposures to adverse conditions.
CI: The rating CI is reserved for income bonds on
which no interest is being paid.
D: Debt rated D is in payment default. The D
rating category is used when interest payments or principal
payments are not made on the date due even if the applicable
grace period has not expired, unless S&P believes that such
payments will be made during such grace period. The D rating also
will be used upon the filing of a bankruptcy petition if debt
service payments are jeopardized.
Plus (+) or Minus (-): The ratings from AA to CCC
may be modified by the addition of a plus or minus sign to show
relative standing within the major rating categories.
NR: Not rated.
A-3
<PAGE>
DUFF & PHELPS CREDIT RATING CO.
AAA: Highest credit quality. The risk factors are
negligible, being only slightly more than for risk-free U.S.
Treasury debt.
AA+,AA, AA-: High credit quality. Protection
factors are strong. Risk is modest but may vary slightly from
time to time because of economic conditions.
A+, A, A-: Protection factors are average but
adequate. However, risk factors are more variable and greater in
periods of economic stress.
BBB+, BBB, BBB-: Below average protection factors
but still considered sufficient for prudent investment.
Considerable variability in risk during economic cycles.
BB+, BB, BB-: Below investment grade but deemed
likely to meet obligations when due. Present or prospective
financial protection factors fluctuate according to industry
conditions or company fortunes. Overall quality may move up or
down frequently within this category.
B+, B, B-: Below investment grade and possessing
risk that obligations will not be met when due. Financial
protection factors will fluctuate widely according to economic
cycles, industry conditions and/or company fortunes. Potential
exists for frequent changes in the rating within this category or
into a higher or lower rating grade.
CCC: Well below investment grade securities.
Considerable uncertainty exists as to timely payment of principal
or interest. Protection factors are narrow and risk can be
substantial with unfavorable economic/industry conditions, and/or
with unfavorable company developments.
DD: Defaulted debt obligations. Issuer failed to
meet scheduled principal and/or interest payments.
FITCH INVESTORS SERVICE, L.P.
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
A-4
<PAGE>
categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated
F- 1+.
A: Bonds considered to be investment grade and of
high credit quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more
vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB: Bonds considered to be investment grade and
of satisfactory credit quality. The obligor's ability to pay
interest and repay principal is considered to be adequate.
Adverse changes in economic conditions and circumstances,
however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the
ratings of these bonds will fall below investment grade is higher
than for bonds with higher ratings.
BB: Bonds are considered speculative. The
obligor's ability to pay interest and repay principal may be
affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could
assist the obligor in satisfying its debt service requirements.
B: Bonds are considered highly speculative. While
bonds in this class are currently meeting debt service
requirements, the probability of continued timely payment of
principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity
throughout the life of the issue.
CCC: Bonds have certain identifiable
characteristics which, if not remedied, may lead to default.
The ability to meet obligations requires an
advantageous business and economic environment.
CC: Bonds are minimally protected. Default in
payment of interest and/or principal seems probable over time.
C: Bonds are in imminent default in payment of
interest or principal.
DDD, DD, D: Bonds are in default on interest
and/or principal payments. Such bonds are extremely speculative
and should be valued on the basis of their ultimate recovery
value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and
D represents the lowest potential for recovery.
A-5
<PAGE>
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.
event
A-6
<PAGE>
(LOGO) ALLIANCE HIGH YIELD FUND, 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
[ ], 1997
____________________________________________________________
This Statement of Additional Information is not a prospectus
but supplements and should be read in conjunction with the
current Prospectus that offers Class A, Class B and Class C
shares of Alliance High Yield Fund, Inc. (the "Fund"), and
if the Fund begins to offer Advisor Class shares, the
Prospectus that offers the Advisor Class shares of the Fund
(the "Advisor Class Prospectus" and, together with any
Prospectus that offers the Class A, Class B and Class C
shares, the "Prospectus(es)"). The Fund currently does not
offer Advisor Class shares. Copies of the Prospectus(es) of
the Fund may be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature"
telephone number shown above.
TABLE OF CONTENTS
PAGE
Description of the Fund. . . . . . . . . . . . . . . .
Management of the Fund . . . . . . . . . . . . . . . .
Expenses of the Fund . . . . . . . . . . . . . . . . .
Purchase of Shares . . . . . . . . . . . . . . . . . .
Redemption and Repurchase of Shares . . . . . . . . .
Shareholder Services . . . . . . . . . . . . . . . . .
Net Asset Value . . . . . . . . . . . . . . . . . . .
Dividends, Distributions and Taxes . . . . . . . . . .
Portfolio Transactions . . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . . .
Report of Independent Auditors and
Financial Statement . . . . . . . . . . . . . . . .
Appendix A: Options . . . . . . . . . . . . . . . . . A-1
Appendix B: Bond Ratings . . . . . . . . . . . . . . B-1
______________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
DESCRIPTION OF THE FUND
Except as otherwise indicated, the investment policies of
Alliance High Yield Fund, Inc. (the "Fund") are not "fundamental
policies" and may, therefore, be changed by the Board of
Directors without a shareholder vote. However, the Fund will not
change its investment policies without contemporaneous written
notice to its shareholders. The Fund's investment objectives may
not be changed without shareholder approval. There can be, of
course, no assurance that the Fund will achieve its investment
objectives.
Investment Objective
The Fund is a diversified, open-end management
investment company whose fundamental investment objective is to
achieve high return by maximizing current income and, to the
extent consistent with that objective, capital appreciation. The
Fund will pursue this objective by investing primarily in a
diversified mix of high yield, below investment grade fixed-
income securities involving greater volatility of price and risk
of principal and income than higher quality fixed-income
securities. The below investment grade debt securities in which
the Fund may invest are known as "junk bonds."
Investment Policies
The Fund attempts to achieve its objective by investing
primarily in a diversified mix of high yield, below investment
grade fixed-income securities involving greater volatility of
price and risk of principal and income than higher fixed-income
securities. The Fund will be managed to maximize current income
by taking advantage of market developments, yield disparities and
variations in the creditworthiness of issuers. The Fund will use
various strategies in attempting to achieve its objective.
Ordinarily, the Fund will invest substantially all its
assets in fixed-income securities which have a high current yield
and that are either rated in the lower categories by two or more
NRSROs (i.e., rated Baa or lower by Moody's Investors Services,
Inc. ("Moody's") or BBB or lower by Standard & Poor's Ratings
Services ("S&P")) or are unrated but deemed by the Alliance
Capital Management L.P., the Fund's investment adviser (the
"Adviser"), to be equivalent to such lower-rated securities. The
Fund will not, however, 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 are
of equivalent quality as determined by the Adviser, and (ii)
2
<PAGE>
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 is of
equivalent quality as determined by the Adviser. However, these
restrictions will not apply to (i) fixed-income securities which,
in the opinion of the Adviser, have similar characteristics to
securities which are rated B3 or higher by Moody's or B- or
higher by S&P, or (ii) money market instruments of any entity
that has an unsecured issue of outstanding debt which, in the
opinion of the Adviser, has similar characteristics to securities
which are so rated.
Certain of the Fund's investments will be in fixed-
income securities which are providing high current yields because
of risks other than credit. For example, the Fund may invest in
securities which have prepayment risks, and non-U.S. dollar
denominated foreign securities, which may have currency risks.
See Appendix B, "Bond Ratings," for a description of
each rating category. In the event that any securities held by
the Fund fall below those ratings, the Fund will not be obligated
to dispose of such securities and may continue to hold such
securities if, in the opinion of the Adviser, such investment is
considered appropriate under the circumstances.
Although not to be emphasized, in furtherance of its
investment objective, the Fund may (i) invest in mortgage-backed
and other asset-backed securities, (ii) enter into repurchase
agreements, (iii) invest in loan participations and assignments
of loans to corporate, governmental, or other borrowers
originally made by institutional lenders or lending syndicates,
(iv) enter into forward commitments for the purchase or sale of
securities and purchase and sell securities on a when-issued or
delayed delivery basis, (v) write covered put and call options on
fixed-income securities, securities indices and foreign
currencies and purchase put or call options on fixed-income
securities, securities indices and foreign currencies,
(vi) purchase and sell futures contracts and related options on
debt securities and on indices of debt securities, (vii) enter
into contracts for the purchase or sale of a specific currency
for hedging purposes only, (viii) invest in foreign securities
and buy and sell foreign currencies principally for the purpose
of preserving the value of foreign securities or in anticipation
or purchasing foreign securities, and (ix) lend portfolio
securities.
In addition to the foregoing, the Fund may from time to time
make investments in (1) U.S. Government Securities,
(2) certificates of deposit, bankers' acceptances, bank notes,
time deposits and interest bearing savings deposits issued or
guaranteed by certain domestic and foreign banks, (3) commercial
3
<PAGE>
paper (rated at least A-1 by S&P or Prime-1 by Moody's or, if not
rated, issued by domestic or foreign companies having high
quality outstanding debt securities) and participation interests
in loans extended by banks to such companies, (4) 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 (5) floating rate or master demand notes.
Additional Investment Policies and Practices
The following additional investment policies supplement those
set forth above.
Options. The Fund may (a) write covered call options on
fixed-income securities or securities indices for the purpose of
increasing its return or to provide a partial hedge against a
decline in the value of its portfolio securities or both, (b)
write covered put options on fixed-income securities or
securities indices in order to earn additional income or (in the
case of put options written on individual securities) to purchase
the underlying securities at a price below the current market
price, (c) purchase put or call options on fixed-income
securities and securities indices in order to hedge against
changes in interest rates or stock prices which may adversely
affect the prices of securities that the Fund wants to purchase
at a later date, to hedge its existing investments against a
decline in value, or to attempt to reduce the risk of missing a
market or industry segment advance, and (d) purchase put and call
options and write covered put and call options against declines
in the dollar value of portfolio securities and against increases
in the dollar cost of securities to be acquired (i.e. as a hedge
and not for speculation).
A put option gives the purchaser of such option, upon payment
of a premium, the right to deliver a specified amount of a
security to the writer of the option on or before a fixed date at
a predetermined price. A call option gives the purchaser of the
option, upon payment of a premium, the right to call upon the
writer to deliver a specified amount of a security on or before a
fixed date at a predetermined price. A call option written by
the Fund is "covered" if the Fund owns the underlying security
covered by the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or
for additional cash consideration held in a segregated account by
its custodian) upon conversion or exchange of other securities
held in its portfolio. A call option is also covered if the Fund
holds a call on the same security and in the same principal
amount as the call written where the exercise price of the call
held (i) is equal to or less than the exercise price of the call
4
<PAGE>
written or (ii) is greater than the exercise price of the call
written if the difference is maintained by the Fund in liquid
assets in a segregated account with the Custodian. A put option
written by the Fund is "covered" if the Fund maintains liquid
assets with a value equal to the exercise price in a segregated
account with the Custodian, or else holds a put on the same
security and in the same principal amount as the put written
where the exercise price of the put held is equal to or greater
than the exercise price of the put written. The premium paid by
the purchaser of an option will reflect, among other things, the
relationship of the exercise price to the market price and
volatility of the underlying security, the remaining term of the
option, supply and demand and interest rates. It would realize a
loss if the price of the underlying security increased or
remained the same or did not decrease during that period by more
than the amount of the premium. If a put or call option
purchased by the Fund were permitted to expire without being sold
or exercised, its premium would be lost by the Fund.
A call option is for cross-hedging purposes if the Fund does
not own the underlying security, and is designed to provide a
hedge against a decline in value in another security which the
Fund owns or has the right to acquire. In such circumstances,
the Fund collateralizes its obligation under the option by
maintaining in a segregated account with the Custodian liquid
assets in an amount not less than the market value of the
underlying security, marked to market daily. The Fund would write
a call option for cross-hedging purposes, instead of writing a
covered call option, when the premium to be received from the
cross-hedge transaction would exceed that which would be received
from writing a covered call option, while at the same time
achieving the desired hedge.
In purchasing a call option, the Fund would be in a position
to realize a gain if, during the option period, the price of the
underlying security increased by an amount in excess of the
premium paid. It would realize a loss if the price of the
underlying security declined or remained the same or did not
increase during the period by more than the amount of the
premium. In purchasing a put option, the Fund would be in a
position to realize a gain if, during the option period, the
price of the underlying security declined by an amount in excess
of the premium paid. It would realize a loss if the price of the
underlying security increased or remained the same or did not
decrease during that period by more than the amount of the
premium. If a put or call option purchased by the Fund were
permitted to expire without being sold or exercised, its premium
would be lost by the Fund.
If a put option written by the Fund were exercised, the Fund
would be obligated to purchase the underlying security at the
5
<PAGE>
exercise price. If a call option written by the Fund were
exercised, the Fund would be obligated to sell the underlying
security at the exercise price. The risk involved in writing a
put option is that there could be a decrease in the market value
of the underlying security caused by rising interest rates or
other factors. If this occurred, the option could be exercised
and the underlying security would then be sold by the option
holder to the Fund at a higher price than its current market
value. The risk involved in writing a call option is that there
could be an increase in the market value of the underlying
security caused by declining interest rates or other factors. If
this occurred, the option could be exercised and the underlying
security would then be sold by the Fund at a lower price than its
current market value. These risks could be reduced by entering
into a closing transaction. The Fund retains the premium
received from writing a put or call option whether or not the
option is exercised. See Appendix A for a discussion of the use,
risks and costs of option trading.
The Fund may purchase or write options on securities of the
types in which it is permitted to invest in privately negotiated
(i.e., over-the-counter) transactions. The Fund will effect such
transactions only with investment dealers and other financial
institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Adviser and the Adviser
has adopted procedures for monitoring the creditworthiness of
such entities. Options purchased or written by the Fund in
negotiated transactions are illiquid and it may not be possible
for the Fund to effect a closing transaction at a time when the
Adviser believes it would be advantageous to do so. See
"Illiquid Securities."
Options on Securities Indices. The Fund may purchase and
sell exchange-traded options on any securities index composed of
the types of securities in which it may invest. An option on a
securities index is similar to an option on a security except
that, rather than the right to take or make delivery of a
security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the
option, an amount of cash if the closing level of the chosen
index is greater than (in the case of a call) or less than (in
the case of a put) the exercise price of the option. There are
no specific limitations on the Fund's purchasing and selling of
options on securities indices.
Through the purchase of listed index options, the Fund could
achieve many of the same objectives as through the use of options
on individual securities. Price movements in the Fund's portfolio
securities probably will not correlate perfectly with movements
in the level of the index and, therefore, the Fund would bear a
risk of loss on index options purchased by it if favorable price
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movements of the hedged portfolio securities do not equal or
exceed losses on the options or if adverse price movements of the
hedged portfolio securities are greater than gains realized from
the options.
Forward Commitments. The Fund may enter into forward
commitments for the purchase or sale of securities. Such
transactions may include purchases on a "when-issued" basis or
purchases or sales on a "delayed delivery" basis. In some cases,
a forward commitment may be conditioned upon the occurrence of a
subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as
and if issued" trade).
When forward commitment transactions are negotiated, the
price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest accrues to the purchaser
prior to the settlement date. At the time the Fund enters into a
forward commitment, it will record the transaction and thereafter
reflect the value of the security purchased or, if a sale, the
proceeds to be received, in determining its net asset value. Any
unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be
canceled in the event that the required condition did not occur
and the trade was canceled.
The use of forward commitments enables the Fund to protect
against anticipated changes in interest rates and prices. For
instance, in periods of rising interest rates and falling bond
prices, the Fund might sell securities in its portfolio on a
forward commitment basis to limit its exposure to falling prices.
In periods of falling interest rates and rising bond prices, the
Fund might sell a security in its portfolio and purchase the same
or a similar security on a when-issued or forward commitment
basis, thereby obtaining the benefit of currently higher cash
yields. However, if the Adviser were to forecast incorrectly the
direction of interest rate movements, the Fund might be required
to complete such when-issued or forward transactions at prices
inferior to the then current market values.
The Fund's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date, but
the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Custodian
will maintain, in a segregated account of the Fund, liquid assets
7
<PAGE>
having value equal to, or greater than, any commitments to
purchase securities on a forward commitment basis and, with
respect to forward commitments to sell portfolio securities of
the Fund, the portfolio securities themselves. If the Fund,
however, chooses to dispose of the right to receive or deliver a
security subject to a forward commitment prior to the settlement
date of the transaction, it may incur a gain or loss. In the
event the other party to a forward commitment transaction were to
default, the Fund might lose the opportunity to invest money at
favorable rates or to dispose of securities at favorable prices.
Futures Contracts and Options on Futures Contracts. The Fund
may invest in futures contracts and options thereon in order to
hedge against anticipated changes in interest rates that might
otherwise have an adverse effect on the value of the Fund's
assets or assets it intends to acquire, sell stock index futures
contracts and related options to hedge the equity portion of the
Fund's assets or equity assets it intends to acquire with regard
to market as distinguished from stock-specific risk, and enter
into futures contracts and related options on foreign currencies
in order to limit its exchange risk.
Mortgage-Related Securities. The mortgage-related securities
in which the Fund principally invests provide funds for mortgage
loans made to residential home buyers. These include securities
which represent interests in pools of mortgage loans made by
lenders such as savings and loan institutions, mortgage bankers,
commercial banks and others. Pools of mortgage loans are
assembled for sale to investors (such as the Fund) by various
governmental, government-related and private organizations.
Interests in pools of mortgage-related securities differ from
other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal
payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both
interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual
borrowers on their residential mortgage loans, net of any fees
paid to the issuer or guarantor of such securities. Additional
payments are caused by repayments of principal resulting from the
sale of the underlying residential property, refinancing or
foreclosure, net of fees or costs which may be incurred. Some
mortgage-related securities, such as securities issued by the
Government National Mortgage Association ("GNMA"), are described
as "modified pass-through." These securities entitle the holder
to receive all interest and principal payments owed on the
mortgage pool, net of certain fees, regardless of whether or not
the mortgagor actually makes the payment.
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<PAGE>
The average life of pass-through pools varies with the
maturities of the underlying mortgage instruments. In addition,
a pool's term may be shortened by unscheduled or early payments
of principal and interest on the underlying mortgages. The
occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic
conditions, the location and age of the mortgage and other social
and demographic conditions. As prepayment rates of individual
pools vary widely, it is not possible to accurately predict the
average life of a particular pool. For pools of fixed-rate
30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of
mortgages with other maturities or different characteristics will
have varying average life assumptions. The assumed average life
of pools of mortgages having terms of less than 30 years, is less
than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted by
investment dealers and vendors based on the maturity of the
underlying instruments and the associated average life
assumption. In periods of falling interest rates the rate of
prepayment tends to increase, thereby shortening the actual
average life of a pool of mortgage-related securities.
Conversely, in periods of rising interest rates the rate of
prepayment tends to decrease, thereby lengthening the actual
average life of the pool. Historically, actual average life has
been consistent with the 12-year assumption referred to above.
Actual prepayment experience may cause the yield to differ from
the assumed average life yield. Reinvestment of prepayments may
occur at higher or lower interest rates than the original
investment, thus affecting the yield of the Fund. The
compounding effect from reinvestment of monthly payments received
by the Fund will increase the yield to shareholders compared with
bonds that pay interest semi-annually.
The principal governmental (i.e., backed by the full faith
and credit of the United States Government) guarantor of
mortgage-related securities is GNMA. GNMA is a wholly-owned
United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee,
with the full faith and credit of the United States Government,
the timely payment of principal and interest on securities issued
by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed
by pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and
credit of the United States Government) guarantors include the
Federal National Mortgage Association and the Federal Home Loan
Mortgage Corporation. The Federal National Mortgage Association
("FNMA") is a government-sponsored corporation owned entirely by
9
<PAGE>
private stockholders. It is subject to general regulation by the
Secretary of Housing and Urban Development. FNMA purchases
residential mortgages from a list of approved seller/servicers
which include state and federally-chartered savings and loan
associations, mutual savings banks, commercial banks and credit
unions and mortgage bankers. Pass-through securities issued by
FNMA are guaranteed as to timely payment of principal and
interest by FNMA but are not backed by the full faith and credit
of the United States Government. The Federal Home Loan Mortgage
Corporation ("FHLMC") is a corporate instrumentality of the
United States Government whose stock is owned by the twelve
Federal Home Loan Banks. Participation certificates issued by
FHLMC, which represent interests in mortgages from FHLMC's
national portfolio, are guaranteed by FHLMC as to the timely
payment of interest and ultimate collection of principal but are
not backed by the full faith and credit of the United States
Government.
Commercial banks, savings and loan institutions, private
mortgage insurance companies, mortgage bankers and other
secondary market issuers also create pass-through pools of
conventional residential mortgage loans. Such issuers may also
be the originators of the underlying mortgage loans as well as
the guarantors of the mortgage-related securities. Pools created
by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because
there are no direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and
principal of these pools is supported by various forms of
insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by
government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the
issuers thereof will be considered in determining whether a
mortgage-related security meets the Fund's investment quality
standards. There can be no assurance that the private insurers
can meet their obligations under the policies. The Fund may buy
mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of
the poolers the Adviser determines that the securities meet the
Fund's quality standards. Although the market for such
securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable. The
Fund will not maintain more than 15% of its net assets in
illiquid securities.
Mortgage-related securities in which the Fund may invest may
also include collateralized mortgage obligations ("CMOs"). CMOs
are debt obligations issued generally by finance subsidiaries or
trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by government-
10
<PAGE>
related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the
principal of and interest on the mortgage-backed certificates
pledged to secure the CMOs may be guaranteed by GNMA, FNMA or
FHLMC, the CMOs represent obligations solely of the issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC or any other
governmental agency, or by any other person or entity. The
issuers of CMOs typically have no significant assets other than
those pledged as collateral for the obligations.
The Fund also expects that governmental, government-related
or private entities may create mortgage loan pools offering pass-
through investments in addition to those described above. The
mortgages underlying these securities may be alternative mortgage
instruments, that is, mortgage instruments whose principal or
interest payments may vary or whose terms to maturity may differ
from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to
investors, the Adviser will, consistent with the Fund's
investment objective, policies and quality standards, consider
making investments in such new types of securities.
Other Asset-Backed Securities. In general, the collateral
supporting asset-backed securities is of shorter maturity than
mortgage loans and is less likely to experience unexpected levels
of prepayments. As with mortgage-related securities, asset-
backed securities are often backed by a pool of assets
representing the obligations of a number of different parties and
use similar credit enhancement techniques.
Repurchase Agreements. The Fund may enter into repurchase
agreements pertaining to the types of securities in which it
invests with member banks of the Federal Reserve System or
"primary dealers" (as designated by the Federal Reserve Bank of
New York) in such securities. There is no percentage restriction
on the Fund's ability to enter into repurchase agreements. The
Fund may enter into repurchase agreements with the Custodian and
such primary dealers. A repurchase agreement arises when a buyer
purchases a security and simultaneously agrees to resell it to
the vendor at an agreed-upon future date, normally one day or a
few days later. The resale price is greater than the purchase
price, reflecting an agreed-upon interest rate which is effective
for the period of time the buyer's money is invested in the
security and which is related to the current market rate rather
than the coupon rate on the purchased security. The Fund
requires continual maintenance by its custodian for its account
in the Federal Reserve/Treasury Book Entry System of collateral
in an amount equal to, or in excess of, the resale price. In the
event a vendor defaulted on its repurchase obligation, the Fund
might suffer a loss to the extent that the proceeds from the sale
11
<PAGE>
of the collateral were less than the repurchase price. In the
event of a vendor's bankruptcy, the Fund might be delayed in, or
prevented from, selling the collateral for its benefit. The
Fund's Board of Directors has established procedures, which are
periodically reviewed by the Board, pursuant to which the Adviser
monitors the creditworthiness of the dealers with which the Fund
enters into repurchase agreement transactions.
Illiquid Securities. The Fund has adopted the following
investment policy which may be changed by the vote of the Board
of Directors.
The Fund will not maintain more than 15% of its net assets
(taken at market value) in illiquid securities. For this
purpose, illiquid securities include, among others (a) direct
placements or other securities which are subject to legal or
contractual restrictions on resale or for which there is no
readily available market (e.g., trading in the security is
suspended or, in the case of unlisted securities, market makers
do not exist or will not entertain bids or offers), (b) over-the-
counter options purchased or written by the Fund and all assets
used to cover written over-the-counter options, and
(c) repurchase agreements not terminable within seven days.
Historically, illiquid securities have included securities
subject to contractual or legal restrictions on resale because
they have not been registered under the Securities Act of 1933,
as amended ("Securities Act") and securities which are otherwise
not readily marketable. Securities which have not been
registered under the Securities Act are referred to as private
placements or restricted securities and are purchased directly
from the issuer or in the secondary market. Mutual funds do not
typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale
and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a
mutual fund might be unable to dispose of restricted or other
illiquid securities promptly or at reasonable prices and might
thereby experience difficulty satisfying redemptions within seven
days. A mutual fund might also have to register such restricted
securities in order to dispose of them resulting in additional
expense and delay. Adverse market conditions could impede such a
public offering of securities.
In recent years, however, a large institutional market has
developed for certain securities that are not registered under
the Securities Act including repurchase agreements, foreign
securities and corporate bonds. Institutional investors depend
on an efficient institutional market in which the unregistered
security can be readily resold or on an issuer's ability to honor
a demand for repayment. The fact that there are contractual or
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<PAGE>
legal restrictions on resale to the general public or to certain
institutions may not be indicative of the liquidity of such
investments.
During the coming year, the Fund may invest up to 5% of its
net assets (taken at market value) in restricted securities
issued under Section 4(2) of the Securities Act, which exempts
from registration "transactions by an issuer not involving any
public offering." Section 4(2) instruments are restricted in the
sense that they can only be resold through the issuing dealer and
only to institutional investors; they cannot be resold to the
general public without registration.
Securities eligible for resale under Rule 144A of the
Securities Act of 1933, as amended, that have legal or
contractual restrictions on resale but have a readily available
market are not deemed illiquid for purposes of this limitation.
More specifically, Rule 144A allows a broader institutional
trading market for securities otherwise subject to restriction on
resale to the general public. Rule 144A establishes a "safe
harbor" from the registration requirements of the Securities Act
for resales of certain securities to qualified institutional
buyers. An insufficient number of qualified institutional buyers
interested in purchasing certain restricted securities held by
the Fund, however, could affect adversely the marketability of
such portfolio securities and the Fund might be unable to dispose
of such securities promptly or at reasonable prices. Rule 144A
has already produced enhanced liquidity for many restricted
securities, and market liquidity for such securities may continue
to expand as a result of this regulation and the consequent
inception of the PORTAL System sponsored by the National
Association of Securities Dealers, Inc., an automated system for
the trading, clearance and settlement of unregistered securities
of domestic and foreign issuers.
The Adviser, acting under the supervision of the Board of
Directors, will monitor the liquidity of restricted securities in
the Fund's portfolio that are eligible for resale pursuant to
Rule 144A. In reaching liquidity decisions, the Adviser will
consider, inter alia, the following factors: (1) the frequency of
trades and quotes for the security; (2) the number of dealers
making quotations to purchase or sell the security; (3) the
number of other potential purchasers of the security; (4) the
number of dealers undertaking to make a market in the
security;(5) the nature of the security (including its
unregistered nature) and the nature of the marketplace for the
security (e.g., the time needed to dispose of the security, the
method of soliciting offers and the mechanics of the transfer);
and (6) any applicable Securities and Exchange Commission (the
"Commission") interpretation or position with respect to such
type of securities.
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<PAGE>
Loans of Portfolio Securities. The Fund may make secured
loans of its portfolio securities to brokers, dealers and
financial institutions provided that liquid assets, or bank
letters of credit equal to at least 100% of the market value of
the securities loaned are deposited and maintained by the
borrower with the Fund. The risks in lending portfolio
securities, as with other extensions of credit, consist of
possible loss of rights in the collateral should the borrower
fail financially. In determining whether to lend securities to a
particular borrower, the Adviser (subject to review by the Board
of Directors) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. While securities
are on loan, the borrower will pay the Fund any income earned
thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an
agreed-upon amount of income from a borrower who has delivered
equivalent collateral. 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 other
distributions. The Fund may pay reasonable finders,
administrative and custodial fees in connection with a loan. The
Fund will not lend its portfolio securities to any officer,
director, employee or affiliate of the Fund or the Adviser. The
Board of Directors will monitor the Fund's lending of portfolio
securities.
U.S. Government Securities. U.S. Government securities
include: (i) U.S. Treasury obligations, which differ only in
their interest rates, maturities and times of issuance as
follows: U.S. Treasury bills (maturity of one year or less), U.S.
Treasury notes (maturities of one to ten years) and U.S. Treasury
bonds (generally maturities of greater than ten years); and
(ii) obligations issued or guaranteed by U.S. Government agencies
and instrumentalities that are supported by the full faith and
credit of the United States (such as securities issued by the
Farmers Home Administration, the Government National Mortgage
Association ("GNMA"), the Department of Housing and Urban
Development, the Export-Import Bank, the General Services
Administration and the Maritime Administration and certain
securities issued by the Federal Housing Administration and the
Small Business Administration). The maturities of U.S.
Government securities usually range from three months to 30
years.
Securities issued by GNMA ("GNMA Certificates") differ
in certain respects from other U.S. Government securities, which
normally provide for periodic payment of interest in fixed
amounts with principal payments at maturity or specified call
dates. GNMA Certificates are mortgage-backed securities
representing part ownership of a pool of mortgage loans. These
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<PAGE>
loans -- issued by lenders such as mortgage bankers, commercial
banks and savings and loan-associations -- are either insured by
the Federal Housing Administration or guaranteed by the Veterans
Administration. A "pool" or group of such mortgages is assembled
and, after being approved by GNMA, is offered to investors
through securities dealers. Once approved by GNMA, the timely
payment of interest and principal on each mortgage is guaranteed
by the full faith and credit of the United States. GNMA
Certificates also differ from other U.S. Government securities in
that principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA
Certificates are called "pass-through" securities because both
interest and principal payments (including pre-payments) are
passed through to the holder of the Certificate. Upon receipt,
principal payments are used by the Portfolio to purchase
additional U.S. Government securities.
General. The successful use of the foregoing investment
practices, all of which are highly specialized investment
activities, draws upon the Adviser's special skills and
experience with respect to such instruments and usually depends
on the Adviser's ability to forecast interest rate movements
correctly. Should interest rates move in an unexpected manner,
the Fund may not achieve the anticipated benefits of these
practices or may realize losses and, thus be in an worse position
than if such strategies had not been used. In addition, the
correlation between movements in the prices of such instruments
and movements in the prices of the securities hedged or used for
cover will not be perfect and could produce unanticipated losses.
The Fund's ability to dispose of its position in options,
interest rate transactions and forward commitment contracts will
depend on the availability of liquid markets in such instruments.
Markets for all these vehicles with respect to a number of fixed-
income securities are relatively new and still developing. If,
for example, a secondary market does not exist with respect to an
option purchased or written by the Fund over-the-counter, it
might not be possible to effect a closing transaction in the
option (i.e., dispose of the option) with the result that (i) an
option purchased by the Fund would have to be exercised in order
for the Fund to realize any profit and (ii) the Fund may not be
able to sell portfolio securities covering an option written by
the Fund until the option expires. Therefore, no assurance can
be given that the Fund will be able to utilize these instruments
effectively for the purposes set forth above. Furthermore, the
Fund's ability to engage in options transactions may be limited
by tax considerations. See "Dividends, Distributions and Taxes-
U.S. Federal Income Taxes" below.
Portfolio Turnover. The Fund may engage in active short-term
trading to benefit from yield disparities among different issues
15
<PAGE>
of securities, to seek short-term profits during periods of
fluctuating interest rates or for other reasons. Such trading
will increase the Fund's rate of turnover and the incidence of
short-term capital gain taxable as ordinary income. The Adviser
anticipates that the annual turnover in the Fund will not be in
excess of 500%, but is not expected to exceed 200%. An annual
turnover rate of 500% occurs, for example, when all of the
securities in the Fund's portfolio are replaced five times in a
period of one year. Such high rate of portfolio turnover
involves correspondingly greater expenses than a lower rate,
which expenses must be borne by the Fund and its shareholders.
High portfolio turnover also may result in the realization of
substantial net short-term capital gains. See "Dividends,
Distributions and Taxes" and "General Information -- Portfolio
Transactions."
Certain Risk Considerations
Risks of Options on Futures Contracts, Forward
Contracts and Options on Foreign Currencies
Unlike transactions entered into by the Fund in futures
contracts, options on foreign currencies and forward contracts
are not traded on contract markets regulated by the CFTC or (with
the exception of certain foreign currency options) by the
Commission. To the contrary, such instruments are 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 Commission regulation.
Similarly, options on securities may be traded over-the-counter.
In an over-the-counter trading environment, many of the
protections afforded to exchange participants will not be
available. 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
and a trader of forward contracts could lose amounts
substantially in excess of their initial investments, due to the
margin and collateral requirements associated with such
positions.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other
securities traded on such exchanges. As a result, many of the
protections provided to traders on organized exchanges will be
available with respect to such transactions. In particular, all
foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
16
<PAGE>
readily available than in the over-the-counter market,
potentially permitting the Fund to liquidate open positions at a
profit prior to exercise or expiration, or to limit losses in the
event of adverse market movements.
The purchase and sale of exchange-traded foreign currency
options, however, is subject to the risks of the availability of
a liquid secondary market described above, as well as the risks
regarding adverse market movements, margining of options written,
the nature of the foreign currency market, possible intervention
by governmental authorities and the effects of other political
and economic events. In addition, exchange-traded options on
foreign currencies involve certain risks not presented by the
over-the-counter market. For example, exercise and settlement of
such options must be made exclusively through the OCC, which has
established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines
that foreign governmental restrictions or taxes would prevent the
orderly settlement of foreign currency option exercise, or would
result in undue burdens on the OCC or its clearing member, impose
special procedures on exercise and settlement, such as technical
changes in the mechanics of delivery of currency, the fixing of
dollar settlement prices or prohibitions on exercise.
In addition, futures contracts, options on futures contracts,
forward contracts and options on foreign currencies may be traded
on foreign exchanges. Such transactions are subject to the risk
of governmental actions affecting trading in or the prices of
foreign currencies or securities. The value of such positions
also could be adversely affected by (i) other complex foreign
political and economic factors, (ii) lesser availability than in
the United States of data on which to make trading decisions,
(iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the
United States, (iv) the imposition of different exercise and
settlement terms and procedures and margin requirements than in
the United States, and (v) lesser trading volume.
Forward Foreign Currency Exchange Contracts
The Fund may purchase or sell forward foreign currency
exchange contracts ("forward contracts") to attempt to minimize
the risk to the Fund from adverse changes in the relationship
between the U.S. dollar and foreign currencies. A forward
contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date, and is individually
negotiated and privately traded by currency traders and their
customers. The Fund may enter into a forward contract, for
example, when it enters into a contract for the purchase or sale
of a security denominated in a foreign currency in order to "lock
in" the U.S. dollar price of the security ("transaction hedge").
17
<PAGE>
The Fund may not engage in transaction hedges with respect to the
currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency.
Additionally, for example, when the Fund believes that a foreign
currency may suffer a substantial decline against the U.S.dollar,
it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of
the Fund's portfolio securities denominated in such foreign
currency, or when the Fund believes that the U.S. dollar may
suffer a substantial decline against a foreign currency, it may
enter into a forward purchase contract to buy that foreign
currency for a fixed dollar amount ("position hedge"). In this
situation the Fund may, in the alternative, enter into a forward
contract to sell a different foreign currency for a fixed U.S.
dollar amount where the Fund believes that the U.S. dollar value
of the currency to be sold pursuant to the forward contract will
fall whenever there is a decline in the U.S. dollar value of the
currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). The Fund's custodian will place
cash not available for investment or liquid assets in a
segregated account of the Fund having a value equal to the
aggregate amount of the Fund's commitments under forward
contracts entered into with respect to position hedges and cross-
hedges. If the value of the securities placed in a segregated
account declines, additional cash or securities will be placed in
the account on a daily basis so that the value of the account
will equal the amount of the Fund's commitments with respect to
such contracts. As an alternative to maintaining all or part of
the segregated account, the Fund may purchase a call option
permitting the Fund to purchase the amount of foreign currency
being hedged by a forward sale contract at a price no higher than
the forward contract price or the Fund may purchase a put option
permitting the Fund to sell the amount of foreign currency
subject to a forward purchase contract at a price as high or
higher than the forward contract price. Unanticipated changes in
currency prices may result in poorer overall performance for the
Fund than if it had not entered into such contracts.
Forward Commitments
The Fund may enter into forward commitments for the purchase
or sale of securities. Such transactions may include purchases
on a "when-issued" basis or purchases or sales on a "delayed
delivery" basis. In some cases, a forward commitment may be
conditioned upon the occurrence of a subsequent event, such as
approval and consummation of a merger, corporate reorganization
or debt restructuring (i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the
price, which generally is expressed in yield terms, is fixed at
the time the commitment is made, but delivery and payment for the
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<PAGE>
securities take place at a later date. Normally, the settlement
date occurs within two months after the transaction, but delayed
settlements beyond two months may be negotiated. Securities
purchased or sold under a forward commitment are subject to
market fluctuation, and no interest or dividends accrue to the
purchaser prior to the settlement date. At the time the Fund
intends to enter into a forward commitment, it will record the
transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in
determining its net asset value. Any unrealized appreciation or
depreciation reflected in such valuation of a "when, as and if
issued" security would be cancelled in the event that the
required conditions did not occur and the trade was cancelled.
The Fund's right to receive or deliver a security under a
forward commitment may be sold prior to the settlement date, but
the Fund will enter into forward commitments only with the
intention of actually receiving or delivering the securities, as
the case may be. To facilitate such transactions, the Fund's
custodian will maintain, in a segregated account of the Fund,
liquid assets having value equal to, or greater than, any
commitments to purchase securities on a forward commitment basis
and, with respect to forward commitments to sell portfolio
securities of the Fund, the portfolio securities themselves. If
the Fund, however, chooses to dispose of the right to receive or
deliver a security subject to a forward commitment prior to the
settlement date of the transaction, it may incur a gain or loss.
In the event the other party to a forward commitment transaction
were to default, the Fund might lose the opportunity to invest
money at favorable rates or to dispose of securities at favorable
prices.
Investments in Lower-Rated and Unrated Instruments.
Substantially all of the Fund's assets will be invested in high
yield, high risk debt securities that are rated in the lower
rating categories (i.e., below investment grade) or which are
unrated but are of comparable quality as determined by the
Adviser. Debt securities rated below investment grade are those
rated Ba or lower by Moody's or BB or lower by S&P and are
considered by those organizations to be subject to greater risk
of loss of principal and interest than higher-rated securities
and are considered to be predominantly speculative with respect
to the issuer's capacity to pay interest and repay principal,
which may in any case decline during sustained periods of
deteriorating economic conditions or rising interest rates. The
Fund may invest in securities having the lowest ratings for non-
subordinated debt instruments assigned by Moody's or S&P (i.e.,
rated C by Moody's or CCC or lower by S&P) and in unrated
securities of comparable investment quality. These securities
are considered to have extremely poor prospects of ever attaining
any real investment standing, to have a current identifiable
19
<PAGE>
vulnerability to default, to be unlikely to have the capacity to
pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in
default or not current in the payment of interest or principal.
Lower-rated securities generally are considered to be subject
to greater market risk than higher-rated securities in times of
deteriorating economic conditions. In addition, lower-rated
securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than investment
grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to
react less to fluctuations in interest rate levels than do those
of higher-rated securities. The market for lower-rated
securities may be thinner and less active than that for higher-
quality 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, the
Adviser may experience difficulty in valuing such securities and,
in turn, the Fund's assets. In addition, adverse publicity and
investor perceptions about lower-rated securities, whether or not
based on fundamental analysis, may tend to decrease the market
value and liquidity of such lower-rated securities. Transaction
costs with respect to lower-rated securities may be higher, and
in some cases information may be less available, than is the case
with investment grade securities.
Many fixed income securities, including certain U.S.
corporate fixed income securities in which the Fund may invest,
contain call or buy-back features which permit the issuer of the
security to call or repurchase it. Such securities may present
risks based on payment expectations. If an issuer exercises such
a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security,
resulting in a decreased rate of return for the Fund.
Ratings of fixed-income securities by Moody's and S&P are a
generally accepted barometer of credit risk. They are, however,
subject to certain limitations from an investor's standpoint. The
rating of a security is heavily weighted by past developments and
does not necessarily reflect probable future conditions. There is
frequently a lag between the time a rating is assigned and the
time it is updated. In addition, there may be varying degrees of
difference in the credit risk of securities within each rating
category.
Non-rated securities will also be considered for investment
by the Fund when the Adviser 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
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<PAGE>
securities which are consistent with the Fund's objectives and
policies.
The Adviser will try to reduce the risk inherent in its
investment approach through credit analysis, diversification and
attention to current developments and trends in interest rates
and economic and political conditions. However, there can be no
assurance that losses will not occur. Since the risk of default
is higher for lower-quality securities, the Adviser's research
and credit analysis are a correspondingly more important aspect
of its program for managing the Fund's securities than would be
the case if the Fund did not invest in lower-rated securities. In
considering investments for the Fund, the Adviser 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. The Adviser'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.
In seeking to achieve the Fund's investment objectives, there
will be times, such as during periods of rising interest rates,
when depreciation and realization of capital losses on securities
in the Fund's portfolio will be unavoidable. Moreover, medium and
lower rated securities and non-rated securities of comparable
quality may be subject to wider fluctuations in yield and market
values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do
not affect the cash income received from that security but are
reflected in the net asset value of the Fund.
Risks of Investments In Foreign Securities. Foreign issuers
are subject to accounting and financial standards and
requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and
profits appearing on the financial statements of a foreign issuer
may not reflect its financial position or results of operations
in the way they would be reflected had the financial statement
been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps
accounting records in local currency, inflation accounting rules
in some of the countries in which the Fund will invest require,
for both tax and accounting purposes, that certain assets and
liabilities be restated on the issuer's balance sheet in order to
express items in terms of currency of constant purchasing power.
Inflation accounting may indirectly generate losses or profits.
Consequently, financial data may be materially affected by
restatements for inflation and may not accurately reflect the
real condition of those issuers and securities markets.
Substantially less information is publicly available about
certain non-U.S. issuers than is available about U.S. issuers.
21
<PAGE>
Expropriation, confiscatory taxation, nationalization,
political, economic or social instability or other similar
developments, such as military coups, have occurred in the past
in countries in which the Fund will invest and could adversely
affect the Fund's assets should these conditions or events recur.
Foreign investment in certain foreign securities is
restricted or controlled to varying degrees. These restrictions
or controls may at times limit or preclude foreign investment in
certain foreign securities and increase the costs and expenses of
the Fund. Certain countries in which the Fund will invest
require governmental approval prior to investments by foreign
persons, limit the amount of investment by foreign persons in a
particular issuer, limit the investment by foreign persons only
to a specific class of securities of an issuer that may have less
advantageous rights than the classes available for purchase by
domiciliaries of the countries and/or impose additional taxes on
foreign investors.
Certain countries other than those on which the Fund will
focus it investments may require governmental approval for the
repatriation of investment income, capital or the proceeds of
sales of securities by foreign investors. In addition, if a
deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital
remittances. The Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental approval for
repatriation of capital, as well as by the application to the
Fund of any restrictions on investments. Investing in local
markets may require the portfolio to adopt special procedures,
seek local governmental approvals or take other actions, each of
which may involve additional costs to the Fund.
Income from certain investments held by the Fund could be
reduced by foreign income taxes, including withholding taxes. It
is impossible to determine the effective rate of foreign tax in
advance. The Fund's net asset value may also be affected by
changes in the rates or methods of taxation applicable to the
Fund or to entities in which the Fund has invested. The Adviser
generally will consider the cost of any taxes in determining
whether to acquire any particular investments, but can provide no
assurance that the tax treatment of investments held by the Fund
will not be subject to change.
Debt Securities. The net asset value of the Fund's shares
will change as the general levels of interest rates fluctuate.
When interest rates decline, the value of a portfolio primarily
invested in debt securities can be expected to rise. Conversely,
when interest rates rise, the value of a portfolio primarily
invest in debt securities can be expected to decline. Certain
debt securities in which the Fund may invest are floating-rate
22
<PAGE>
debt securities. To the extent that the Fund does not enter into
interest rate swaps with respect to such floating-rate debt
securities, the Fund may be subject to greater risk during
periods of declining interest rates.
Future Developments. The Fund may, following written notice
to its shareholders, take advantage of other investment practices
which are not at present contemplated for use by the Fund or
anticipates that the net return on the Fund's investment
portfolio will exceed the interest expense by the Fund on
borrowing.
Fundamental Investment Policies
There are several fundamental investment restrictions which
apply. These restrictions, may not be changed without
shareholder approval, which means the affirmative vote of the
holders of (i) 67% or more or the shares represented at a meeting
at which more than 50% of the outstanding shares are represented,
or (ii) more than 50% of the outstanding shares, whichever is
less. 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 increases or decreases in
percentage beyond the specified limitation resulting from a
change in values or net assets will not be considered a
violation.
The Fund may not:
(1) 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;
(2) make short sales of securities, except when it has, by
reason of ownership of other securities, the right to obtain
securities of equivalent kind and amount that will be held so
long as it is in a short position;
(3) issue senior securities;
(4) purchase real estate or mortgages; however, the Fund may,
as appropriate and consistent with its investment policies and
other investment restrictions (a) buy securities of issuers which
engage in real estate operations and securities which are secured
by interests in real estate (including partnership interests and
shares of real estate investment trusts) and (b) may hold and
23
<PAGE>
sell real estate acquired as a result of ownership of such
securities;
(5) purchase any security on margin or borrow money, except
that this restriction shall not apply to (a) borrowing from banks
for temporary purposes, (b) the pledging of assets to banks in
order to transfer funds for various purposes as required without
interfering with the orderly liquidation of securities in the
Fund (but not for leveraging purposes), or (c) margin payments
or pledges in connection with options, futures contracts, options
on futures contracts, forward contracts or options on foreign
currencies.
Non-Fundamental Restrictions
The following investment restrictions are not fundamental. They
may be changed without a vote of that Fund's shareholders.
The Fund will not:
(1) invest more than 15% of its assets in securities
restricted as to disposition under Federal securities laws, or
securities otherwise considered illiquid or not readily
marketable, including repurchase agreements having a maturity of
more than seven days; however, this restriction will not apply to
securities sold pursuant to Rule 144A under the Securities Act of
1933, so long as such securities meet liquidity guidelines to be
established by the Fund's Board of Directors;
(2) trade in foreign exchange (except transactions incidental
to the settlement of purchases or sales of securities for the
Fund) except in connection with its foreign currency hedging
strategies, provided the amount of foreign exchange underlying
such a currency hedging transactions does not exceed 10% of such
the Fund's [total] [net] assets;
(3) acquire securities of any company that is a securities
broker or dealer,a securities underwriter, an investment adviser
of an investment company, or an investment adviser registered
under the Investment Advisers Act of 1940 (other than any such
company that derives no more than 15% of its gross revenues from
securities related activities), except the Fund may purchase
bank, trust company, and bank holding company stock, and except
that the Fund may invest, in accordance with Rule 12d3-1 under
the Investment Company Act, up to 5% of its total assets in any
such company provided that it owns no more than 5% of the
outstanding equity securities of any class plus 10% of the
outstanding debt securities of such company; or
(4) make an investment in order to exercise control or
management over a company.
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<PAGE>
In addition, the Fund will not invest more than 5% of its assets
in the securities of any one investment company, own more than 3%
of any one investment company's outstanding voting securities, or
have total holdings of investment company securities in excess of
10% of the value of the Fund's assets.
MANAGEMENT OF THE FUND
Directors and Officers
The Directors and officers of the Fund, their ages and their
principal occupations during the past five years are set forth
below. Each such Director and officer is also a director,
trustee or officer of other registered investment companies
sponsored by the Adviser. Unless otherwise specified, the
address of each of the following persons is 1345 Avenue of the
Americas, New York, New York 10105.
Directors
[ ]
Officers
[ ]
The aggregate compensation to be paid by the Fund to each of
the Directors during its current fiscal year ending
[ ], 1997 (estimating future payments based upon
existing arrangements), and the aggregate compensation paid to
each of the Directors during calendar year 1995 by all of the
registered investment companies to which the Adviser provides
investment advisory services (collectively, the "Alliance Fund
Complex"), and the total number of registered investment
companies in the Alliance Fund Complex with respect to which each
of the Directors serves as a director or trustee, are set forth
below. Neither the Fund nor any other fund in the Alliance Fund
Complex provides compensation in the form of pensions or
retirement benefits to any of its directors or trustees. Certain
of the Directors is a director or trustee of one or more other
registered investment companies in the Alliance Fund Complex.
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<PAGE>
Total Number
of Funds in
the Alliance
Total Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Director Compensation Including the Director or
of the Fund From the Fund Fund Trustee
Adviser
Alliance Capital Management L.P., a New York Stock Exchange
listed company with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") to
provide investment advice and, in general, to conduct the
management and investment program of the Fund under the
supervision and control of the Fund's Board of Directors.
The Adviser is a leading international investment manager
supervising client accounts with assets as of December 31, 1996
of more than $[ ] billion (of which more than $[ ] billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds. As of December 31, 1996, the
Adviser was manager of employee benefit fund assets for [ ] of
the FORTUNE 100 companies. As of that date, the Adviser and its
subsidiaries employed approximately [ ] employees who operated
out of domestic offices and the offices of subsidiaries in
Bombay, Istanbul, London, Paris, Sao Paolo, Sydney, Tokyo,
Toronto, Bahrain, Luxembourg and Singapore. The [ ] registered
investment companies comprising [ ] separate investment
portfolios managed by the Adviser currently have more than two
million shareholders.
Alliance Capital Management Corporation, the sole general
partner of, and the owner of a 1% general partnership interest
in, the Adviser, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1996,
ACMC, Inc. and Equitable Capital Management Corporation, each a
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<PAGE>
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 ("Units"). As of June 30, 1996, approximately 33% and
10% of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
As of September 6, 1996, AXA and its subsidiaries owned
approximately 60.7% of the issued and outstanding shares of
capital stock of ECI. AXA is the 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
in more than 20 countries including France, the United States,
Australia, the United Kingdom, Canada and other countries,
principally in Europe and the Asia/Pacific area. AXA is also
engaged in asset management, investment banking, securities
trading, brokerage, real estate and other financial services
activities in the United States, Europe and the Asia/Pacific
area.
Based on information provided by AXA, as of September 9,
1996, 36.3% of the issued ordinary shares (representing 49.1% of
the voting power) of AXA were owned directly or indirectly by
Finaxa, a French holding company ("Finaxa"). As of September 6,
1996, 61.3% of the voting shares (representing 73.5% of the
voting power) of Finaxa were owned by five French mutual
insurance companies (the "Mutuelles AXA") (one of which, AXA
Assurances I.A.R.D. Mutuelle, owned 34.8% of the voting shares
representing 40.6% of the voting power), and 23.7% of the voting
shares of Finaxa (representing 15.0% of the voting power) were
owned by Banque Paribas, a French bank. Including the ordinary
shares directly or indirectly owned by Finaxa, the Mutuelles AXA
directly or indirectly owned 42.0% of the issued ordinary shares
(representing 56.8% of the voting power) of AXA as of September
9, 1996. Acting as a group, the Mutuelles AXA control AXA and
Finaxa. In addition, as of September 9, 1996, 7.8% of the issued
ordinary shares of AXA without the power to vote were owned by
subsidiaries of AXA.
Certain other clients of the Adviser may have investment
objectives and policies similar to those of the Fund. The Adviser
may, from time to time, make recommendations which result in the
purchase or sale of a particular security by its other clients
simultaneously with the Fund. If transactions on behalf of more
than one client during the same period increase the demand for
securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is
27
<PAGE>
the policy of the Adviser to allocate advisory recommendations
and the placing of orders in a manner which is deemed equitable
by the Adviser to the accounts involved, including the Fund.
When two or more of the clients of the Adviser (including the
Fund) are purchasing or selling the same security on a given day
from the same broker-dealer, such transactions may be averaged as
to price.
Under the Advisory Agreement, the Adviser provides investment
advisory services and order placement facilities for the Fund and
pays all compensation of Directors and officers of the Fund who
are affiliated persons of the Adviser. The Adviser or its
affiliates also furnishes the Fund, without charge, management
supervision and assistance and office facilities and provides
persons satisfactory to the Fund's Board of Directors to serve as
the Fund's officers.
The Advisory Agreement is terminable without penalty by a
vote of a majority of the Fund's outstanding voting securities or
by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Advisory Agreement provides that the Adviser will
reimburse the Fund for its expenses (exclusive of interest,
taxes, brokerage, expenditures pursuant to the Distribution
Services Agreement described below, and extraordinary expenses as
to the extent permitted by applicable state securities laws and
regulations) which in any year exceed the limits prescribed by
any state in which the Fund's shares are qualified for sale. The
Fund may not qualify its shares for the sale in every state. The
Fund believes that presently the most restrictive expense ratio
limitation imposed by any state in which the Fund has qualified
its shares for sale is 2.5% of the first $30 million of the
Fund's average net assets, 2.0% of the next $70 million of its
average net assets and 1.5% of its average net assets in excess
of $100 million. Expense reimbursements, if any, are accrued
daily and paid monthly.
The Advisory Agreement became effective on [ ],
1997. The Advisory Agreement will continue in effect until
[ ], 1999 and thereafter for successive twelve-month
periods (computed from [ ]), provided, however, that
such continuance is specifically approved at least annually by a
vote of a majority of the Fund's outstanding voting securities or
by the Fund's Board of Directors, including in either case
28
<PAGE>
approval by a majority of the Directors who are not parties to
the Advisory Agreement or interested persons of any such party as
defined by the 1940 Act.
The Advisory Agreement is terminable without penalty by a
vote of a majority of the Fund's outstanding voting securities or
by a vote of a majority of the Fund's Directors on 60 days'
written notice, or by the Adviser on 60 days' written notice, and
will automatically terminate in the event of its assignment. The
Advisory Agreement provides that in the absence of willful
misfeasance, bad faith or gross negligence on the part of the
Adviser, or of reckless disregard of its obligations thereunder,
the Adviser shall not be liable for any action or failure to act
in accordance with its duties thereunder.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following registered investment
companies: ACM Institutional Reserves, Inc., AFD Exchange
Reserves, The Alliance Fund, Inc., Alliance All-Asia Investment
Fund, Inc., Alliance Balanced Shares, Inc., Alliance Bond Fund,
Inc., Alliance Capital Reserves, Alliance Developing Markets
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Global Strategic
Income Trust, Inc., Alliance Government Reserves, Alliance Growth
and Income Fund, Inc., Alliance Income Builder Fund, Inc.,
Alliance International Fund, Alliance Limited Maturity Government
Fund, Inc., Alliance Money Market Fund, Alliance 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/Regent Sector Opportunity Fund, Inc., Alliance Short-
Term Multi-Market Trust, Inc., Alliance Technology Fund, Inc.,
Alliance Utility Income Fund, Inc., Alliance Variable Products
Series Fund, Inc., Alliance World Income Trust, Inc., Alliance
Worldwide Privatization Fund, Inc., The Alliance Portfolios,
Fiduciary Management Associates and The Hudson River Trust, all
open-end investment companies; and to ACM Government Income Fund,
Inc., ACM Government Securities Fund, Inc., ACM Government
Spectrum Fund, Inc., ACM Government Opportunity Fund, Inc., ACM
Managed Income Fund, Inc., ACM Managed Dollar Income Fund, Inc.,
ACM Municipal Securities Income Fund, Inc., Alliance Global
Environment Fund, Inc., Alliance World Dollar Government Fund,
Inc., Alliance World Dollar Government Fund II, Inc., The Austria
Fund, Inc., The Korean Investment Fund, Inc., The Spain Fund,
Inc. and The Southern Africa Fund, Inc. all closed-end investment
companies.
29
<PAGE>
EXPENSES OF THE FUND
Distribution Services Agreement
The Fund has entered into a Distribution Services Agreement
(the "Agreement") with Alliance Fund Distributors, Inc., the
Fund's principal underwriter (the "Principal Underwriter"), to
permit the Principal Underwriter to distribute the Funds shares
and to permit the Fund to pay distribution service fees to defray
expenses associated with the distribution of its Class A shares,
Class B shares and Class C shares in accordance with a plan of
distribution which is included in the Agreement and has been duly
adopted and approved in accordance with Rule 12b-1 adopted by the
Commission under the 1940 Act (the "Plan").
Distribution services fees are accrued daily and paid monthly
and are charged as expenses of the Fund as accrued. The
distribution services fees attributable to the Class B shares and
Class C shares are designed to permit an investor to purchase
such shares through broker-dealers without the assessment of an
initial sales charge, and at the same time to permit the
Principal Underwriter to compensate broker-dealers in connection
with the sale of such shares. In this regard, the purpose and
function of the combined respective contingent deferred sales
charges and respective distribution services fees on the Class B
shares and the distribution services fees on the Class C shares,
are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in
that in each case the sales charge and/or distribution services
fee provide for the financing of the distribution of the relevant
class of the Fund's shares.
Under the Agreement, the Treasurer of the Fund reports the
amounts expended under the Rule 12b-1 Plan and the purposes for
which such expenditures were made to the Directors of the Fund
for their review on a quarterly basis. Also, the Agreement
provides that the selection and nomination of Directors who are
not interested persons of the Fund (as defined in the 1940 Act)
are committed to the discretion of such disinterested Directors
then in office. The Agreement was initially approved by the
Directors of the Fund at a meeting held on [ ], and
by the Fund's initial shareholder on [ ].
In approving the Agreement, the Directors of the Fund
determined that there was a reasonable likelihood that the
Agreement would benefit the Fund and its shareholders.
Information with respect to distribution services fees and other
revenues and expenses of the Principal Underwriter will be
30
<PAGE>
presented to the Directors each year for their consideration in
connection with their deliberations as to the continuance of the
Agreement. In their review of the Agreement, the Directors will
be asked to take into consideration separately with respect to
each class the distribution expenses incurred with respect to
such class. The distribution services fee of a particular class
will not be used to subsidize the provision of distribution
services with respect to any other class.
The Agreement became effective on [ ], 1997. The
Agreement will continue in effect until [ ], 1998 and
thereafter for successive twelve-month periods (computed from
each [ 1) with respect to each class of the Fund,
provided, however, that such continuance is specifically approved
at least annually by the Directors of the Fund or by vote of the
holders of a majority of the outstanding voting securities (as
defined in the Act) of that class, and in either case, by a
majority of the Directors of the Fund who are not parties to this
agreement or interested persons, as defined in the Act, of any
such party (other than as trustees of the Fund) and who have no
direct or indirect financial interest in the operation of the
Rule 12b-1 Plan or any agreement related thereto.
The Adviser may from time to time and from its own funds or
such other resources as may be permitted by rules of the
Commission make payments for distribution services to the
Principal Underwriter; the latter may in turn pay part or all of
such compensation to brokers or other persons for their
distribution assistance.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement will become
effective only upon approval as provided in the preceding
paragraph; and the Agreement may not be amended in order to
increase materially the costs that the Fund or a particular class
of the Fund may bear pursuant to the Agreement without the
approval of a majority of the holders of the outstanding voting
shares of the Fund or the class or classes of the Fund affected.
The Agreement may be terminated (a) by the Fund without penalty
at any time by a majority vote of the holders of the Fund's
outstanding voting securities, voting separately by class, or by
31
<PAGE>
a majority vote of the disinterested Directors or (b) by the
Principal Underwriter. To terminate the Agreement, any party
must give the other parties 60 days' written notice; to terminate
the Rule 12b-1 Plan only, the Fund is not required to give prior
notice to the Principal Underwriter. The Agreement will
terminate automatically in the event of its assignment.
Transfer Agency Agreement
Alliance Fund Services, Inc., an indirect wholly-owned
subsidiary of the Adviser, receives a transfer agency fee per
account holder of the Class A shares, Class B shares, Class C
shares and Advisor Class shares of the Fund, plus reimbursement
for out-of-pocket expenses. The transfer agency fee with respect
to the Class B and Class C shares is higher than the transfer
agency fee with respect to the Class A shares and Advisor Class
shares.
PURCHASE OF SHARES
The following information supplements that set forth in the
Prospectus(es) under "Purchase and Sale of Shares -- How to Buy
Shares."
General
Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase ("Class A shares"), with a contingent
deferred sales charge ("Class B shares"), without any initial
sales charge and, as long as the shares are held for one year or
more, without any contingent deferred sales charge ("Class C
shares"), or, to investors eligible to purchase Advisor Class
shares, without any initial, contingent deferred or asset-based
sales charge, in each case as described below. Shares of the
Fund that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the 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
32
<PAGE>
financial intermediaries and approved by the Principal
Underwriter, pursuant to which each investor pays an asset-based
fee at an annual rate of at least .50% of the assets in the
investor's account, to the sponsor, or its affiliate or agent,
(ii) through self-directed defined contribution employee benefit
plans (e.g., 401(k) plans) that have at least 1,000 participants
or $25 million in assets or (iii) by the categories of investors
described in clauses (i), (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).
If you are a Fund 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 in the Advisor Class Prospectus and this Statement of
Additional Information. 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.
Investors may purchase shares of the Fund either through
selected dealers, agents or financial representatives or directly
through the Principal Underwriter. Sales personnel of selected
dealers and agents distributing the Funds shares may receive
differing compensation for selling Class A, Class B, Class C or
Advisor Class shares.
Shares may also be sold in foreign countries where
permissible. The Fund may refuse any order for the purchase of
shares. The Fund reserves the right to suspend the sale of its
shares to the public in response to conditions in the securities
markets or for other reasons.
The public offering price of shares of the Fund is their net
asset value, plus, in the case of Class A shares, a sales charge
which will vary depending on the purchase alternative chosen by
the investor, as shown in the table below under "-Class A
Shares." On each Fund business day on which a purchase or
redemption order is received by the Fund and trading in the types
of securities in which the Fund invests might materially affect
the value of Fund shares, the per share net asset value is
computed in accordance with the Fund's Articles of Incorporation
and By-Laws as of the next close of regular trading on the New
York Stock Exchange (the "Exchange") (currently 4:00 p.m. Eastern
time) by dividing the value of the Fund's total assets, less its
33
<PAGE>
liabilities, by the total number of its shares then outstanding.
A Fund business day is any day on which the Exchange is open for
trading.
The respective per share net asset values of the Class A,
Class B, Class C and Advisor Class shares are expected to be
substantially the same. Under certain circumstances, however,
the per share net asset values of the Class B and Class C shares
may be lower than the per share net asset values of the Class A
and Advisor Class shares as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes of shares. Even under
those circumstances, the per share net asset values of the four
classes eventually will tend to converge immediately after the
payment of dividends, which will differ by approximately the
amount of the expense accrual differential among the classes.
The Fund will accept unconditional orders for its shares to
be executed at the public offering price equal to their net asset
value next determined (plus applicable Class A sales charges), as
described below. Orders received by the Principal Underwriter
prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the net asset
value computed as of the close of regular trading on the Exchange
on that day (plus applicable Class A sales charges). In the case
of orders for purchase of shares placed through selected dealers,
agents or financial representatives, as applicable, the
applicable public offering price will be the net asset value as
so determined, but only if the selected dealer, agent or
financial representative receives the order prior to the close of
regular trading on the Exchange and transmits it to the Principal
Underwriter prior to 5:00 p.m. Eastern time. The selected
dealer, agent or financial representative, as applicable, is
responsible for transmitting such orders by 5:00 p.m. If the
selected dealer, agent or financial representative fails to do
so, the investor's right to that day's closing price must be
settled between the investor and the selected dealer, agent or
financial representative, as applicable. If the selected dealer,
agent or financial representative, as applicable, receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a shareholder
may place orders to purchase additional shares by telephone if
the shareholder has completed the appropriate portion of the
Subscription Application or an "Autobuy" application obtained by
calling the "For Literature" telephone number shown on the cover
of this Statement of Additional Information. Except with respect
to certain omnibus accounts, telephone purchase orders may not
34
<PAGE>
exceed $500,000. Payment for shares purchased by telephone can
be made only by Electronic Funds Transfer from a bank account
maintained by the shareholder at a bank that is a member of the
National Automated Clearing House Association ("NACHA"). If a
shareholder's telephone purchase request is received before
3:00 p.m. Eastern time on a Fund business day, the order to
purchase shares is automatically placed the following Fund
business day, and the applicable public offering price will be
the public offering price determined as of the close of business
on such following business day.
Full and fractional shares are credited to a subscriber's
account in the amount of his or her subscription. As a
convenience to the subscriber, and to avoid unnecessary expense
to the Fund, stock certificates representing shares of the Fund
are not issued except upon written request to the Fund by the
shareholder or his or her authorized selected dealer or agent.
This facilitates later redemption and relieves the shareholder of
the responsibility for and inconvenience of lost or stolen
certificates. No certificates are issued for fractional shares,
although such shares remain in the shareholder's account on the
books of the Fund.
In addition to the discount or commission amount paid to
dealers or agents, the Principal Underwriter from time to time
pays additional cash or other incentives to dealers or agents,
including EQ Financial Consultants, Inc., formerly Equico
Securities, Inc., an affiliate of the Principal Underwriter, in
connection with the sale of shares of the Fund. Such additional
amounts may be utilized, in whole or in part, to provide
additional compensation to registered representatives who sell
shares of the Fund. On some occasions, 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 and their immediate family
members to urban or resort locations within or outside the United
States. Such dealer or agent may elect to receive cash
incentives of equivalent amount in lieu of such payments.
Class A, Class B, Class C and Advisor Class shares each
represent an interest in the same portfolio of investments of the
Fund, have the same rights and are identical in all respects,
except that (i) Class A shares bear the expense of the initial
sales charge (or contingent deferred sales charge, when
applicable) and Class B and Class C shares bear the expense of
the deferred sales charge, (ii) Class B shares and Class C shares
35
<PAGE>
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 that borne by Class A and Advisor
Class shares; (iv) each of Class A, Class B and Class C shares
has exclusive voting rights with respect to provisions of the
Rule 12b-1 Plan pursuant to which its distribution services fee
is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund
submits to a vote of the Class A shareholders an amendment to the
Rule 12b-1 Plan that would materially increase the amount to be
paid thereunder with respect to the Class A shares, then such
amendment will also be submitted to the Class B and Advisor Class
shareholders and the Class A shareholders, the Class B
shareholders and the Advisor Class shareholders will vote
separately by class, and (v) Class B and Advisor Class shares are
subject to a conversion feature. Each class has different
exchange privileges and certain different shareholder service
options available.
The Directors of the Fund have determined that currently no
conflict of interest exists between or among the Class A, Class
B, Class C and Advisor Class shares. On an ongoing basis, the
Directors of the Fund, pursuant to their fiduciary duties under
the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Retail Purchase Arrangements -- Class A, Class B and
Class C Shares2
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 purchase, the length of time the
investor expects to hold the shares, and other circumstances.
Investors should consider whether, during the anticipated life of
their investment in the Fund, the accumulated distribution
services fee and contingent deferred sales charge on Class B
shares prior to conversion, or the accumulated distribution
services fee and contingent deferred sales charge on Class C
shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
_________________________
2. Advisor Class shares are sold only to investors described
above in this section under "--General."
36
<PAGE>
certain retirement plans) for more than $250,000 for Class B
shares. Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution services
fee and, accordingly, pay correspondingly higher dividends per
share than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase,
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 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.
37
<PAGE>
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 the sales of Class A shares, such as the payment
of compensation to selected dealers or agents for selling Class A
38
<PAGE>
shares. With respect to purchases of $1,000,000 or more made
through selected dealers or agents, the Adviser may, pursuant to
the Distribution Services Agreement described above, pay such
dealers or agents from its own resources a fee of up to 1% of the
amount invested to compensate such dealers or agents for their
distribution assistance in connection with such purchases.
No initial sales charge is imposed on Class A shares issued
(i) pursuant to the automatic reinvestment of income dividends or
capital gains distributions, (ii) in exchange for Class A shares
of other "Alliance Mutual Funds" (as that term is defined under
"Combined Purchase Privilege" below), except that an initial
sales charge will be imposed on Class A shares issued in exchange
for Class A shares of AFD Exchange Reserves ("AFDER") that were
purchased for cash without the payment of an initial sales charge
and without being subject to a contingent deferred sales charge
or (iii) upon the automatic conversion of Class B shares or
Advisor Class shares as described below under "--Class B Shares--
Conversion Feature" and "--Conversion of Advisor Class Shares to
Class A shares." The Fund receives the entire net asset value of
its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown above less any
applicable discount or commission "reallowed" to selected dealers
and agents. The Principal Underwriter will reallow discounts to
selected dealers and agents in the amounts indicated in the table
above. In this regard, the Principal Underwriter may elect to
reallow the entire sales charge to selected dealers and agents
for all sales with respect to which orders are placed with the
Principal Underwriter. A selected dealer who receives
reallowance in excess of 90% of such a sales charge may be deemed
to be an "underwriter" under the Securities Act.
Set forth below is an example of the method of computing the
offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$100,000 subject to the schedule of sales charges set forth above
at a price based upon the net asset value of Class A shares of
the Fund on [ ], 1997.
Net Asset Value per Class A
Share at [ ], 1997 $[ ]
Per Share Sales Charge - 4.25%
of offering price (4.44% of
net asset value per share) $[ ]
Class A Per Share Offering Price
to the Public [ ]
Investors choosing the initial sales charge alternative may
under certain circumstances be entitled to pay (i) no initial
39
<PAGE>
sales charge (but be subject in most such cases to a contingent
deferred sales charge) or (ii) a reduced initial sales charge.
The circumstances under which investors may pay a reduced initial
sales charge are described below.
Combined Purchase Privilege. Certain persons may qualify for
the sales charge reductions indicated in the schedule of such
charges above by combining purchases of shares of the Fund into a
single "purchase," if the resulting "purchase" totals at least
$100,000. The term "purchase" refers to: (i) a single purchase
by an individual, or to concurrent purchases, which in the
aggregate are at least equal to the prescribed amounts, by an
individual, his or her spouse and their children under the age of
21 years purchasing shares of the Fund for his, her or their own
account(s); (ii) a single purchase by a trustee or other
fiduciary purchasing shares for a single trust, estate or single
fiduciary account although more than one beneficiary is involved;
or (iii) a single purchase for the employee benefit plans of a
single employer. The term "purchase" also includes purchases by
any "company," as the term is defined in the 1940 Act, but does
not include purchases by any such company which has not been in
existence for at least six months or which has no purpose other
than the purchase of shares of the Fund or shares of other
registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals
whose sole organizational nexus is that the participants therein
are credit card holders of a company, policy holders of an
insurance company, customers of either a bank or broker-dealer or
clients of an investment adviser. A "purchase" may also include
shares, purchased at the same time through a single selected
dealer or agent, of any other "Alliance Mutual Fund." Currently,
the Alliance Mutual Funds include:
AFD Exchange Reserves
The Alliance Fund, Inc.
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Mortgage Securities Income Fund, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
40
<PAGE>
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Real Estate Investment Fund, Inc.
Alliance/Regent Sector Opportunity Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-Alliance Growth Fund
-Alliance Conservative Investors Fund
-Alliance Growth Investors Fund
-Alliance Strategic Balanced Fund
-Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be obtained
without charge by contacting Alliance Fund Services, Inc. at the
address or the "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
41
<PAGE>
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with that
of the investor into a single "purchase" (see
above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the sales charge for the $100,000 purchase
would be at the 2.25% rate applicable to a single $300,000
purchase of shares of the Fund, rather than the 3.25% rate.
To qualify for the Combined Purchase Privilege or to obtain
the Cumulative Quantity Discount on a purchase through a selected
dealer or agent, the investor or selected dealer or agent must
provide the Principal Underwriter with sufficient information to
verify that each purchase qualifies for the privilege or
discount.
Statement of Intention. Class A investors may also obtain
the reduced sales charges shown in the table above by means of a
written Statement of Intention, which expresses the investor's
intention to invest not less than $100,000 within a period of 13
months in Class A shares (or Class A, Class B, Class C and/or
Advisor Class shares) of the Fund or any other Alliance Mutual
Fund. Each purchase of shares under a Statement of Intention
will be made at the public offering price or prices applicable at
the time of such purchase to a single transaction of the dollar
amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will only be necessary to
invest a only 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
42
<PAGE>
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 sales charge applicable
to the shares actually purchased if the full amount indicated is
not purchased, and such escrowed shares will be involuntarily
redeemed to pay the additional sales charge, if necessary.
Dividends on escrowed shares, whether paid in cash or reinvested
in additional Fund shares, are not subject to escrow. When the
full amount indicated has been purchased, the escrow will be
released. To the extent that an investor purchases more than the
dollar amount indicated on the Statement of Intention and
qualifies for a further reduced sales charge, the sales charge
will be adjusted for the entire amount purchased at the end of
the 13-month period. The difference in the sales charge will be
used to purchase additional shares of the Fund subject to the
rate of the sales charge applicable to the actual amount of the
aggregate purchases.
Investors wishing to enter into a Statement of Intention in
conjunction with their initial investment in Class A shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus while current
Class A shareholders desiring to do so can obtain a form of
Statement of Intention by contacting Alliance Fund Services, Inc.
at the address or telephone numbers shown on the cover of this
Statement of Additional Information.
Certain Retirement Plans. Multiple participant payroll
deduction retirement plans may also purchase shares of the Fund
or any other Alliance Mutual Fund at a reduced sales charge on a
monthly basis during the 13-month period following such a plan's
initial purchase. The sales charge applicable to such initial
purchase of shares of the Fund will be that normally applicable,
under the schedule of sales charges set forth in this Statement
of Additional Information, to an investment 13 times larger than
such initial purchase. The sales charge applicable to each
succeeding monthly purchase will be that normally applicable,
under such schedule, to an investment equal to the sum of (i) the
total purchase previously made during the 13-month period and
(ii) the current month's purchase multiplied by the number of
months (including the current month) remaining in the 13-month
period. Sales charges previously paid during such period will
not be retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused any or
all of his or her Class A or Class B shares of the Fund to be
redeemed or repurchased may reinvest all or any portion of the
redemption or repurchase proceeds in Class A shares of the Fund
at net asset value without any sales charge, provided that
(i) such reinvestment is made within 120 calendar days after the
43
<PAGE>
redemption or repurchase date and (ii) for Class B shares, a
contingent deferred sales charge has been paid and the Principal
Underwriter has approved, at its discretion, the reinvestment of
such shares. Shares are sold to a reinvesting shareholder at the
net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for federal income tax purposes
except that no loss will be recognized to the extent that the
proceeds are reinvested in shares of the Fund within 30 calendar
days after the redemption or repurchase transaction. The
reinstatement privilege may be used by the shareholder only once,
irrespective of the number of shares redeemed or repurchased,
except that the privilege may be used more than once in
connection with transactions whose sole purpose is to transfer a
shareholder's interest in the Fund to his or her individual
retirement account or other qualified retirement plan account.
Investors may exercise the reinstatement privilege by written
request sent to the Fund at the address shown on the cover of
this Statement of Additional Information.
Sales at Net Asset Value. The Fund may sell its Class A
shares at net asset value (i.e., without an initial sales charge)
and without a contingent deferred sales charge to certain
categories of investors including: (i) investment management
clients of the Adviser or its affiliates; (ii) officers and
present or former Directors of the Fund; present or former
directors and trustees of other investment companies managed by
the Adviser; present or retired full-time employees of the
Adviser, the Principal Underwriter, Alliance Fund Services, Inc.
and their affiliates; officers and directors of ACMC, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; officers, directors and present full-time employees
of selected dealers or agents; or the spouse, sibling, direct
ancestor or direct descendant (collectively "relatives") of any
such person; or any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative; or the estate of any such person or relative, if such
shares are purchased for investment purposes (such shares may not
be resold except to the Fund); (iii) the Adviser, Principal
Underwriter, Alliance Fund Services, Inc. and their affiliates,
certain employee benefit plans for employees of the Adviser, the
Principal Underwriter, Alliance Fund Services, Inc. and their
affiliates; (iv) persons participating in a fee-based program,
sponsored and maintained by a registered broker-dealer and
approved by the Principal Underwriter, pursuant to which such
persons pay an asset-based fee to such broker-dealer, or its
affiliate or agent, for service in the nature of investment
advisory or administrative services; (v) persons who establish to
the Principal Underwriter's satisfaction that they are investing,
within such time period as may be designated by the Principal
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Underwriter, proceeds of redemption of shares of such other
registered investment companies as may be designated from time to
time by the Principal Underwriter; and (vi) employer-sponsored
qualified pension or profit-sharing plans (including Section
401(k) plans), custodial accounts maintained pursuant to Section
403(b)(7) retirement plans and individual retirement accounts
(including individual retirement accounts to which simplified
employee pension (SEP) contributions are made), if such plans or
accounts are established or administered under programs sponsored
by administrators or other persons that have been approved by the
Principal Underwriter.
Class B Shares
Investors may purchase Class B shares at the public offering
price equal to the net asset value per share of the Class B
shares on the date of purchase without the imposition of a sales
charge at the time of purchase. The Class B shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment.
Proceeds from the contingent deferred sales charge on the
Class B Shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell the Class B shares without a sales
charge being deducted at the time of purchase. The higher
distribution services fee incurred by Class B shares will cause
such shares to have a higher expense ratio and to pay lower
dividends than those related to Class A shares.
Contingent Deferred Sales Charge. Class B shares which are
redeemed within three years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100 Class B
shares at $10 per share (at a cost of $1,000) and in the second
year after purchase, the net asset value per share is $12 and,
during such time, the investor has acquired 10 additional Class B
shares upon dividend reinvestment. If at such time the investor
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makes his or her first redemption of 50 Class B shares (proceeds
of $600), 10 Class B shares will not be subject to the charge
because of dividend reinvestment. With respect to the remaining
40 Class B shares, the charge is applied only to the original
cost of $10 per share and not to the increase in net asset value
of $2 per share. Therefore, $400 of the $600 redemption proceeds
will be charged at a rate of 2.0% (the applicable rate in the
second year after purchase, 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.
Contingent Deferred Sales Charge as
Year Since Purchase a % of Dollar Amount Subject to Charge
First 3.0%
Second 2.0%
Third 1.0%
Thereafter None
In determining the contingent deferred sales charge
applicable to a redemption of Class B shares, it will be assumed
that the redemption is, first, of any shares that were acquired
upon the reinvestment of dividends or distributions and, second,
of shares held longest during the time they are subject to the
sales charge. When shares acquired in an exchange are redeemed,
the applicable contingent deferred sales charge and conversion
schedules will be the schedules that applied at the time of the
purchase of shares of the corresponding class of the Alliance
Mutual Fund originally purchased by the shareholder.
The contingent deferred sales charge is waived on redemptions
of shares (i) following the death or disability, as defined in
the Internal Revenue Code of 1986, as amended (the "Code"), of a
shareholder, (ii) to the extent that the redemption represents a
minimum required distribution from an individual retirement
account or other retirement plan to a shareholder who has
attained the age of 70-1/2, (iii) that had been purchased by
present or former Directors of the Fund, by the relative of any
such person, by any trust, individual retirement account or
retirement plan account for the benefit of any such person or
relative, or by the estate of any such person or relative, or
(iv) pursuant to a systematic withdrawal plan (see "Shareholder
Services - Systematic Withdrawal Plan" below).
Conversion Feature. Six years after the end of the calendar
month in which the shareholder's purchase order was accepted,
Class B shares will automatically convert to Class A shares and
will no longer be subject to a higher distribution services fee.
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Such conversion will occur on the basis of the relative net asset
values of the two classes, without the imposition of any sales
load, fee or other charge. The purpose of the conversion feature
is to reduce the distribution services fee paid by holders of
Class B shares that have been outstanding long enough for the
Principal Underwriter to have been compensated for distribution
expenses incurred in the sale of such shares.
For purposes of conversion to Class A, Class B shares
purchased through the reinvestment of dividends and distributions
paid in respect of Class B shares in a shareholder's account will
be considered to be held in a separate sub-account. Each time
any Class B shares in the shareholder's account (other than those
in the sub-account) convert to Class A, an equal pro-rata portion
of the Class B shares in the sub-account will also convert to
Class A.
The conversion of Class B shares to Class A shares is subject
to the continuing availability of an opinion of counsel to the
effect that the conversion of Class B shares to Class A shares
does not constitute a taxable event under federal income tax law.
The conversion of Class B shares to Class A shares may be
suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further
conversions of Class B shares would occur, and shares might
continue to be subject to the higher distribution services fee
for an indefinite period which may extend beyond the period
ending six years after the end of the calendar month in which the
shareholder's purchase order was accepted.
Class C Shares
Investors may purchase Class C shares at the public offering
price equal to the net asset value per share of the Class C
shares on the date of purchase without the imposition of a sales
charge either at the time of purchase or, as long as the shares
are held for one year or more, upon redemption. Class C shares
are sold without an initial sales charge so that the Fund will
receive the full amount of the investor's purchase payment and,
as long as the shares are held for one year or more, without a
contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge, as long as the shares are
held for one year or more. Class C shares do not convert to any
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.
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Class C shares that are redeemed within one year of purchase
will be subject to a contingent deferred sales charge of 1%,
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions. The
contingent deferred sales charge on Class C shares will be waived
on certain redemptions, as described above under "--Class B
Shares."
In determining the contingent deferred sales charge
applicable to a redemption of Class C shares, it will be assumed
that the redemption is, first, of any shares that are not subject
to a contingent deferred sales charge (for example, because the
shares have been held beyond the period during which the charge
applies or were acquired upon the reinvestment of dividends or
distributions) and, second, of shares held longest during the
time they are subject to the sales charge.
Proceeds from the contingent deferred sales charge are paid
to the Principal Underwriter and are used by the Principal
Underwriter to defray the expenses of the Principal Underwriter
related to providing distribution-related services to the Fund in
connection with the sale of the Class C shares, such as the
payment of compensation to selected dealers and agents for
selling Class C shares. The combination of the contingent
deferred sales charge and the distribution services fee enables
the Fund to sell the Class C shares without a sales charge being
deducted at the time of purchase. The higher distribution
services fee incurred by Class C shares will cause such shares to
have a higher expense ratio and to pay lower dividends than those
related to Class A shares and Advisor Class shares.
Conversion of Advisor Class Shares to Class A Shares
Advisor Class shares may be held solely through the fee-based
program accounts and employee benefit plans described above under
"Purchase of Shares--General," and 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 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
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contained in the Advisor Class Prospectus and this Statement of
Additional Information, to Class A shares of the Fund during the
calendar month following the month in which the Fund is informed
of the occurrence of the Conversion Event. The failure of a
shareholder or a fee-based program to satisfy the minimum
investment requirements to purchase Advisor Class shares will not
constitute a Conversion Event. The conversion would occur on the
basis of the relative net asset values of the two classes and
without the imposition of any sales load, fee or other charge.
Class A shares currently bear a .30% distribution services fee
and have a higher expense ratio than Advisor Class shares. As a
result, Class A shares may pay correspondingly lower dividends
and have a lower net asset value than Advisor Class shares.
The conversion of Advisor Class shares to Class A shares is
subject to the continuing availability of an opinion of counsel
to the effect that the conversion of Advisor Class shares to
Class A shares does not constitute a taxable event under federal
income tax law. The conversion of Advisor Class shares to Class
A shares may be suspended if such an opinion is no longer
available at the time such conversion is to occur. In that
event, the Advisor Class shareholder would be required to redeem
his Advisor Class shares, which would constitute a taxable event
under federal income tax law.
REDEMPTION AND REPURCHASE OF SHARES
The following information supplements that set forth in the
Fund's Prospectus(es) under the heading "Purchase and Sale of
Share -- 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's
Articles of Incorporation requires that the Fund redeem the
shares tendered to it, as described below, at a redemption price
equal to their net asset value as next computed following the
receipt of shares tendered for redemption in proper form. Except
for any contingent deferred sales charge which may be applicable
to Class A, Class B or Class C shares, there is no redemption
charge. Payment of the redemption price will be made within
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<PAGE>
seven days after the Fund's receipt of such tender for
redemption. If a shareholder is in doubt about what documents
are required by his or her fee-based program or employee benefit
plan, the shareholder should contact his or her financial
representative.
The right of redemption may not be suspended or the date of
payment upon redemption postponed for more than seven days after
shares are tendered for redemption, except for any period during
which the Exchange is closed (other than customary weekend and
holiday closings) or during which the Commission determines that
trading thereon is restricted, or for any period during which an
emergency (as determined by the Commission) exists as a result of
which disposal by the Fund of securities owned by it is not
reasonably practicable or as a result of which it is not
reasonably practicable for the Fund fairly to determine the value
of its net assets, or for such other periods as the Commission
may by order permit for the protection of security holders of the
Fund.
Payment of the redemption price will be made in cash. The
value of a shareholder's shares on redemption or repurchase may
be more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio
securities at the time of such redemption or repurchase.
Redemption proceeds on Class A, Class B and Class C shares will
reflect the deduction of the contingent deferred sales charge, if
any. Payment received by a shareholder upon redemption or
repurchase of his shares, assuming the shares constitute capital
assets in his hands, will result in long-term or short-term
capital gains (or loss) depending upon the shareholder's holding
period and basis in respect of the shares redeemed.
To redeem shares of the Fund for which no share certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
"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 stock assignment form on the reverse side of each
share certificate surrendered to the Fund for redemption must be
signed by the registered owner or owners exactly as the
registered name appears on the face of the certificate or,
alternatively, a stock power signed in the same manner may be
attached to the share certificate or certificates or, where
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<PAGE>
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 once in any 30-day period (except for
certain omnibus accounts), of shares for which no share
certificates have been issued by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption request may not
exceed $100,000 (except for certain omnibus accounts), and must
be made by 4:00 p.m. Eastern time on a Fund business day as
defined above. Proceeds of telephone redemptions will be sent by
Electronic Funds Transfer to a shareholder's designated bank
account at a bank selected by the shareholder that is a member of
the NACHA.
Telephone Redemption By Check. Except for certain omnibus
accounts or as noted below, each Fund shareholder is eligible to
request redemption by check, once in any 30-day period, of Fund
shares for which no stock certificates have been issued by
telephone at (800) 221-5672 before 4:00 p.m. Eastern time on a
Fund business day in an amount not exceeding $50,000. Proceeds
of such redemptions are remitted by check to the shareholder's
address of record. Telephone redemption by check is not available
with respect to shares (i) for which certificates have been
issued, (ii) held in nominee or "street name" accounts, (iii)
held by a shareholder who has changed his or her address of
record within the preceding 30 calendar days or (iv) held in any
retirement plan account. A shareholder otherwise eligible for
telephone redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
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 Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information. The
Fund reserves the right to suspend or terminate its telephone
redemption service at any time without notice. Neither the Fund
nor the Adviser, the Principal Underwriter or Alliance Fund
Services, Inc. will be responsible for the authenticity of
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telephone requests for redemptions that the Fund reasonably
believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for
redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the
resulting transactions to be sent to shareholders. If the Fund
did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions.
Selected dealers or agents may charge a commission for handling
telephone requests for redemptions.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter, selected financial intermediaries or selected
dealers or agents. The repurchase price will be the net asset
value next determined after the Principal Underwriter receives
the request (less the contingent deferred sales charge, if any,
with respect to the Class A, Class B and Class C shares), except
that requests placed through selected dealers or agents before
the close of regular trading on the Exchange on any day will be
executed at the net asset value determined as of such close of
regular trading on that day if received by the Principal
Underwriter prior to its close of business on that day (normally
5:00 p.m. Eastern time). The financial intermediary or selected
dealer or agent is responsible for transmitting the request to
the Principal Underwriter by 5:00 p.m. 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
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redemption. In the case of a redemption or repurchase of shares
of the Fund recently purchased by check, redemption proceeds will
not be made available until the Fund is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus(es) under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to Class A, Class B, Class C and
Advisor Class shares unless otherwise indicated. If you are an
Advisor Class shareholder through an account established under a
fee-based program your fee-based program may impose requirements
with respect to the purchase, sale or exchange of Advisor Class
shares of the Fund that are different from those described
herein. A transaction fee may be charged by your financial
representative with respect to the purchase, sale or exchange of
Advisor Class shares made through such financial representative.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing Electronic Funds Transfer
drawn on the investor's own bank account. Under such a program,
pre-authorized monthly drafts for a fixed amount (at least $25)
are used to purchase shares through the selected dealer or
selected agent designated by the investor at the public offering
price next determined after the Principal Underwriter receives
the proceeds from the investor's bank. In electronic form,
drafts can be made on or about a date each month selected by the
shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment
should complete the appropriate portion of the Subscription
Application found in the Prospectus. Current shareholders should
contact Alliance Fund Services, Inc. at the address or telephone
numbers shown on the cover of this Statement of Additional
Information to establish an automatic investment program.
Exchange Privilege
You may exchange your investment in the Fund for shares of
the same class of other Alliance Mutual Funds (including AFD
Exchange Reserves, a money market fund managed by Alliance). 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
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employees of the Adviser, the Principal Underwriter, Alliance
Fund Services, Inc. and their affiliates may, on a tax-free
basis, exchange Class A shares of the Fund for Advisor Class
shares of the Fund. Exchanges of shares are made at the net
asset value next determined and without sales or service charges.
Exchanges may be made by telephone or written request. Telephone
exchange requests must be received by Alliance Fund Services,
Inc. by 4:00 p.m. Eastern time on a Fund business day in order to
receive that day's net asset value.
Shares will continue to age without regard to exchanges for
purpose of determining the CDSC, if any, upon redemption and, in
the case of Class B shares, for the purpose of conversion to
Class A shares. After an exchange, your Class B shares will
automatically convert to Class A shares in accordance with the
conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original
shares"). When redemption occurs, the CDSC applicable to the
original shares is applied.
Please read carefully the prospectus of the mutual fund into
which you are exchanging before submitting the request. Call
Alliance Fund Services, Inc. at 800-221-5672 to exchange
uncertificated shares. Except with respect to exchanges of Class
A shares of the Fund for Advisor Class shares of the Fund,
exchanges of shares as described above in this section are
taxable transactions for federal income tax purposes. The
exchange service may be changed, suspended, or terminated on 60
days written notice.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
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.
Each Fund shareholder, and the shareholder's selected dealer,
agent or financial representative, as applicable, are authorized
to make telephone requests for exchanges unless Alliance Fund
Services, Inc., receives written instruction to the contrary from
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<PAGE>
the shareholder, or the shareholder declines the privilege by
checking the appropriate box on the Subscription Application
found in the Prospectus. Such telephone requests cannot be
accepted with respect to shares then represented by share
certificates. Shares acquired pursuant to a telephone request
for exchange will be held under the same account registration as
the shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should
telephone Alliance Fund Services, Inc. with their account number
and other details of the exchange, at (800) 221-5672 before 4:00
p.m., Eastern time, on a Fund business day as defined above.
Telephone requests for exchange received before 4:00 p.m. Eastern
time on a Fund business day will be processed as of the close of
business on that day. During periods of drastic economic or
market developments, such as the market break of October 1987, it
is possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto Exchange"
whereby a specified dollar amount's worth of his or her Fund
shares (minimum $25) is automatically exchanged for shares of
another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the Fund
business day prior thereto.
None of the Alliance Mutual Funds, the Adviser, the Principal
Underwriter or Alliance Fund Services, Inc. will be responsible
for the authenticity of telephone requests for exchanges that the
Fund reasonably believes to be genuine. The Fund will employ
reasonable procedures in order to verify that telephone requests
for exchanges are genuine, including, among others, recording
such telephone instructions and causing written confirmations of
the resulting transactions to be sent to shareholders. If the
Fund did not employ such procedures, it could be liable for
losses arising from unauthorized or fraudulent telephone
instructions. Selected dealers, agents or financial
representatives, as applicable, may charge a commission for
handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Fund being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
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<PAGE>
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part or all
of the assets held in various types of retirement plans, such as
those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact Alliance Fund Services, Inc. at the
"For Literature" telephone number on the cover of this Statement
of Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, 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 $5 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 plans 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
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<PAGE>
each eligible employee within prescribed limits based on employee
compensation.
403(b)(7) Retirement Plan. Certain tax-exempt organizations
and public educational institutions may sponsor retirements plans
under which an employee may agree that monies deducted from his
or her compensation (minimum $25 per pay period) may be
contributed by the employer to a custodial account established
for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of Equitable, which serves as custodian or trustee
under the retirement plan prototype forms available from the
Fund, charges certain nominal fees for establishing an account
and for annual maintenance. A portion of these fees is remitted
to Alliance Fund Services, Inc. as compensation for its services
to the retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to certain
Code requirements in addition to normal redemption procedures.
For additional information please contact Alliance Fund Services,
Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his or
her Class A, Class B, Class C or Advisor Class Fund account, a
Class A, Class B, Class C or Advisor Class account with one or
more other Alliance Mutual Funds may direct that income dividends
and/or capital gains paid on his or her Class A, Class B, Class C
or Advisor Class Fund shares be automatically reinvested, in any
amount, without the payment of any sales or service charges, in
shares of the same class of such other Alliance Mutual Fund(s).
Further information can be obtained by contacting Alliance Fund
Services, Inc. at the address or the "For Literature" telephone
number shown on the cover of this Statement of Additional
Information. Investors wishing to establish a dividend direction
plan in connection with their initial investment should complete
the appropriate section of the Subscription Application found in
the Prospectus. Current shareholders should contact Alliance
Fund Services, Inc. to establish a dividend direction plan.
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
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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 investor's principal may be
depleted. A systematic withdrawal plan may be terminated at any
time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a
shareholder's account reaches a certain minimum level. Therefore,
redemptions of shares under the plan may reduce or even liquidate
a shareholder's account and may subject the shareholder to the
Fund's involuntary redemption provisions. See "Redemption and
Repurchase of Shares -- General." Purchases of additional shares
concurrently with withdrawals are undesirable because of sales
charges when purchases are made. While an occasional lump-sum
investment may be made by a holder of Class A shares who is
maintaining a systematic withdrawal plan, such investment should
normally be an amount equivalent to three times the annual
withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made by
check or electronically via the Automated Clearing House ("ACH")
network. Investors wishing to establish a systematic withdrawal
plan in conjunction with their initial investment in shares of
the Fund should complete the appropriate portion of the
Subscription Application found in the Prospectus, while current
Fund shareholders desiring to do so can obtain an application
form by contacting Alliance Fund Services, Inc. at the address or
the "For Literature" telephone number shown on the cover of this
Statement of Additional Information.
CDSC Waiver for Class B 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 shareholders 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)
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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 of the Fund receives semi-annual and annual
reports which include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, [ ], as well as a
confirmation of each purchase and redemption. By contacting his
or her broker or Alliance Fund Services, Inc., a shareholder can
arrange for copies of his or her account statements to be sent to
another person.
Checkwriting
A new Class A or Class C investor may fill out the Signature
Card which is included in the Prospectus to authorize the Fund to
arrange for a checkwriting service through State Street Bank and
Trust Company (the "Bank") to draw against Class A or Class C
shares of the Fund redeemed from the investor's account. Under
this service, checks may be made payable to any payee in any
amount not less than $500 and not more than 90% of the net asset
value of the Class A or Class C shares in the investor's account
(excluding for this purpose the current month's accumulated
dividends and shares for which certificates have been issued). A
Class A or Class C shareholder wishing to establish this
checkwriting service subsequent to the opening of his or her Fund
account should contact the Fund by telephone or mail.
Corporations, fiduciaries and institutional investors are
required to furnish a certified resolution or other evidence of
authorization. This checkwriting service will be subject to the
Bank's customary rules and regulations governing checking
accounts, and the Fund and the Bank each reserve the right to
change or suspend the checkwriting service. There is no charge
to the shareholder for the initiation and maintenance of this
service or for the clearance of any checks.
When a check is presented to the Bank for payment, the Bank,
as the shareholder's agent, causes the Fund to redeem, at the net
asset value next determined, a sufficient number of full and
fractional shares of the Fund in the shareholder's account to
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cover the check. Because the level of net assets in a
shareholder's account constantly changes due, among various
factors, to market fluctuations, a shareholder should not attempt
to close his or her account by use of a check. In this regard,
the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check
exceeds 90% of the assets in the account. Canceled (paid) checks
are returned to the shareholder. The checkwriting service
enables the shareholder to receive the daily dividends declared
on the shares to be redeemed until the day that the check is
presented to the Bank for payment.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The per share net asset value is computed in accordance with
the Fund's Articles of Incorporation and By-Laws at the next
close of regular trading on the Exchange following receipt of a
purchase or redemption order (and on such other days as the
Directors of the Fund deem 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. The net asset value is calculated at the close of
business on each Fund business day.
For purposes of this computation, portfolio securities that
are actively traded in the over-the-counter market, including
listed securities for which the primary market is believed to be
over-the-counter, are valued at the mean between the most
recently quoted bid and asked prices provided by the principal
market makers. Publicly traded portfolio securities are
typically traded on an over-the-counter market. Because of the
nature of the markets for the securities in which the Fund will
invest, quotations from several sources will be obtained so that
the Fund's investment portfolio will not generally be priced by a
single source. Any security for which the primary market is on
an exchange is valued at the last sale price on such exchange on
the day of valuation or, if there was no sale on such day, the
last bid price quoted on such day. Options will be valued at
market value or fair value if no market exists. Securities and
assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the
direction of the Board of Directors of the Fund. However,
readily marketable portfolio securities may be valued on the
basis of prices provided by a pricing service when such prices
are believed by the Adviser to reflect the fair market value of
such securities. The prices provided by a pricing service take
into account institutional size trading in similar groups of
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securities and any developments related to specific securities.
U.S. Government Securities and other debt instruments having 60
days or less remaining until maturity are stated at amortized
cost if their original maturity was 60 days or less, or by
amortizing their fair value as of the 61st day prior to maturity
if their original term to maturity exceeded 60 days (unless in
either case the Fund's Board of Directors determines that this
method does not represent fair value).
The assets belonging to the Class A, Class B, Class C 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 expenses and liabilities allocated
to that class from the assets belonging to that class.
_____________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
________________________________________________________________
General
The Fund intends for each taxable year to qualify as a
"regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Code"). To so qualify, the Fund must,
among other things, (i) derive at least 90% of its gross income
in each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currency, or
certain other income (including, but not limited to, gains from
options, futures and forward contracts) derived with respect to
its business of investing in stock, securities or currency;
(ii) derive less than 30% of its gross income in each taxable
year from the sale or other disposition within three months of
their acquisition by the Fund of stocks, securities, options,
futures or forward contracts and foreign currencies (or options,
futures or forward contracts on foreign currencies) that are not
directly related to the Fund's principal business of investing in
stocks or securities (or options and futures with respect to
stocks or securities); and (iii) diversify its holdings so that,
at the end of each quarter of its taxable year, the following two
conditions are met: (a) at least 50% of the value of the Fund's
assets is represented by cash, cash items, U.S. Government
Securities, securities of other regulated investment companies
and other securities with respect to which the Fund's investment
is limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets and 10% of the
outstanding voting securities of such issuer and (b) not more
than 25% of the value of the Fund's assets is invested in
securities of any one issuer (other than U.S. Government
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Securities or securities of other regulated investment
companies). These requirements, among other things, may limit
the Fund's ability to write and purchase options, to enter into
interest rate swaps and to purchase or sell interest rate caps or
floors.
If the Fund qualifies as a regulated investment company for
any taxable year and makes timely distributions to its
shareholders of 90% or more of its net investment income for that
year (calculated without regard to its net capital gain, i.e.,
the excess of its net long-term capital gain over its net
short-term capital loss) it will not be subject to federal income
tax on the portion of its taxable income for the year (including
any net capital gain) that it distributes to shareholders.
The Fund will also avoid the 4% federal excise tax that would
otherwise apply to certain undistributed income for a given
calendar year if it makes timely distributions to shareholders
equal to the sum of (i) 98% of its ordinary income for such year,
(ii) 98% of its capital gain net income and foreign currency
gains for the twelve-month period ending on October 31 of such
year, and (iii) any ordinary income or capital gain net income
from the preceding calendar year that was not distributed during
such year. For this purpose, income or gain retained by the Fund
that is subject to corporate income tax will be considered to
have been distributed by the Fund by year-end. For federal
income and excise tax purposes, dividends declared and payable to
shareholders of record as of a date in October, November or
December but actually paid during the following January will be
treated as if paid by the Fund on December 31 of such calendar
year, and will be taxable to these shareholders for the year
declared, and not for the year in which the shareholders actually
receive the dividend.
The Fund intends to make timely distributions of the Fund's
income so that the Fund will not be subject to federal income or
excise taxes.
The information set forth in the following discussion relates
solely to the significant United States federal income tax
consequences of dividends and distributions by the Fund and of
sales or redemptions of Fund shares, and assumes that the Fund
qualifies to be taxed as a regulated investment company.
Investors should consult their own tax counsel with respect to
the specific tax consequences of their being shareholders of the
Fund, including the effect and applicability of federal, state
and local tax laws to their own particular situation and the
possible effects of changes therein.
Dividends and Distributions. The Fund intends to make timely
distributions of the Fund's taxable income (including any net
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capital gain) so that the Fund will not be subject to federal
income and excise taxes. Dividends of the Fund's net ordinary
income and distributions of any net realized short-term capital
gain are taxable to shareholders as ordinary income.
Until the Directors of the Fund otherwise determine, each
income dividend and capital gains distribution, if any, declared
by the Fund on its outstanding shares will, at the election of
each shareholder, be paid in cash or reinvested in additional
full or fractional shares of the Fund. Election to receive
dividends and distributions in cash or full or fractional shares
is made at the time the shares are initially purchased and may be
changed at any time prior to the record date for a particular
dividend or distribution. Cash dividends can be paid by check
or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with
the reinvestment of dividends and capital gains distributions.
Dividends paid by the Fund, if any, with respect to Class A,
Class B, Class C and Advisor Class shares will be calculated in
the same manner, at the same time, on the same day and will be in
the same amount, except as a result of the differential daily
expense accruals of the distribution and transfer agency fees
applicable with respect to those classes.
The excess of net long-term capital gains over the net short-
term capital losses realized and distributed by the Fund to its
shareholders will be taxable to the shareholders as long-term
capital gains, irrespective of the length of time a shareholder
may have held his Fund shares. Any dividend or distribution
received by a shareholder on shares of the Fund will have the
effect of reducing the net asset value of such shares by the
amount of such dividend or distribution. Furthermore, a dividend
or distribution made shortly after the purchase of such shares by
a shareholder, although in effect a return of capital to that
particular shareholder, would be taxable to him as described
above. Dividends are taxable in the manner discussed regardless
of whether they are paid to the shareholder in cash or are
reinvested in additional shares of the Fund.
After the end of the taxable year, the Fund will notify
shareholders of the federal income tax status of any
distributions made by the Fund to shareholders during such year.
Sales and Redemptions. Any gain or loss arising from a sale
or redemption of Fund shares generally will be capital gain or
loss except in the case of a dealer or a financial institution,
and will be long-term capital gain or loss if such shareholder
has held such shares for more than one year at the time of the
sale or redemption; otherwise it will be short-term capital gain
or loss. However, if a shareholder has held shares in the Fund
for six months or less and during that period has received a
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distribution taxable to the shareholder as a long-term capital
gain, any loss recognized by the shareholder on the sale of those
shares during the six-month period will be treated as a long-term
capital loss to the extent of the distribution. In determining
the holding period of such shares for this purpose, any period
during which a shareholder's risk of loss is offset by means of
options, short sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange of
shares of the Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30
days before and ending 30 days after the shares are sold or
exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a replacement if made
within the period. If disallowed, the loss will be reflected in
an upward adjustment to the basis of the shares acquired.
Backup Withholding. The Fund may be required to withhold
United States federal income tax at the rate of 31% of all
distributions payable to shareholders who fail to provide the
Fund with their correct taxpayer identification numbers or to
make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other types of
shareholders specified in the Code are exempt from such backup
withholding. Backup withholding is not an additional tax; any
amounts so withheld may be credited against a shareholder's
United States federal income tax liability or refunded.
Foreign Taxes. Income received by the Fund also may be
subject to foreign income taxes, including taxes withheld at the
source. The United States has entered into tax treaties with
many foreign countries which entitle the Fund to a reduced rate
of such taxes or exemption from taxes on such income. It is
impossible to determine the effective rate of foreign tax in
advance since the amount of the Fund's assets to be invested
within various countries is not known. If more than 50% of the
value of the Fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations (which
for this purpose should include obligations issued by foreign
governments), the Fund will be eligible and intends to file an
election with the Internal Revenue Service to pass through to its
shareholders the amount of foreign taxes paid by the Fund.
However, there can be no assurance that the Fund will be able to
do so. Pursuant to this election a shareholder will be required
to (i) include in gross income (in addition to taxable dividends
actually received) his pro rata share of foreign taxes paid by
the Fund, (ii) treat his pro rata share of such foreign taxes as
having been paid by him, and (iii) either deduct such pro rata
share of foreign taxes in computing his taxable income or treat
such foreign taxes as a credit against United States federal
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income taxes. Shareholders who are not liable for federal income
taxes, such as retirement plans qualified under section 401 of
the Code, will not be affected by any such pass-through of taxes
by the Fund. No deduction for foreign taxes may be claimed by an
individual shareholder who does not itemize deductions. In
addition, certain individual shareholders may be subject to rules
which limit or reduce their availability to fully deduct their
pro rata share of the foreign taxes paid by the Fund. Each
shareholder will be notified within 60 days after the close of
the Fund's taxable year whether the foreign taxes paid by the
Fund will pass through for that year and, if so, such
notification will designate (i) the shareholder's portion of the
foreign taxes paid to each such country and (ii) the portion of
dividends that represents income derived from sources within each
such country.
Generally, a credit for foreign taxes may not exceed the
shareholder's United States tax attributable to the shareholder's
total foreign source taxable income. Generally, the source of
the Fund's income flows through to its shareholders. The overall
limitation on a foreign tax credit is also applied separately to
specific categories of foreign source income, including foreign
source "passive income," including dividends, interest and
capital gains. Further, the foreign tax credit is allowed to
offset only 90% of any alternative minimum tax to which a
shareholder may be subject. As a result of these rules, certain
shareholders may be unable to claim a credit for the full amount
of their proportionate share of the foreign taxes paid by the
Fund. If a shareholder could not credit his full share of the
foreign tax paid, double taxation of such income could be
mitigated only by deducting the foreign tax paid, which may be
subject to limitation as described above.
The federal income tax status of each year's distributions by
the Fund will be reported to shareholders and to the Internal
Revenue Service. The foregoing is only a general description of
the treatment of foreign taxes under the United States federal
income tax laws. Because the availability of a foreign tax
credit or deduction will depend on the particular circumstances
of each shareholder, potential investors are advised to consult
their own tax advisers.
United States Federal Income Taxation of the Fund
The following discussion relates to certain significant
United States federal income tax consequences to the Fund with
respect to the determination of its "investment company taxable
income" each year. This discussion assumes that the Fund will be
taxed as a regulated investment company for each of its taxable
years.
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Passive Foreign Investment Companies. If the Fund owns
shares in a foreign corporation that constitutes a "passive
foreign investment company" (a "PFIC") for federal income tax
purposes and the Fund does not elect to treat the foreign
corporation as a "qualified electing fund" within the meaning of
the Code, the Fund may be subject to United States federal income
taxation on a portion of any "excess distribution" it receives
from the PFIC or any gain it derives from the disposition of such
shares, even if such income is distributed as a taxable dividend
by the Fund to its United States shareholders. The Fund may also
be subject to additional interest charges in respect of deferred
taxes arising from such distributions or gains. Any tax paid by
the Fund as a result of its ownership of shares in a PFIC will
not give rise to any deduction or credit to the Fund or to any
shareholder. A PFIC means any foreign corporation if, for the
taxable year involved, either (i) it derives at least 75 percent
of its gross income from "passive income" (including, but not
limited to, interest, dividends, royalties, rents and annuities),
or (ii) on average, at least 50 percent of the value (or adjusted
tax basis, if elected) of the assets held by the corporation
produce "passive income." The Treasury has issued proposed
regulations which would provide a "mark-to-market" election
solely with respect to gain inherent in PFIC stock held by a
regulated investment company, such as the Fund, which does not
elect to treat the PFIC as a "qualified electing fund." If the
proposed regulations are adopted in final form and the election
provided therein were to be made by the Fund, the Fund would
recognize a gain as of the last business day of its taxable year
the excess of the fair market value of each share of stock in the
PFIC over the Fund's adjusted tax basis in that share. This
gain, which would be treated as derived from securities held by
the Fund for at least three months, generally would not be
subject to the deferred tax and interest charge amounts to which
it might otherwise be subject, as discussed above, in the event
of an "excess distribution" or gain with regard to shares of a
PFIC. If the Fund purchases shares in a PFIC and the Fund does
elect to treat the foreign corporation as a "qualified electing
fund" under the Code, the Fund may be required to include in its
income each year a portion of the ordinary income and net capital
gains of the foreign corporation, even if this income is not
distributed to the Fund. Any such income would be subject to the
90 percent and calendar year distribution requirements described
above.
Discount Obligations. Under current federal tax law, the
Fund will include in income as interest each year, in addition to
stated interest received on obligations held by the Fund, amounts
attributable to the Fund from holding (i) Discount Obligations
and (ii) securities (including many Brady Bonds) purchased by the
Fund at a price less than their stated face amount or, in the
case of Discount Obligations, at a price less than their issue
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price plus the portion of "original issue discount" previously
accrued thereon, i.e., purchased at a "market discount." Current
federal tax law requires that a holder (such as the Fund) of a
Discount Obligation accrue as income each year a portion of the
discount at which the obligation was purchased by the Fund even
though the Fund does not receive interest payments in cash on the
security during the year which reflect the accrued discount. The
Fund will elect to likewise accrue and include in income each
year a portion of the market discount with respect to a Discount
Obligation or other obligation even though the Fund does not
receive interest payments in cash on the securities which reflect
that accrued discount.
As a result of the applicable rules, in order to make the
distributions necessary for the Fund not to be subject to federal
income or excise taxes, the Fund may be required to pay out as an
income distribution each year an amount significantly greater
than the total amount of cash which the Fund has actually
received as interest during the year. Such distributions will be
made from the cash assets of the Fund, from borrowings 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 sales, its
shareholders may receive a larger capital gain distribution, if
any, than they would have in the absence of such sales.
Options. Certain listed options are considered "section 1256
contracts" for federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts generally will be considered 60% long-term and 40%
short-term capital gain or loss. The Fund can elect to exempt
its section 1256 contracts which are part of a "mixed straddle"
(as described below) from the application of section 1256.
With respect to equity options or options traded on certain
foreign exchanges, gain or loss realized by the Fund upon the
lapse or sale of such options held by the Fund will be either
long-term or short-term capital gain or loss depending upon the
Fund's holding period with respect to such option. However, gain
or loss realized upon the lapse or closing out of such options
that are written by the Fund will be treated as short-term
capital gain or loss. In general, if the Fund exercises an
option, or an option that the Fund has written is exercised, gain
or loss on the option will not be separately recognized but the
premium received or paid will be included in the calculation of
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gain or loss upon disposition of the property underlying the
option.
Tax Straddles. Any option, short sale, interest rate swap,
cap or floor or other position entered into or held by the Fund
in conjunction with any other position held by the Fund may
constitute a "straddle" for federal income tax purposes. In
general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with
respect to straddle positions.
Other Taxation
As noted above, the Fund may be subject to other state and
local taxes.
Taxation of Foreign Shareholders
The foregoing discussion relates only to United States
federal income tax law as it affects shareholders who are United
States citizens or residents or United States corporations. The
effects of federal income tax law on shareholders who are non-
resident alien individuals or foreign corporations may be
substantially different. Foreign investors should therefore
consult their own counsel for further information as to the
United States federal income tax consequences of receipt of
income from the Fund.
PORTFOLIO TRANSACTIONS
Subject to the general supervision of the Board of Directors
of the Fund, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio
transactions of the Fund. The Fund's portfolio transactions
occur primarily with the 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 underwriters; transactions
with dealers normally reflect the spread between bid and ask
prices. Premiums are paid with respect to options purchased by
the Fund and brokerage commissions are payable with respect to
transactions in exchange-traded futures contracts.
The Fund has no obligation to enter into transactions in
portfolio securities with any 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
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best price and execution may be obtained from more than one
dealer, the Adviser may, in its discretion, purchase and sell
securities through dealers who provide research, statistical and
other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and,
accordingly, not all such services may be used by the Adviser in
connection with the Fund. The supplemental information received
from a dealer is in addition to the services required to be
performed by the Adviser under the Advisory Agreement, and the
expenses of the Adviser will not necessarily be reduced as a
result of the receipt of such information.
Portfolio securities will not be purchased from or sold to
Donaldson, Lufkin & Jenrette Securities Corporation, an affiliate
of the Adviser or any other subsidiary or affiliate of the
Equitable Life Assurance Society of the United States.
GENERAL INFORMATION
Capitalization
The authorized capital stock of the Fund consists of
3,000,000,000 shares of Class A Common Stock, $.001 par value,
3,000,000,000 shares of Class B Common Stock, $.001 par value,
3,000,000,000 shares of Class C Common Stock, $.001 par value and
3,000,000,000 shares of Advisor Class Common Stock, $.001 par
value. All shares of the Fund, when issued, are fully paid and
non-assessable. The Board of Directors are authorized to
reclassify and issue any unissued shares to any number of
additional series and classes without shareholder approval.
Accordingly, the Board in the future, for reasons such as the
desire to establish one or more additional portfolios with
different investment objectives, policies or restrictions, may
create additional classes or series of shares. Any issuance of
shares of another class or series would be governed by the 1940
Act and the law of the State of Maryland. If shares of another
series were issued in connection with the creation of a second
portfolio, each share of either portfolio would normally be
entitled to one vote for all purposes. Generally, shares of both
portfolios would vote as a single series on matters, such as the
election of Directors, that affected both portfolios in
substantially the same manner. As to matters affecting each
portfolio differently, such as approval of the Advisory Agreement
and changes in investment policy, shares of each portfolio would
vote as a separate series.
Procedures for calling a shareholders' meeting for the
removal of Directors of the Fund, similar to those set forth in
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Section 16(c) of the 1940 Act are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
Custodian
[ ] acts as custodian for
the securities and cash of the Fund but plays no part in deciding
the purchase or sale of portfolio securities.
Principal Underwriter
Alliance Fund Distributors, Inc., 1345 Avenue of the
Americas, New York, New York 10105, serves as the Fund's
Principal Underwriter, and as such may solicit orders from the
public to purchase shares of the Fund. Under the Distribution
Services Agreement, the Fund has agreed to indemnify the
distributors, in the absence of its willful misfeasance, bad
faith, gross negligence or reckless disregard of its obligations
thereunder, against certain civil liabilities, including
liabilities under the Securities Act.
Counsel
Legal matters in connection with the issuance of the shares
offered hereby are passed upon by Seward & Kissel, New York, New
York. Seward & Kissel has relied upon the opinion of Venable,
Baetjer and Howard, LLP, Baltimore, Maryland, for matters
relating to Maryland law.
Independent Auditors
[ ], New York, New York, have been appointed as
independent auditors for the Fund.
Yield and Total Return Quotations
From time to time the Fund states its "yield," "actual
distribution rate" and "total return." Computed separately for
each class, the Fund's yield for any 30-day (or one-month) period
is computed by dividing the net investment income per share
earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing
such 30-day (or one-month) yield in accordance with a formula
prescribed by the Commission which provides for compounding on a
semi-annual basis. The Fund's "actual distribution rate," which
may be stated in sales literature, is computed in the same manner
as yield except that actual income dividends declared per share
during the period in question are substituted for net investment
70
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income per share. The actual distribution rate is compounded
separately for each class of shares. Computed separately for
each class, the Fund's "total return" is its average annual
compounded total return for its most recently completed one-,
five- and ten-year periods (or, if shorter, the period since the
Fund's inception). The Fund's total return for such a period is
computed by finding, through the use of a formula prescribed by
the Commission, the average annual compounded rate of return over
the period that would equate an assumed initial amount invested
to the value of such investment at the end of the period. For
purposes of computing total return, income dividends and capital
gains distributions paid on shares of the Fund are assumed to
have been reinvested when paid and the maximum sales charge
applicable to purchases of Fund shares is assumed to have been
paid.
Yield and total return are not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type and quality of the securities in the Fund's portfolio, its
average portfolio maturity and its expenses. Quotations of yield
and total return do not include any provision for the effect of
individual income taxes. An investor's principal invested in the
Fund is not fixed and will fluctuate in response to prevailing
market conditions.
Advertisements quoting performance ranking or ratings of the
Fund as measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
Morningstar, Inc. and advertisements presenting the historical
record of payments of income dividends by the Fund may also from
time to time be sent to investors or placed in newspapers,
magazines such as Barrons, Business Week, Changing Times, Forbes,
Investor's Daily, Money Magazine, The New York Times and The Wall
Street Journal or other media on behalf of the Fund.
Additional Information
Any shareholder inquiries may be directed to the
shareholder's broker or to Alliance Fund Services, Inc. at the
address or telephone numbers shown on the front cover of this
Statement of Additional Information. This Statement of
Additional Information does not contain all the information set
forth in the Registration Statement filed by the Fund with the
Commission under the Securities Act of 1933. Copies of the
Registration Statement may be obtained at a reasonable charge
from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
71
<PAGE>
APPENDIX A: OPTIONS
Options
The Fund will only write "covered" put and call options,
unless such options are written for cross-hedging purposes. The
manner in which such options will be deemed "covered" is
described in the Prospectus under the heading "Investment
Objective and Policies -- Investment Practices -- Options."
The writer of an option may have no control over when the
underlying securities must be sold, in the case of a call option,
or purchased, in the case of a put option, since with regard to
certain options, the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Whether or
not an option expires unexercised, the writer retains the amount
of the premium. This amount, of course, may, in the case of a
covered call option, be offset by a decline in the market value
of the underlying security during the option period. If a call
option is exercised, the writer experiences a profit or loss from
the sale of the underlying security. If a put option is
exercised, the writer must fulfill the obligation to purchase the
underlying security at the exercise price, which will usually
exceed the then market value of the underlying security.
The writer of a listed option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the
writer's position will be canceled by the clearing corporation.
However, a writer may not effect a closing purchase transaction
after being notified of the exercise of an option. Likewise, an
investor who is the holder of a listed option may liquidate its
position by effecting a "closing sale transaction". This is
accomplished by selling an option of the same series as the
option previously purchased. There is no guarantee that either a
closing purchase or a closing sale transaction can be effected.
Effecting a closing transaction in the case of a written call
option will permit the Fund to write another call option on the
underlying security with either a different exercise price or
expiration date or both, or in the case of a written put option
will permit the Fund to write another put option to the extent
that the exercise price thereof is secured by deposited cash or
short-term securities. 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 Fund
investments. If the Fund desires to sell a particular security
A-1
<PAGE>
from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale
of the security.
The Fund will realize a profit from a closing transaction if
the price of the transaction is less than the premium received
from writing the option or is more than the premium paid to
purchase the option; the Fund will realize a loss from a closing
transaction if the price of the transaction is more than the
premium received from writing the option or is less than the
premium paid to purchase the option. 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 is likely to be offset in
whole or in part by appreciation of the underlying security owned
by the Fund.
An option position may be closed out only where there exists
a secondary market for an option of the same series. If a
secondary market does not exist, it might not be possible to
effect closing transactions in particular options with the result
that the Fund would have to exercise the options in order to
realize any profit. If the Fund is unable to effect a closing
purchase transaction in a secondary market, it will not be able
to sell the underlying security until the option expires or it
delivers the underlying security upon exercise. Reasons for the
absence of a liquid secondary market include the following:
(i) there may be insufficient trading interest in certain
options, (ii) restrictions may be imposed by a national
securities exchange ("Exchange") on opening transactions or
closing transactions or both, (iii) trading halts, suspensions or
other restrictions may be imposed with respect to particular
classes or series of options or underlying securities,
(iv) unusual or unforeseen circumstances may interrupt normal
operations on an Exchange, (v) the facilities of an Exchange or
the Options Clearing Corporation may not at all times be adequate
to handle current trading volume, or (vi) one or more Exchanges
could, for economic or other reasons, decide or be compelled at
some future date to discontinue the trading of options (or a
particular class or series of options), in which event the
secondary market on that Exchange (or in that class or series of
options) would cease to exist, although outstanding options on
that Exchange that had been issued by the Options Clearing
Corporation as a result of trades on that Exchange would continue
to be exercisable in accordance with their terms.
The Fund may write options in connection with buy-and-write
transactions; that is, the Fund may purchase a security and then
write a call option against that security. The exercise price of
the call the Fund determines to write will depend upon the
expected price movement of the underlying security. The exercise
A-2
<PAGE>
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.
Buy-and-write transactions using in-the-money call options may be
used when it is expected that the price of the underlying
security will remain flat or decline moderately during the option
period. Buy-and-write transactions using at-the-money call
options may be used when it is expected that the price of the
underlying security will remain fixed or advance moderately
during the option period. Buy-and-write transactions using out-
of-the-money call options may be used when it is expected that
the premiums received from writing the call option plus the
appreciation in the market price of the underlying security up to
the exercise price will be greater than the appreciation in the
price of the underlying security alone. If the call options are
exercised in such transactions, the Fund's maximum gain will be
the premium received by it for writing the option, adjusted
upwards or downwards by the difference between the Fund's
purchase price of the security and the exercise price. If the
options are not exercised and the price of the underlying
security declines, the amount of such decline will be offset in
part, or entirely, by the premium received.
The writing of covered put options is similar in terms of
risk/return characteristics to buy-and-write transactions. If
the market price of the underlying security rises or otherwise is
above the exercise price, the put option will expire worthless
and the Fund's gain will be limited to the premium received. If
the market price of the underlying security declines or otherwise
is below the exercise price, the Fund may elect to close the
position or take delivery of the security at the exercise price
and 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. Out-of-the-money, at-the-money, and
in-the-money put options may be used by the Fund in the same
market environments that call options are used in equivalent buy-
and-write transactions.
The Fund may purchase put options to hedge against a decline
in the value of its portfolio. By using put options in this way,
the Fund will reduce any profit it might otherwise have realized
in the underlying security by the amount of the premium paid for
the put option and by transaction costs.
The Fund may purchase call options to hedge against an
increase in the price of securities that the Fund anticipates
purchasing in the future. The premium paid for the call option
plus any transaction costs will reduce the benefit, if any,
realized by the Fund upon exercise of the option, and, unless the
price of the underlying security rises sufficiently, the option
may expire worthless to the Fund.
A-3
00250233.AB8
<PAGE>
_________________________________________________________________
APPENDIX B
BOND RATINGS
_________________________________________________________________
STANDARD & POOR'S
A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to
a specific obligation. Debt rated "AAA" has the highest rating
assigned by Standard & Poor's. Capacity to pay interest and
repay principal is extremely strong. Debt rated "AA" has a very
strong capacity to pay interest and to repay principal and
differs from the highest rated issues only in small degree. 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
a debt of a higher rated category.
The ratings from "AA" and "A" may be modified by the addition
of a plus or minus sign to show relative standing within the
major rating categories.
MOODY'S
Excerpts from Moody's description of its corporate bond
ratings: Aaa - judged to be the best quality, carry the smallest
degree of investment risk; Aa - judged to be of high quality by
all standards; A - possess many favorable investment attributes
and are to be considered as higher medium grade obligations; Baa
- - - - - considered as medium grade obligations, i.e., they are neither
highly protected nor poorly secured.
FITCH INVESTORS SERVICE
AAA. Securities of this rating are regarded as strictly high-
grade, broadly marketable, suitable for investment by Directors
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 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
B-1
<PAGE>
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 through
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
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.
B-2
00250233.AB8
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. Financial Statements and Exhibits.
(a) Financial Statements
No financial statements are included in this
Registration Statement since, on the date of filing, the
Registrant, being a newly organized corporation, has no assets or
known liabilities and has sold no shares of common stock. Prior
to the effective date of this Registration Statement, the
necessary financial statements will be filed by amendment hereto.
(b) Exhibits
(1) Copy of Articles of Incorporation - filed herewith.
(2) Copy of By-Laws of the Registrant - filed herewith.
(3) Not applicable.
(4) (a) Form of Share Certificate for Class A Shares.*
(b) Form of Share Certificate for Class B Shares.*
(c) Form of Share Certificate for Class C Shares.*
(d) Form of Share Certificate for Advisor Class
Shares.*
(5) Copy of proposed Advisory Agreement between the
Registrant and Alliance Capital Management L.P.*
(6) (a) Copy of proposed Distribution Services
Agreement between the Registrant and Alliance Fund Distributors,
Inc.*
(b) Form of Selected Dealer Agreement between
Alliance Fund Distributors, Inc. and selected dealers offering
shares of Registrant.*
____________________
* To be filed in a subsequent pre-effective amendment.
C-1
<PAGE>
(c) Form of Selected Agent Agreement between
Alliance Fund Distributors, Inc. and selected agents making
available shares of Registrant.*
(7) Not applicable.
(8) Copy of proposed Custodian Contract between the
Registrant and [ ].*
(9) Copy of proposed Transfer Agency Agreement between
the Registrant and Alliance Fund Services, Inc.*
(10) (a) Opinion and Consent of Seward & Kissel.*
(b) Opinion and Consent of Venable, Baetjer &
Howard LLP.*
(11) Consent of Independent Accountants.*
(12) Not applicable.
(13) Investment representation letter of Alliance
Capital Management L.P.*
(14) Not applicable.
(15) Rule 12b-1 Plan - See Exhibit 6(a) hereto.
(16) Schedule for computation of performance
quotations.**
(18) Rule 18f-3 Plan.*
ITEM 25. Persons Controlled by or under Common Control with
Registrant.
None. The Registrant is a recently organized
corporation and has no outstanding shares of common stock.
___________________________
* To be filed in a subsequent pre-effective amendment.
** To be filed in a post-effective amendment.
C-2
<PAGE>
ITEM 26. Number of Holders of Securities.
None. The Registrant is a recently organized
corporation and has not issued any securities as of the
date of this Registration Statement.
ITEM 27. Indemnification.
It is the Registrant's policy to indemnify its directors
and officers, employees and other agents to the maximum
extent permitted by Section 2-418 of the General
Corporation Law of the State of Maryland, which is
incorporated by reference herein, and as set forth in
Article EIGHTH of Registrant's Articles of
Incorporation, filed as Exhibit 1 hereto, Article VII
and Article VIII of Registrant's By-Laws, filed as
Exhibit 2 hereto, and Section 10 of the proposed
Distribution Services Agreement, to be filed by Pre-
Effective Amendment as Exhibit 6(a) hereto. The
Adviser's liability for any loss suffered by the
Registrant or its shareholders is set forth in Section 4
of the proposed Advisory Agreement, to be filed by Pre-
Effective Amendment as Exhibit 5 hereto.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors,
officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification
is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection
with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of
whether such indemnification by it is against public
policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
In accordance with Release No. IC-11330 (September 2,
1980), the Registrant will indemnify its directors,
officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by
the court or other body before whom the proceeding was
C-3
<PAGE>
brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable
determination is made, based upon a review of the facts,
that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a
quorum of the directors who are neither "interested
persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor
parties to the proceeding ("disinterested, non-party
directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys
fees or other expenses incurred by its directors,
officers, investment adviser or principal underwriters
in defending a proceeding, upon the undertaking by or on
behalf of the indemnitee to repay the advance unless it
is ultimately determined that he is entitled to
indemnification and, as a condition to the advance,
(1) the indemnitee shall provide a security for his
undertaking, (2) the Registrant shall be insured against
losses arising by reason of any lawful advances, or
(3) a majority of a quorum of disinterested, non-party
directors of the Registrant, or an independent legal
counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to
believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint
trustees/directors and officers liability insurance
policy issued by the ICI Mutual Insurance Company.
Coverage under this policy has been extended to
directors, trustees and officers of the investment
companies managed by Alliance Capital Management L.P.
Under this policy, outside trustees and directors are
covered up to the limits specified for any claim against
them for acts committed in their capacities as trustee
or director. A pro rata share of the premium for this
coverage is charged to each investment company and to
the Adviser.
ITEM 28. Business and Other Connections of Investment Adviser.
The descriptions of Alliance Capital Management L.P.
under the captions "Management of the Fund" in the
Prospectus and in the Statement of Additional
Information constituting Parts A and B, respectively, of
C-4
<PAGE>
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.
ITEM 29. Principal Underwriters.
(a) Alliance Fund Distributors, Inc. is the
Registrant's Principal Underwriter in
connection with the sale of shares of the
Registrant. Alliance Fund Distributors, Inc.
also acts as Principal Underwriter or
Distributor for the following investment
companies:
ACM Institutional Reserves, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
Alliance Capital Reserves
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Global Strategic Income Trust, Inc.
Alliance Government Reserves
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Limited Maturity Government Fund, Inc.
Alliance Money Market Fund
Alliance 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 Regent/Sector Opportunity Fund
Alliance Short-Term Multi-Market Trust, Inc.
C-5
<PAGE>
Alliance Technology Fund, Inc.
Alliance Utility Income Fund, Inc.
Alliance Variable Products Series Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
Fiduciary Management Associates
The Alliance Fund, Inc.
The Alliance Portfolios
(b) The following are the Directors and officers of Alliance
Fund Distributors, Inc., the principal place of business
of which is 1345 Avenue of the Americas, New York, New
York, 10105.
Positions and Offices Positions and Offices
Name With Underwriter With Registrant
Michael J. Laughlin Chairman
Robert L. Errico President
Edmund P. Bergan, Jr. Senior Vice President Secretary
General Counsel and
Secretary
Daniel J. Dart Senior Vice President
Richard A. Davies Senior Vice President &
Managing Director
Byron M. Davis Senior Vice President
Kimberly A. Gardner Senior Vice President
Geoffrey L. Hyde Senior Vice President
Richard E. Khaleel Senior Vice President
Barbara J. Krumsiek Senior Vice President
Stephen R. Laut Senior Vice President
Daniel D. McGinley Senior Vice President
Dusty W. Paschall Senior Vice President
Antonios G. Poleonadkis Senior Vice President
Gregory K. Shannahan Senior Vice President
Joseph F. Sumanski Senior Vice President
C-6
<PAGE>
Peter J. Szabo Senior Vice President
Nicholas K. Willett Senior Vice President
Richard A. Winge Senior Vice President
Jamie A. Atkinson Vice President
Warren W. Babcock III Vice President
Benji A. Baer Vice President
Kenneth F. Barkoff Vice President
William P. Beanblossum Vice President
Jack C. Bixler Vice President
Casimir F. Bolanowski Vice President
Kevin T. Cannon Vice President
William W. Collins, Jr. Vice President
Leo H. Cook Vice President
Richard W. Dabney Vice President
John F. Dolan Vice President
Mark J. Dunbar Vice President
Sohaila S. Farsheed Vice President
Linda A. Finnerty Vice President
William C. Fisher Vice President
Robert M. Frank Vice President
Gerard J. Friscia Vice President &
Controller
Andrew L. Gangolf Vice President &
Assistant General
Counsel
Mark D. Gersten Vice President Treasurer & Chief
Financial Officer
Joseph W. Gibson Vice President
C-7
<PAGE>
Troy L. Glawe Vice President
Herbert H. Goldman Vice President
James E. Gunter Vice President
Alan Halfenger Vice President
Daniel M. Hazard Vice President
George R. Hrabovsky Vice President
Valerie J. Hugo Vice President
Thomas K. Intoccia Vice President
Robert H. Joseph, Jr. Vice President &
Treasurer
Richard D. Keppler Vice President
Sheila F. Lamb Vice President
Donna M. Lamback Vice President
Thomas Leavitt, III Vice President
James M. Liptrot Vice President
James P. Luisi Vice President
Christopher J. MacDonald Vice President
Michael F. Mahoney Vice President
Shawn P. McClain Vice President
Maura A. McGrath Vice President
Matthew P. Mintzer Vice President
Joanna D. Murray Vice President
Nicole Nolan-Koester Vice President
Daniel J. Phillips Vice President
Robert T. Pigozzi Vice President
James J. Posch Vice President
C-8
<PAGE>
Robert E. Powers Vice President
Domenick Pugliese Vice President Assistant Secretary
& Associate
General Counsel
Bruce W. Reitz Vice President
Dennis A. Sanford Vice President
Karen C. Satterberg Vice President
Raymond S. Sclafani Vice President
Richard J. Sidell Vice President
J. William Strott, Jr. Vice President
Richard E. Tambourine Vice President
Jospeh T. Tocyloski Vice President
Neil S. Wood Vice President
Emilie D. Wrapp Vice President &
Special Counsel
Maria L. Carreras Assistant Vice
President
John W. Cronin Assistant Vice
President
Leon M. Fern Assistant Vice
President
William B. Hanigan Assistant Vice
President
John C. Hershock Assistant Vice
President
James J. Hill Assistant Vice
President
Kalen H. Holliday Assistant Vice
President
C-9
<PAGE>
Edward W. Kelly Assistant Vice
President
Nicholas J. Lapi Assistant Vice
President
Patrick Look Assistant Vice
President &
Assistant Treasurer
Thomas F. Monnerat Assistant Vice
President
Jeanette M. Nardella Assistant Vice
President
Carol H. Rappa Assistant Vice
President
Lisa Robinson-Cronin Assistant Vice
President
Robert M. Smith Assistant Vice
President
Wesley A. Williams Assistant Vice
President
Mark R. Manley Assistant Secretary
(c) Not applicable. Registrant is a newly organized
corporation.
ITEM 30. Location of Accounts and Records.
The majority of the accounts, books and other documents
required to be maintained by Section 31(a) of the
Investment Company Act of 1940 and the rules thereunder
are maintained as follows: journals, ledgers,
securities records and other original records are
maintained principally at the offices of Alliance Fund
Services, Inc., 500 Plaza Drive, Secaucus, New Jersey,
07094 and at the offices of [ ] the
Registrant's custodian, [ ]. All other
records so required to be maintained are maintained at
the offices of Alliance Capital Management L.P., 1345
Avenue of the Americas, New York, New York, 10105.
C-10
<PAGE>
ITEM 31. Management Services.
Not applicable.
ITEM 32. Undertakings.
(b) Registrant undertakes to file a Post-Effective
Amendment, using financial statements which need not be
certified, within four to six months from the effective
date of its Securities Act of 1933 Registration
Statement.
The Registrant undertakes to provide assistance to
shareholders in communications concerning the removal of
any Director of the Fund in accordance with Section 16
of the Investment Company Act of 1940.
C-11
<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 has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in The City of New York and the State
of New York, on the 20th day of December 1996.
Alliance High Yield
Fund, Inc.
/s/ John D. Carifa
__________________________________
John D. Carifa
Chairman and President
Pursuant to the requirements of the Securities Act of
1933, as amended, this Registration Statement has been signed
below by the following persons in the capacities and on the date
indicated.
Signature Title Date
_____________ __________ ________
(1) Principal Executive Officer:
/s/ John D. Carifa Chairman and December 20, 1996
______________________ President
John D. Carifa
(2) Principal Financial
and Accounting Officer:
/s/ Mark D. Gersten Treasurer December 20, 1996
_____________________ and Chief
Mark D. Gersten Financial
Officer
(3) Sole Director:
/s/ Edmund P. Bergan, Jr.
_________________________ December 20, 1996
Edmund P. Bergan, Jr.
C-12
<PAGE>
Index To Exhibits
1 Copy of Articles of Incorporation
2 Copy of By-Laws of the Registrant
C-13
00250233.AB8
<PAGE>
ARTICLES OF INCORPORATION
OF
ALLIANCE HIGH YIELD FUND, INC.
FIRST: (1) The name of the incorporator is William
E. Schwartz.
(2) The incorporator's post office address is
One Battery Park Plaza, New York, New York 10004.
(3) The incorporator is over eighteen years
of age.
(4) The incorporator is forming the
corporation named in these Articles of Incorporation under the
general laws of the State of Maryland.
SECOND: The name of the corporation (hereinafter
called the Corporation) is Alliance High Yield Fund, Inc.
THIRD: (1) The purposes for which the Corporation is
formed is to conduct, operate and carry on the business of an
investment company.
(2) The Corporation may engage in any other
business and shall have all powers conferred upon or permitted to
corporations by the Maryland General Corporation Law.
FOURTH: The post office address of the principal
office of the Corporation within the State of Maryland is 32
South Street, Baltimore, Maryland 21202 in care of The
Corporation Trust, Incorporated. The resident agent of the
Corporation in the State of Maryland is The Corporation Trust,
Incorporated, 32 South Street, Baltimore, Maryland 21202, a
Maryland Corporation.
FIFTH: (1) The total number of shares of capital
stock which the Corporation shall have authority to issue is
twelve billion (12,000,000,000), all of which shall be Common
Stock having a par value of one-tenth of one cent ($.001) per
share and an aggregate par value of twelve million dollars
($12,000,000). Until such time as the Board of Directors shall
provide otherwise in accordance with paragraph (1)(d) of
Article SEVENTH hereof, three billion (3,000,000,000) of the
authorized shares of Common Stock of the Corporation are
designated as Class A Common Stock, three billion (3,000,000,000)
of such shares are designated as Class B Common Stock, three
billion (3,000,000,000) of such shares are designated as Class C
<PAGE>
Common Stock and three billion (3,000,000,000) of such shares are
designated as Advisor Class Common Stock.
(2) As more fully set forth hereafter, the
assets and liabilities and the income and expenses of each class
of the Corporation's stock shall be determined separately from
those of each other class of the Corporation's stock and,
accordingly, the net asset value, the dividends and distributions
payable to holders, and the amounts distributable in the event of
dissolution of the Corporation to holders of shares of the
Corporation's stock may vary from class to class. Except for
these differences and certain other differences hereafter set
forth or provided for, each class of the Corporation's stock
shall have the same preferences, conversion and other rights,
voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of and rights to require
redemption of each other class of the Corporation's stock except
as otherwise provided for by the Board of Directors pursuant to
paragraph (1)(d) of Article SEVENTH hereof.
(3) All consideration received by the
Corporation for the issue or sale of shares of a class of the
Corporation's stock, together with all funds derived from any
investment and reinvestment thereof, shall irrevocably remain
attributable to that class for all purposes, subject only to any
automatic conversion of one class of stock into another, as
hereinafter provided for, and the rights of creditors, and shall
be so recorded upon the books of account of the Corporation. The
assets attributable to the Class A Common Stock, the assets
attributable to the Class B Common Stock, the assets attributable
to the Class C Common Stock and the assets attributable to
Advisor Class Common Stock shall be invested in the same
investment portfolio of the Corporation.
(4) The allocation of investment income and
capital gains and expenses and liabilities of the Corporation
among the Class A Common Stock, Class B Common Stock, Class C
Common Stock and Advisor Class Common Stock shall be determined
by the Board of Directors in a manner that is consistent with the
Investment Company Act of 1940, the rules and regulations
thereunder, and the interpretations thereof, in each case as from
time to time amended, modified or superseded. The determination
of the Board of Directors shall be conclusive as to the
allocation of investment income or capital gains, expenses and
liabilities (including accrued expenses and reserves) and assets
to a particular class or classes.
(5) Shares of each class of stock shall be
entitled to such dividends or distributions, in stock or in cash
or both, as may be declared from time to time by the Board of
Directors with respect to such class. Specifically, and without
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limiting the generality of the foregoing, the dividends and
distributions of investment income and capital gains with respect
to the Class A Common Stock, Class B Common Stock, Class C Common
Stock and Advisor Class Common Stock may vary with respect to
each such class to reflect differing allocations of the expenses
of the Corporation among the holders of the four classes and any
resultant differences between the net asset values per share of
the four classes, to such extent and for such purposes as the
Board of Directors may deem appropriate. The Board of Directors
may provide that dividends shall be payable only with respect to
those shares of stock that have been held of record continuously
by the stockholder for a specified period, not to exceed 72
hours, prior to the record date of the dividend.
(6) On each matter submitted to a vote of the
stockholders, each holder of stock shall be entitled to one vote
for each share standing in his or her name on the books of the
Corporation. Subject to any applicable requirements of the
Investment Company Act of 1940, as from time to time in effect,
or rules or orders of the Securities and Exchange Commission or
any successor thereto, or other applicable law, all holders of
shares of stock shall vote as a single class except with respect
to any matter which affects only one or more (but less than all)
classes of stock, in which case only the holders of shares of the
classes affected shall be entitled to vote. Without limiting the
generality of the foregoing, and subject to any applicable
requirements of the Investment Company Act of 1940, as from time
to time in effect, or rules or orders of the Securities and
Exchange Commission or any successor thereto, or other applicable
law, the holders of each of the Class A Common Stock, Class B
Common Stock, Class C Common Stock and Advisor Class Common Stock
shall have, respectively, with respect to any matter submitted to
a vote of stockholders (i) exclusive voting rights with respect
to any such matter that only affects the class of Common Stock of
which they are holders, including, without limitation, the
provisions of any distribution plan adopted by the Corporation
pursuant to Rule 12b-1 under the Investment Company Act of 1940
(a "Plan") with respect to the class of which they are holders
and (ii) no voting rights with respect to the provisions of any
Plan that affects one or more of such other classes of Common
Stock, but not the class of which they are holders, or with
respect to any other matter that does not affect the class of
Common Stock of which they are holders.
(7) In the event of the liquidation or
dissolution of the Corporation, stockholders of each class of the
Corporation's stock shall be entitled to receive, as a class, out
of the assets of the Corporation available for distribution to
stockholders, but other than general assets not attributable to
any particular class of stock, the assets attributable to the
class less the liabilities allocated to that class; and the
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assets so distributable to the stockholders of any class of stock
shall be distributed among such stockholders in proportion to the
number of shares of the class held by them and recorded on the
books of the Corporation. In the event that there are any
general assets not attributable to any particular class of stock,
and such assets are available for distribution, the distribution
shall be made to the holders of all classes in proportion to the
net asset value of the respective classes or as otherwise
determined by the Board of Directors.
(8) (a) Each holder of stock may require the
Corporation to redeem all or any part of the stock owned by that
holder, upon request to the Corporation or its designated agent,
at the net asset value of the shares of stock next determined
following receipt of the request in a form approved by the
Corporation and accompanied by surrender of the certificate or
certificates for the shares, if any, less the amount of any
applicable redemption charge or deferred sales charge or other
amount imposed by the Board of Directors (to the extent
consistent with applicable law). The Board of Directors may
establish procedures for redemption of stock.
(b) The proceeds of the redemption of a
share (including a fractional share) of any class of capital
stock of the Corporation shall be reduced by the amount of any
contingent deferred sales charge, redemption fee or other amount
payable on such redemption pursuant to the terms of issuance of
such share.
(c) (i) The term "Minimum Amount" when
used herein shall mean two hundred dollars ($200) unless
otherwise fixed by the Board of Directors from time to time,
provided that the Minimum Amount may not in any event exceed
twenty-five thousand dollars ($25,000). The Board of Directors
may establish differing Minimum Amounts for categories of holders
of stock based on such criteria as the Board of Directors may
deem appropriate.
(ii) If the net asset value of the
shares of a class of stock held by a stockholder shall be less
than the Minimum Amount then in effect with respect to the
category of holders in which the stockholder is included, the
Corporation may redeem all of those shares, upon notice given to
the holder in accordance with paragraph (iii) of this
subsection (c), to the extent that the Corporation may lawfully
effect such redemption under the laws of the State of Maryland.
(iii) The notice referred to in
paragraph (ii) of this subsection (c) shall be in writing
personally delivered or deposited in the mail, at least thirty
days (or such other number of days as may be specified from time
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to time by the Board of Directors) prior to such redemption. If
mailed, the notice shall be addressed to the stockholder at his
post office address as shown on the books of the Corporation, and
sent by first class mail, postage prepaid. The price for shares
acquired by the Corporation pursuant to this subsection (c) shall
be an amount equal to the net asset value of such shares.
(d) Payment by the Corporation for
shares of stock of the Corporation surrendered to it for
redemption shall be made by the Corporation within seven days of
such surrender out of the funds legally available therefor,
provided that the Corporation may suspend the right of the
stockholders to redeem shares of stock and may postpone the right
of those holders to receive payment for any shares when permitted
or required to do so by applicable statutes or regulations.
Payment of the aggregate price of shares surrendered for
redemption may be made in cash or, at the option of the
Corporation, wholly or partly in such portfolio securities of the
Corporation as the Corporation shall select.
(9) At such times as may be determined by the
Board of Directors (or with the authorization of the Board of
Directors, by the officers of the Corporation) in accordance with
the Investment Company Act of 1940, applicable rules and
regulations thereunder and applicable rules and regulations of
the National Association of Securities Dealers, Inc. and from
time to time reflected in the registration statement of the
Corporation (the "Corporation's Registration Statement"), shares
of a particular class of stock of the Corporation or certain
shares of a particular class of stock of the Corporation may be
automatically converted into shares of another class of stock of
the Corporation based on the relative net asset values of such
classes at the time of conversion, subject, however, to any
conditions of conversion that may be imposed by the Board of
Directors (or with the authorization of the Board of Directors,
by the officers of the Corporation) and reflected in the
Corporation's Registration Statement. The terms and conditions
of such conversion may vary within and among the classes to the
extent determined by the Board of Directors (or with the
authorization of the Board of Directors, by the officers of the
Corporation) and set forth in the Corporation's Registration
Statement.
(10) For the purpose of allowing the net
asset value per share of a class of the Corporation's stock to
remain constant, the Corporation shall be entitled to declare and
pay and/or credit as dividends daily the net income (which may
include or give effect to realized and unrealized gains and
losses, as determined in accordance with the Corporation's
accounting and portfolio valuation policies) of the Corporation
attributable to the assets attributable to that class. If the
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amount so determined for any day is negative, the Corporation
shall be entitled, without the payment of monetary compensation
but in consideration of the interest of the Corporation and its
stockholders in maintaining a constant net asset value per share
of that class, to redeem pro rata from all the holders of record
of shares of that class at the time of such redemption (in
proportion to their respective holdings thereof) sufficient
outstanding shares of that class, or fractions thereof, as shall
permit the net asset value per share of that class to remain
constant.
(11) The Corporation may issue shares of
stock in fractional denominations to the same extent as its whole
shares, and shares in fractional denominations shall be shares of
stock having proportionately to the respective fractions
represented thereby all the rights of whole shares, including,
without limitation, the right to vote, the right to receive
dividends and distributions, and the right to participate upon
liquidation of the Corporation, but excluding the right to
receive a stock certificate representing fractional shares.
(12) No stockholder shall be entitled to any
preemptive right other than as the Board of Directors may
establish.
SIXTH: The number of directors of the Corporation
shall be one. The number of directors of the Corporation may be
changed pursuant to the By-Laws of the Corporation. The name of
the person who shall act as director of the Corporation until the
first annual meeting or until his successor is chosen and
qualified is Edmund P. Bergan, Jr.
SEVENTH: The following provisions are inserted for the
purpose of defining, limiting and regulating the powers of the
Corporation and of the Board of Directors and stockholders.
(1) In addition to its other powers explicitly or
implicitly granted under these Articles of Incorporation, by law
or otherwise, the Board of Directors of the Corporation:
(a) is expressly authorized to make, alter,
amend or repeal the By-Laws of the Corporation;
(b) may from time to time determine whether,
to what extent, at what times and places, and under what
conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of
the stockholders, and no stockholder shall have any right to
inspect any account, book or document of the Corporation except
as conferred by statute or as authorized by the Board of
Directors of the Corporation;
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(c) is empowered to authorize, without
stockholder approval, the issuance and sale from time to time of
shares of stock of the Corporation whether now or hereafter
authorized and securities convertible into shares of stock of the
Corporation of any class or classes, whether now or hereafter
authorized, for such consideration as the Board may deem
advisable.
(d) is authorized to classify or to
reclassify, from time to time, any unissued shares of stock of
the Corporation, whether now or hereafter authorized, by setting,
changing or eliminating the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications or terms and conditions of or rights to require
redemption of the stock. The provisions of these Articles of
Incorporation (including those in Article FIFTH hereof) shall
apply to each class of stock unless otherwise provided by the
Board of Directors prior to issuance of any shares of that class;
and
(e) is authorized to adopt procedures for
determination of and to maintain constant the net asset value of
shares of any class of the Corporation's stock.
(2) Notwithstanding any provision of the Maryland
General Corporation Law requiring a greater proportion than a
majority of the votes of all classes or of any class of the
Corporation's stock entitled to be cast in order to take or
authorize any action, any such action may be taken or authorized
upon the concurrence of a majority of the aggregate number of
votes entitled to be cast thereon subject to any applicable
requirements of the Investment Company Act of 1940, as from time
to time in effect, or rules or orders of the Securities and
Exchange Commission or any successor thereto.
(3) The presence in person or by proxy of the
holders of shares entitled to cast one-third of the votes
entitled to be cast (without regard to class) shall constitute a
quorum at any meeting of the stockholders, except with respect to
any matter which, under applicable statutes or regulatory
requirements, requires approval by a separate vote of one or more
classes of stock, in which case the presence in person or by
proxy of the holders of shares entitled to cast one-third of the
votes entitled to be cast by each class entitled to vote as a
class on the matter shall constitute a quorum.
(4) Any determination made in good faith by or
pursuant to the direction of the Board of Directors, as to the
amount of the assets, debts, obligations, or liabilities of the
Corporation as to the amount of any reserves or charges set up
and the propriety thereof, as to the time of or purpose for
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creating such reserves or charges, as to the use, alteration or
cancellation of any reserves or charges (whether or not any debt,
obligation, or liability for which such reserves or charges shall
have been created shall be then or thereafter required to be paid
or discharged), as to the value of or the method of valuing any
investment owned or held by the Corporation, as to market value
or fair value of any investment or fair value of any other asset
of the Corporation, as to the allocation of any asset of the
Corporation to a particular class or classes of the Corporation's
stock, as to the charging of any liability of the Corporation to
a particular class or classes of the Corporation's stock, as to
the number of shares of the Corporation outstanding, as to the
estimated expense to the Corporation in connection with purchases
of its shares, as to the ability to liquidate investments in
orderly fashion, or as to any other matters relating to the
issue, sale, redemption or other acquisition or disposition of
investments or shares of the Corporation, shall be final and
conclusive and shall be binding upon the Corporation and all
holders of its shares, past, present and future, and shares of
the Corporation are issued and sold on the condition and
understanding that any and all such determinations shall be
binding as aforesaid.
EIGHTH: (1) To the full extent that limitations on
the liability of directors and officers are permitted by the
Maryland General Corporation Law, no director or officer of the
Corporation shall have any liability to the Corporation or its
stockholders for money damages. This limitation on liability
applies to events occurring at the time a person serves as a
director or officer of the Corporation whether or not that person
is a director or officer at the time of any proceeding in which
liability is asserted.
(2) The Corporation shall indemnify and
advance expenses to its currently acting and its former directors
to the full extent that indemnification of directors is permitted
by the Maryland General Corporation Law. The Corporation shall
indemnify and advance expenses to its officers to the same extent
as its directors and may do so to such further extent as is
consistent with law. The Board of Directors may by By-Law,
resolution or agreement make further provision for
indemnification of directors, officers, employees and agents to
the full extent permitted by the Maryland General Corporation
Law.
(3) No provision of this Article shall be
effective to protect or purport to protect any director or
officer of the Corporation against any liability to the
Corporation or its stockholders to which he or she would
otherwise be subject by reason of willful misfeasance, bad faith,
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gross negligence or reckless disregard of the duties involved in
the conduct of his or her office.
(4) References to the Maryland General
Corporation Law in this Article are to that law as from time to
time amended. No amendment to the Charter of the Corporation
shall affect any right of any person under this Article based on
any event, omission or proceeding prior to the amendment.
NINTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in its Charter in
the manner now or hereafter prescribed by the laws of the State
of Maryland, including any amendment which alters the contract
rights, as expressly set forth in the Charter, of any outstanding
stock, and all rights conferred upon stockholders herein are
granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned, being the
incorporator of the Corporation, has adopted and signed these
Articles of Incorporation and does hereby acknowledge that the
adoption and signing are his act.
/s/ William E. Schwartz
_______________________________
Dated: December 19, 1996
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00250233.AA3
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BY-LAWS
OF
ALLIANCE HIGH YIELD FUND, INC.
________________
ARTICLE I
Offices
Section 1. Principal Office in Maryland. The
Corporation shall have a principal office in the City of
Baltimore, State of Maryland.
Section 2. Other Offices. The Corporation may have
offices also at such other places within and without the State of
Maryland as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of stockholders
shall be held at such place, either within the State of Maryland
or at such other place within the United States, as shall be
fixed from time to time by the Board of Directors.
Section 2. Annual Meetings. Annual meetings of
stockholders shall be held on a date fixed from time to time by
the Board of Directors not less than ninety nor more than one
hundred twenty days following the end of each fiscal year of the
Corporation, for the election of directors and the transaction of
any other business within the powers of the Corporation;
<PAGE>
provided, however, that the Corporation shall not be required to
hold an annual meeting in any year in which the election of
directors is not required to be acted on by stockholders under
the Investment Company Act of 1940.
Section 3. Notice of Annual Meeting. Written or
printed notice of the annual meeting, stating the place, date and
hour thereof, shall be given to each stockholder entitled to vote
thereat and each other stockholder entitled to notice thereof not
less than ten nor more than ninety days before the date of the
meeting.
Section 4. Special Meetings. Special meetings of
stockholders may be called by the chairman, the president or by
the Board of Directors and shall be called by the secretary upon
the written request of holders of shares entitled to cast not
less than twenty-five percent of all the votes entitled to be
cast at such meeting. Such request shall state the purpose or
purposes of such meeting and the matters proposed to be acted on
thereat. In the case of such request for a special meeting, upon
payment by such stockholders to the Corporation of the estimated
reasonable cost of preparing and mailing a notice of such
meeting, the secretary shall give the notice of such meeting.
The secretary shall not be required to call a special meeting to
consider any matter which is substantially the same as a matter
acted upon at any special meeting of stockholders held within the
preceding twelve months unless requested to do so by holders of
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shares entitled to cast not less than a majority of all votes
entitled to be cast at such meeting. Notwithstanding the
foregoing, special meetings of stockholders for the purpose of
voting upon the question of removal of any director or directors
of the Corporation shall be called by the secretary upon the
written request of holders of shares entitled to cast not less
than ten percent of all the votes entitled to be cast at such
meeting.
Section 5. Notice of Special Meeting. Written or
printed notice of a special meeting of stockholders, stating the
place, date, hour and purpose thereof, shall be given by the
secretary to each stockholder entitled to vote thereat and each
other stockholder entitled to notice thereof not less than ten
nor more than ninety days before the date fixed for the meeting.
Section 6. Business of Special Meetings. Business
transacted at any special meeting of stockholders shall be
limited to the purposes stated in the notice thereof.
Section 7. Quorum. The holders of shares entitled to
cast one-third of the votes entitled to be cast thereat, present
in person or represented by proxy, shall constitute a quorum at
all meetings of the stockholders for the transaction of business,
except with respect to any matter which, under applicable
statutes or regulatory requirements, requires approval by a
separate vote of one or more classes of stock, in which case the
presence in person or by proxy of the holders of one-third of the
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shares of stock of each class required to vote as a class on the
matter shall constitute a quorum.
Section 8. Voting. When a quorum is present at any
meeting, the affirmative vote of a majority of the votes cast,
or, with respect to any matter requiring a class vote, the
affirmative vote of a majority of the votes cast of each class
entitled to vote as a class on the matter, shall decide any
question brought before such meeting (except that directors may
be elected by the affirmative vote of a plurality of the votes
cast), unless the question is one upon which by express provision
of the Investment Company Act of 1940, as from time to time in
effect, or other statutes or rules or orders of the Securities
and Exchange Commission or any successor thereto or of the
Articles of Incorporation a different vote is required, in which
case such express provision shall govern and control the decision
of such question.
Section 9. Proxies. Each stockholder shall at every
meeting of stockholders be entitled to one vote in person or by
proxy for each share of the stock having voting power held by
such stockholder, but no proxy shall be voted after eleven months
from its date, unless otherwise provided in the proxy.
Section 10. Record Date. In order that the Corporation
may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, to
express consent to corporate action in writing without a meeting,
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or to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may
fix, in advance, a record date which shall be not more than
ninety days and, in the case of a meeting of stockholders, not
less than ten days prior to the date on which the particular
action requiring such determination of stockholders is to be
taken. In lieu of fixing a record date, the Board of Directors
may provide that the stock transfer books shall be closed for a
stated period, but not to exceed, in any case, twenty days. If
the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a
meeting of stockholders, such books shall be closed for at least
ten days immediately preceding such meeting. If no record date
is fixed and the stock transfer books are not closed for the
determination of stockholders: (1) The record date for the
determination of stockholders entitled to notice of, or to vote
at, a meeting of stockholders shall be at the close of business
on the day on which notice of the meeting of stockholders is
mailed or the day thirty days before the meeting, whichever is
the closer date to the meeting; and (2) The record date for the
determination of stockholders entitled to receive payment of a
dividend or an allotment of any rights shall be at the close of
business on the day on which the resolution of the Board of
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Directors, declaring the dividend or allotment of rights, is
adopted, provided that the payment or allotment date shall not be
more than sixty days after the date of the adoption of such
resolution.
Section 11. Inspectors of Election. The directors, in
advance of any meeting, may, but need not, appoint one or more
inspectors to act at the meeting or any adjournment thereof. If
an inspector or inspectors are not appointed, the person
presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an
inspector fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting or at
the meeting by the person presiding thereat. Each inspector, if
any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best
of his ability. The inspectors, if any, shall determine the
number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots
or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate
all votes, ballots or consents, determine the result, and do such
acts as are proper to conduct the election or vote with fairness
to all stockholders. On request of the person presiding at the
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meeting or any stockholder, the inspector or inspectors, if any,
shall make a report in writing of any challenge, question or
matter determined by him or them and execute a certificate of any
fact found by him or them.
Section 12. Informal Action by Stockholders. Except to
the extent prohibited by the Investment Company Act of 1940, as
from time to time in effect, or rules or orders of the Securities
and Exchange Commission or any successor thereto, any action
required or permitted to be taken at any meeting of stockholders
may be taken without a meeting if a consent in writing, setting
forth such action, is signed by all the stockholders entitled to
vote on the subject matter thereof and any other stockholders
entitled to notice of a meeting of stockholders (but not to vote
thereat) have waived in writing any rights which they may have to
dissent from such action, and such consent and waiver are filed
with the records of the Corporation.
Section 13. Adjournment. Any meeting of the
stockholders may be adjourned from time to time, without notice
other than by announcement at the meeting at which the
adjournment was taken. In the absence of a quorum, the
stockholders present in person or by proxy, by majority vote of
those present and without notice other than by announcement at
the meeting, may adjourn the meeting from time to time as
provided for in this Section 13 of Article II. At any adjourned
meeting at which a quorum shall be present, any action may be
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taken that could have been taken at the meeting originally
called. A meeting of the stockholders may not be adjourned
without further notice to a date more than 120 (one hundred and
twenty) days after the original record date determined pursuant
to Section 10 of this Article II.
ARTICLE III
Board of Directors
Section 1. Number of Directors. The number of
directors constituting the entire Board of Directors (which
initially was fixed at one in the Corporation's Articles of
Incorporation) may be increased or decreased from time to time by
the vote of a majority of the entire Board of Directors within
the limits permitted by law but at no time may be more than
twenty, but the tenure of office of a director in office at the
time of any decrease in the number of directors shall not be
affected as a result thereof. The directors shall be elected to
hold offices at the annual meeting of stockholders, except as
provided in Section 2 of this Article, and each director shall
hold office until the next annual meeting of stockholders or
until his successor is elected and qualified. Any director may
resign at any time upon written notice to the Corporation. Any
director may be removed, either with or without cause, at any
meeting of stockholders duly called and at which a quorum is
present by the affirmative vote of the majority of the votes
entitled to be cast thereon, and the vacancy in the Board of
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Directors caused by such removal may be filled by the
stockholders at the time of such removal. Directors need not be
stockholders.
Section 2. Vacancies and Newly-Created Directorships.
Any vacancy occurring in the Board of Directors for any cause
other than by reason of an increase in the number of directors
may be filled by a majority of the remaining members of the Board
of Directors although such majority is less than a quorum. Any
vacancy occurring by reason of an increase in the number of
directors may be filled by a majority of the entire Board of
Directors then in office. A director elected by the Board of
Directors to fill a vacancy shall be elected to hold office until
the next annual meeting of stockholders or until his successor is
elected and qualifies.
Section 3. Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the
Board of Directors which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these By-Laws
conferred upon or reserved to the stockholders.
Section 4. Meetings. The Board of Directors of the
Corporation or any committee thereof may hold meetings, both
regular and special, either within or without the State of
Maryland. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time
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to time be determined by the Board of Directors. Special
meetings of the Board of Directors may be called by the chairman,
the president or by two or more directors. Notice of special
meetings of the Board of Directors shall be given by the
secretary to each director at least three days before the meeting
if by mail or at least 24 hours before the meeting if given in
person or by telephone or by telegraph. The notice need not
specify the business to be transacted.
Section 5. Quorum and Voting. During such times when
the Board of Directors shall consist of more than one director, a
quorum for the transaction of business at meetings of the Board
of Directors shall consist of two of the directors in office at
the time but in no event shall a quorum consist of less than one-
third of the entire Board of Directors. The action of a majority
of the directors present at a meeting at which a quorum is
present shall be the action of the Board of Directors. If a
quorum shall not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
Section 6. Committees. The Board of Directors may
appoint from among its members an executive committee and other
committees of the Board of Directors, each committee to be
composed of two or more of the directors of the Corporation. The
Board of Directors may delegate to such committees any of the
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powers of the Board of Directors except those which may not by
law be delegated to a committee. Such committee or committees
shall have the name or names as may be determined from time to
time by resolution adopted by the Board of Directors. Unless the
Board of Directors designates one or more directors as alternate
members of any committee, who may replace an absent or
disqualified member at any meeting of the committee, the members
of any such committee present at any meeting and not disqualified
from voting may, whether or not they constitute a quorum, appoint
another member of the Board of Directors to act at the meeting in
the place of any absent or disqualified member of such committee.
At meetings of any such committee, a majority of the members or
alternate members of such committee shall constitute a quorum for
the transaction of business and the act of a majority of the
members or alternate members present at any meeting at which a
quorum is present shall be the act of the committee.
Section 7. Minutes of Committee Meetings. The
committees shall keep regular minutes of their proceedings.
Section 8. Informal Action by Board of Directors and
Committees. Any action required or permitted to be taken at any
meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed
by all members of the Board of Directors or of such committee, as
the case may be, and such written consent is filed with the
minutes of proceedings of the Board of Directors or committee,
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provided, however, that such written consent shall not constitute
approval of any matter which pursuant to the Investment Company
Act of 1940 and the rules thereunder requires the approval of
directors by vote cast in person at a meeting.
Section 9. Meetings by Conference Telephone. The
members of the Board of Directors or any committee thereof may
participate in a meeting of the Board of Directors or committee
by means of a conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear each other at the same time and such
participation shall constitute presence in person at such
meeting, provided, however, that such participation shall not
constitute presence in person with respect to matters which
pursuant to the Investment Company Act of 1940 and the rules
thereunder require the approval of directors by vote cast in
person at a meeting.
Section 10. Fees and Expenses. The directors may be
paid their expenses of attendance at each meeting of the Board of
Directors and may be paid a fixed sum for attendance at each
meeting of the Board of Directors, a stated salary as director or
such other compensation as the Board of Directors may approve.
No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be
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allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE IV
Notices
Section 1. General. Notices to directors and
stockholders mailed to them at their post office addresses
appearing on the books of the Corporation shall be deemed to be
given at the time when deposited in the United States mail.
Section 2. Waiver of Notice. Whenever any notice is
required to be given under the provisions of the statutes, of the
Articles of Incorporation or of these By-Laws, a waiver thereof
in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be
deemed the equivalent of notice and such waiver shall be filed
with the records of the meeting. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting
except when the person attends a meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or
convened.
ARTICLE V
Officers
Section 1. General. The officers of the Corporation
shall be chosen by the Board of Directors at its first meeting
after each annual meeting of stockholders and shall be a chairman
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of the Board of Directors, a president, a secretary and a
treasurer. The Board of Directors may choose also such vice
presidents and additional officers or assistant officers as it
may deem advisable. Any number of offices, except the offices of
president and vice president and chairman and vice president, may
be held by the same person. No officer shall execute,
acknowledge or verify any instrument in more than one capacity if
such instrument is required by law to be executed, acknowledged
or verified by two or more officers.
Section 2. Other Officers and Agents. The Board of
Directors may appoint such other officers and agents as it
desires who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
Section 3. Tenure of Officers. The officers of the
Corporation shall hold office at the pleasure of the Board of
Directors. Each officer shall hold his office until his
successor is elected and qualifies or until his earlier
resignation or removal. Any officer may resign at any time upon
written notice to the Corporation. Any officer elected or
appointed by the Board of Directors may be removed at any time by
the Board of Directors when, in its judgment, the best interests
of the Corporation will be served thereby. Any vacancy occurring
in any office of the Corporation by death, resignation, removal
or otherwise shall be filled by the Board of Directors.
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Section 4. Chairman of the Board of Directors. The
chairman of the Board of Directors shall preside at all meetings
of the stockholders and of the Board of Directors. He shall be
the chief executive officer and shall have general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect. He shall be ex officio a member of all committees
designated by the Board of Directors except as otherwise
determined by the Board of Directors. He shall execute bonds,
mortgages and other contracts requiring a seal, under the seal of
the Corporation, except where required or permitted by law to be
otherwise signed and executed and except where the signing and
execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation.
Section 5. President. The president shall act under
the direction of the chairman and in the absence or disability of
the chairman shall perform the duties and exercise the powers of
the chairman. He shall perform such other duties and have such
other powers as the chairman or the Board of Directors may from
time to time prescribe. He shall execute on behalf of the
Corporation, and may affix the seal or cause the seal to be
affixed to, all instruments requiring such execution except to
the extent that signing and execution thereof shall be expressly
delegated by the Board of Directors to some other officer or
agent of the Corporation.
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Section 6. Vice Presidents. The vice presidents shall
act under the direction of the chairman and in the absence or
disability of the president shall perform the duties and exercise
the powers of the president. They shall perform such other
duties and have such other powers as the chairman or the Board of
Directors may from time to time prescribe. The Board of
Directors may designate one or more executive vice presidents or
may otherwise specify the order of seniority of the vice
presidents and, in that event, the duties and powers of the
president shall descend to the vice presidents in the specified
order of seniority.
Section 7. Secretary. The secretary shall act under
the direction of the chairman. Subject to the direction of the
chairman he shall attend all meetings of the Board of Directors
and all meetings of stockholders and record the proceedings in a
book to be kept for that purpose and shall perform like duties
for the committees designated by the Board of Directors when
required. He shall give, or cause to be given, notice of all
meetings of stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be
prescribed by the chairman or the Board of Directors. He shall
keep in safe custody the seal of the Corporation and shall affix
the seal or cause it to be affixed to any instrument requiring
it.
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Section 8. Assistant Secretaries. The assistant
secretaries in the order of their seniority, unless otherwise
determined by the chairman or the Board of Directors, shall, in
the absence or disability of the secretary, perform the duties
and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the chairman or
the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The treasurer shall act under
the direction of the chairman. Subject to the direction of the
chairman he shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts
and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the
funds of the Corporation as may be ordered by the chairman or the
Board of Directors, taking proper vouchers for such
disbursements, and shall render to the chairman and the Board of
Directors, at its regular meetings, or when the Board of
Directors so requires, an account of all his transactions as
treasurer and of the financial condition of the Corporation.
Section 10. Assistant Treasurers. The assistant
treasurers in the order of their seniority, unless otherwise
determined by the chairman or the Board of Directors, shall, in
the absence or disability of the treasurer, perform the duties
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and exercise the powers of the treasurer. They shall perform
such other duties and have such other powers as the chairman or
the Board of Directors may from time to time prescribe.
ARTICLE VI
Certificates of Stock
Section 1. General. Every holder of stock of the
Corporation who has made full payment of the consideration for
such stock shall be entitled upon request to have a certificate,
signed by, or in the name of the Corporation by, the chairman,
the president or a vice president and countersigned by the
treasurer or an assistant treasurer or the secretary or an
assistant secretary of the Corporation, certifying the number
and, if additional shares of stock should be authorized, the
class of whole shares of stock owned by him in the Corporation.
Section 2. Fractional Share Interests. The Corporation
may issue fractions of a share of stock. Fractional shares of
stock shall have proportionately to the respective fractions
represented thereby all the rights of whole shares, including the
right to vote, the right to receive dividends and distributions
and the right to participate upon liquidation of the Corporation,
excluding, however, the right to receive a stock certificate
representing such fractional shares.
Section 3. Signatures on Certificates. Any of or all
the signatures on a certificate may be a facsimile. In case any
officer who has signed or whose facsimile signature has been
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placed upon a certificate shall cease to be such officer before
such certificate is issued, it may be issued with the same effect
as if he were such officer at the date of issue. The seal of the
Corporation or a facsimile thereof may, but need not, be affixed
to certificates of stock.
Section 4. Lost, Stolen or Destroyed Certificates. The
Board of Directors may direct a new certificate or certificates
to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of any affidavit of that
fact by the person claiming the certificate or certificates to be
lost, stolen or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed certificate
or certificates, or his legal representative, to give the
Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corporation with
respect to the certificate or certificates alleged to have been
lost, stolen or destroyed.
Section 5. Transfer of Shares. Upon request by the
registered owner of shares, and if a certificate has been issued
to represent such shares upon surrender to the Corporation or a
transfer agent of the Corporation of a certificate for shares of
stock duly endorsed or accompanied by proper evidence of
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succession, assignment or authority to transfer, it shall be the
duty of the Corporation, if it is satisfied that all provisions
of the Articles of Incorporation, of the By-Laws and of the law
regarding the transfer of shares have been duly complied with, to
record the transaction upon its books, issue a new certificate to
the person entitled thereto upon request for such certificate,
and cancel the old certificate, if any.
Section 6. Registered Owners. The Corporation shall be
entitled to recognize the person registered on its books as the
owner of shares to be the exclusive owner for all purposes
including voting and dividends, and the Corporation shall not be
bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as
otherwise provided by the laws of Maryland.
ARTICLE VII
Miscellaneous
Section 1. Reserves. There may be set aside out of any
funds of the Corporation available for dividends such sum or sums
as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for such other purpose as the Board of
Directors shall think conducive to the interest of the
Corporation, and the Board of Directors may modify or abolish any
such reserve.
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Section 2. Dividends. Dividends upon the stock of the
Corporation may, subject to the provisions of the Articles of
Incorporation and of applicable law, be declared by the Board of
Directors at any time. Dividends may be paid in cash, in
property or in shares of the Corporation's stock, subject to the
provisions of the Articles of Incorporation and of applicable
law.
Section 3. Capital Gains Distributions. The amount and
number of capital gains distributions paid to the stockholders
during each fiscal year shall be determined by the Board of
Directors. Each such payment shall be accompanied by a statement
as to the source of such payment, to the extent required by law.
Section 4. Checks. All checks or demands for money and
notes of the Corporation shall be signed by such officer or
officers or such other person or persons as the Board of
Directors may from time to time designate.
Section 5. Fiscal Year. The fiscal year of the
Corporation shall be fixed by resolution of the Board of
Directors.
Section 6. Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its
organization and the words "Corporate Seal, Maryland." The seal
may be used by causing it or a facsimile thereof to be impressed
or affixed or in another manner reproduced.
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Section 7. Insurance Against Certain Liabilities. The
Corporation shall not bear the cost of insurance that protects or
purports to protect directors and officers of the Corporation
against any liabilities to the Corporation or its security
holders to which any such director or officer would otherwise be
subject by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the
conduct of his office.
ARTICLE VIII
Indemnification
Section 1. Indemnification of Directors and Officers.
The Corporation shall indemnify its directors to the full extent
that indemnification of directors is permitted by the Maryland
General Corporation Law. The Corporation shall indemnify its
officers to the same extent as its directors and to such further
extent as is consistent with law. The Corporation shall
indemnify its directors and officers who while serving as
directors or officers also serve at the request of the
Corporation as a director, officer, partner, trustee, employee,
agent or fiduciary of another corporation, partnership, joint
venture, trust, other enterprise or employee benefit plan to the
full extent consistent with law. The indemnification and other
rights provided by this Article shall continue as to a person who
has ceased to be a director or officer and shall inure to the
benefit of the heirs, executors and administrators of such a
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person. This Article shall not protect any such person against
any liability to the Corporation or any stockholder thereof to
which such person would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of his office ("disabling
conduct").
Section 2. Advances. Any current or former director or
officer of the Corporation seeking indemnification within the
scope of this Article shall be entitled to advances from the
Corporation for payment of the reasonable expenses incurred by
him in connection with the matter as to which he is seeking
indemnification in the manner and to the full extent permissible
under the Maryland General Corporation Law. The person seeking
indemnification shall provide to the Corporation a written
affirmation of his good faith belief that the standard of conduct
necessary for indemnification by the Corporation has been met and
a written undertaking to repay any such advance if it should
ultimately be determined that the standard of conduct has not
been met. In addition, at least one of the following additional
conditions shall be met: (a) the person seeking indemnification
shall provide a security in form and amount acceptable to the
Corporation for his undertaking; (b) the Corporation is insured
against losses arising by reason of the advance; or (c) a
majority of a quorum of directors of the Corporation who are
neither "interested persons" as defined in Section 2(a)(19) of
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the Investment Company Act of 1940, as amended, nor parties to
the proceeding ("disinterested non-party directors"), or
independent legal counsel, in a written opinion, shall have
determined, based on a review of facts readily available to the
Corporation at the time the advance is proposed to be made, that
there is reason to believe that the person seeking
indemnification will ultimately be found to be entitled to
indemnification.
Section 3. Procedure. At the request of any person
claiming indemnification under this Article, the Board of
Directors shall determine, or cause to be determined, in a manner
consistent with the Maryland General Corporation Law, whether the
standards required by this Article have been met.
Indemnification shall be made only following: (a) a final
decision on the merits by a court or other body before whom the
proceeding was brought that the person to be indemnified was not
liable by reason of disabling conduct or (b) in the absence of
such a decision, a reasonable determination, based upon a review
of the facts, that the person to be indemnified was not liable by
reason of disabling conduct by (i) the vote of a majority of a
quorum of disinterested non-party directors or (ii) an
independent legal counsel in a written opinion.
Section 4. Indemnification of Employees and Agents.
Employees and agents who are not officers or directors of the
Corporation may be indemnified, and reasonable expenses may be
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advanced to such employees or agents, as may be provided by
action of the Board of Directors or by contract, subject to any
limitations imposed by the Investment Company Act of 1940.
Section 5. Other Rights. The Board of Directors may
make further provision consistent with law for indemnification
and advance of expenses to directors, officers, employees and
agents by resolution, agreement or otherwise. The
indemnification provided by this Article shall not be deemed
exclusive of any other right, with respect to indemnification or
otherwise, to which those seeking indemnification may be entitled
under any insurance or other agreement or resolution of
stockholders or disinterested directors or otherwise. The rights
provided to any person by this Article shall be enforceable
against the Corporation by such person who shall be presumed to
have relied upon it in serving or continuing to serve as a
director, officer, employee, or agent as provided above.
Section 6. Amendments. References in this Article are
to the Maryland General Corporation Law and to the Investment
Company Act of 1940 as from time to time amended. No amendment
of these By-laws shall affect any right of any person under this
Article based on any event, omission or proceeding prior to the
amendment.
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ARTICLE IX
Amendments
The Board of Directors shall have the power to make,
alter and repeal By-laws of the Corporation.
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