This is filed pursuant to Rule 497(c).
File Nos. 33-37848 and 811-06028.
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<PAGE>
The Alliance
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Stock Funds
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P.O. Box 1520, Secaucus, New Jersey 07096-1520
Toll Free (800) 221-5672
For Literature: Toll Free (800) 227-4618
Prospectus and Application
November 1, 1995
Domestic Stock Funds Global Stock Funds
-The Alliance Fund -Alliance International Fund
-Alliance Growth Fund -Alliance Worldwide Privatization Fund
-Alliance Premier Growth Fund -Alliance New Europe Fund
-Alliance Counterpoint Fund -Alliance All-Asia Investment Fund
-Alliance Technology Fund -Alliance Global Small Cap Fund
-Alliance Quasar Fund
Total Return Funds
-Alliance Strategic Balanced Fund
-Alliance Balanced Shares
-Alliance Income Builder Fund
-Alliance Utility Income Fund
-Alliance Growth and Income Fund
Table of Contents Page
The Funds at a Glance..................................................... 2
Expense Information....................................................... 4
Financial Highlights...................................................... 7
Glossary.................................................................. 17
Description of the Funds.................................................. 18
Investment Objectives and Policies.................................... 18
Additional Investment Practices....................................... 27
Certain Fundamental Investment Policies............................... 34
Risk Considerations................................................... 36
Purchase and Sale of Shares............................................... 40
Management of the Funds................................................... 42
Dividends, Distributions and Taxes........................................ 45
General Information....................................................... 46
Adviser
Alliance Capital Management L.P.
1345 Avenue Of The Americas
New York, New York 10105
The Alliance Stock Funds provide a broad selection of investment alternatives to
investors seeking capital growth or high total return. The Domestic Stock Funds
invest mainly in the United States equity markets and the Global Stock Funds
diversify their investments among equity markets around the world, while the
Total Return Funds invest in both equity and fixed-income securities.
Each fund or portfolio (each a "Fund") is, or is a series of, an open-end
management investment company. This Prospectus sets forth concisely the
information which a prospective investor should know about each Fund before
investing. A "Statement of Additional Information" for each Fund which provides
further information regarding certain matters discussed in this Prospectus and
other matters which may be of interest to some investors has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. For
a free copy, call or write Alliance Fund Services, Inc. at the indicated address
or "Literature" telephone number.
Each Fund offers three classes of shares which may be purchased at the
investor's choice at a price equal to their net asset value (i) plus an initial
sales charge imposed at the time of purchase (the "Class A shares"), (ii) with a
contingent deferred sales charge imposed on most redemptions made within four
years of purchase (the "Class B shares"), or (iii) without any initial or
contingent deferred sales charge (the "Class C shares"). See "Purchase and Sale
of Shares."
An investment in these securities is not a deposit or obligation of, or
guaranteed or endorsed by, any bank and is not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board or any other agency.
Investors are advised to read this Prospectus carefully and to retain it for
future reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Alliance/(R)/
Mutual funds without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner,
Alliance Capital Management L.P.
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The Funds At A Glance
The following summary is qualified in its entirety by the more detailed
information contained in this Prospectus.
The Funds' Investment Adviser Is . . .
Alliance Capital Management L.P. ("Alliance"), a global investment manager
providing diversified services to institutions and individuals through a broad
line of investments including 104 mutual funds. Since 1971, Alliance has earned
a reputation as a leader in the investment world with over $140 billion in
assets under management as of September 30, 1995. Alliance provides investment
management services to 29 of the FORTUNE 100 companies.
Domestic Stock Funds
Alliance Fund
Seeks . . . Long-term growth of capital and income primarily through investment
in common stocks.
Invests Principally in . . . A diversified portfolio of equity securities that,
in the judgment of Alliance, have the potential to achieve capital appreciation.
Growth Fund
Seeks . . . Long-term growth of capital by investing primarily in common stocks
and other equity securities.
Invests Principally in . . . A diversified portfolio of equity securities of
companies with a favorable outlook for earnings and whose rate of growth is
expected to exceed that of the United States economy over time.
Premier Growth Fund
Seeks . . . Long-term growth of capital by investing in the equity securities of
a limited number of large, carefully selected, high-quality American companies
from a relatively small universe of intensively researched companies.
Invests Principally in . . . A non-diversified portfolio of equity securities
that, in the judgment of Alliance, are likely to achieve superior earnings
growth. Normally, approximately 40 companies will be represented in the Fund's
investment portfolio. The Fund's investments in 25 of these companies most
highly regarded at any point in time by Alliance will usually constitute
approximately 70% of the Fund's net assets.
Counterpoint Fund
Seeks . . . Long-term capital growth, primarily, and current income,
secondarily.
Invests Principally in . . . A diversified portfolio of price-depressed,
undervalued or out-of-favor equity securities.
Technology Fund
Seeks . . . Growth of capital through investment in companies expected to
benefit from advances in technology.
Invests Principally in . . . A diversified portfolio of securities of companies
which use technology extensively in the development of new or improved products
or processes.
Quasar Fund
Seeks . . . Growth of capital by pursuing aggressive investment policies.
Invests Principally in . . . A diversified portfolio of equity securities of any
company and industry and in any type of security which is believed to offer
possibilities for capital appreciation.
Global Stock Funds
International Fund
Seeks . . . A total return on its assets from long-term growth of capital and
from income.
Invests Principally in . . . A diversified portfolio of marketable securities of
established non-United States companies, companies participating in foreign
economies with prospects for growth, and foreign government securities.
Worldwide Privatization Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities
issued by enterprises that are undergoing, or have undergone, privatization. The
balance of the Fund's investment portfolio will include securities of companies
that are believed by Alliance to be beneficiaries of the privatization process.
New Europe Fund
Seeks . . . Long-term capital appreciation through investment primarily in the
equity securities of companies based in Europe.
Invests Principally in . . . A non-diversified portfolio of equity securities of
European companies.
All-Asia Investment Fund
Seeks . . . Long-term capital appreciation.
Invests Principally in . . . A non-diversified portfolio of equity securities of
Asian/Pacific companies.
Global Small Cap Fund
Seeks . . . Long-term growth of capital.
Invests Principally in . . . A diversified global portfolio of the equity
securities of small capitalization companies.
2
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Total Return Funds
Strategic Balanced Fund
Seeks . . . A high long-term total return by investing in a combination of
equity and debt securities.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks and fixed-income securities, and also in equity-type securities such as
warrants, preferred stocks and convertible debt instruments.
Balanced Shares
Seeks . . . A high return through a combination of current income and capital
appreciation.
Invests Principally in . . . A diversified portfolio of equity and fixed-income
securities such as common and preferred stocks, U.S. Government and agency
obligations, bonds and senior debt securities.
Income Builder Fund
Seeks . . . Both an attractive level of current income and long-term growth of
income and capital.
Invests Principally in . . . A non-diversified portfolio of fixed-income
securities and dividend-paying common stocks. Alliance currently expects to
continue to maintain approximately 60% of the Fund's net assets in fixed-income
securities and 40% in equity securities.
Utility Income Fund
Seeks . . . Current income and capital appreciation through investment in the
utilities industry.
Invests Principally in . . . A diversified portfolio of equity securities, such
as common stocks, securities convertible into common stocks and rights and
warrants to subscribe for purchase of common stocks, and in fixed-income
securities such as bonds and preferred stocks.
Growth and Income Fund
Seeks . . . Income and appreciation through investment in dividend-paying common
stocks of quality companies.
Invests Principally in . . . A diversified portfolio of dividend-paying common
stocks of good quality, and, under certain market conditions, other types of
securities, including bonds, convertible bonds and preferred stocks.
A Word About Risk . . .
The price of the shares of the Alliance Stock Funds will fluctuate as the daily
prices of the individual securities in which they invest fluctuate, so that your
shares, when redeemed, may be worth more or less than their original cost. With
respect to those Funds permitted to invest in foreign currency denominated
securities, these fluctuations may be magnified by changes in foreign exchange
rates. Investment in the Global Stock Funds involves risks not associated with
funds that invest primarily in securities of U.S. issuers. While the Funds
invest principally in common stocks and other equity securities, in order to
achieve their investment objectives the Funds may at times use certain types of
investment derivatives, such as options, futures, forwards and swaps. These
involve risks different from, and, in certain cases, greater than, the risks
presented by more traditional investments. These risks are fully discussed in
this Prospectus.
Getting Started . . .
Shares of the Funds are available through your financial representative and most
banks, insurance companies and brokerage firms nationwide. Shares can be
purchased for a minimum initial investment of $250, and subsequent investments
can be made for as little as $50. For detailed information about purchasing and
selling shares, see "Purchase and Sale of Shares." In addition, the Funds offer
several time and money saving services to investors. Be sure to ask your
financial representative about:
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Automatic Reinvestment
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Automatic Investment Program
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Retirement Plans
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Shareholder Communications
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Dividend Direction Plans
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Auto Exchange
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Systematic Withdrawals
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A Choice Of Purchase Plans
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Telephone Transactions
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24 Hour Information
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Alliance/(R)/
Mutual funds without the Mystery./SM/
(R)/SM These are registered marks used under licenses from the owner, Alliance
Capital Management L.P.
3
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Expense Information
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Shareholder Transaction Expenses are one of several factors to consider when you
invest in a Fund. The following table summarizes your maximum transaction costs
from investing in a Fund and annual expenses for each class of shares of each
Fund. For each Fund, the "Examples" to the right of the table below show the
cumulative expenses attributable to a hypothetical $1,000 investment in each
class for the periods specified.
<TABLE>
<CAPTION>
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
<S> <C> <C> <C>
Maximum sales charge imposed on purchases (as a percentage of
offering price).................................................. 4.25%(a) None None
Sales charge imposed on dividend reinvestments................... None None None
Deferred sales charge (as a
percentage of original purchase
price or redemption proceeds,
whichever is lower).............................................. None(a) 4.0% None
during the
first year,
decreasing 1.0%
annually to 0%
after the
fourth year (b)
Exchange fee..................................................... None None None
</TABLE>
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(a) Reduced for larger purchases. Purchases of $1,000,000 or more are not
subject to an initial sales charge but may be subject to a 1% deferred sales
charge on redemptions within one year of purchase. See "Purchase and Sale of
Shares--How to Buy Shares" -page 40.
(b) Class B shares of each Fund other than Premier Growth Fund automatically
convert to Class A shares after eight years and the Class B shares of
Premier Growth Fund convert to Class A shares after six years. See "Purchase
and Sale of Shares--How to Buy Shares" -page 40.
<TABLE>
<CAPTION>
Operating Expenses Examples
- ------------------------------------------------------------- ---------------------------------------------------------------
Alliance Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .71% .71% .71% After 1 year $ 53 $ 59 $ 19 $ 19
12b-1 fees .19% 1.00% 1.00% After 3 years $ 74 $ 79 $ 59 $ 59
Other expenses (a) .15% .18% .16% After 5 years $ 98 $102 $102 $101
---- ---- ---- After 10 years $165 $199(b) $199(b) $220
Total fund
operating expenses 1.05% 1.89% 1.87%
==== ==== ====
<CAPTION>
Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 56 $ 61 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 83 $ 84 $ 64 $ 64
Other expenses (a) .30% .30% .30% After 5 years $113 $110 $110 $110
---- ---- ---- After 10 years $198 $220(b) $220(b) $239
Total fund
operating expenses 1.35% 2.05% 2.05%
==== ==== ====
<CAPTION>
Premier Growth Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 60 $ 65 $ 25 $ 25
12b-1 fees .37% 1.00% 1.00% After 3 years $ 97 $ 97 $ 77 $ 77
Other expenses (a) .44% .46% .45% After 5 years $136 $131 $131 $131
---- ---- ---- After 10 years $246 $248(b) $243(b) $279
Total fund
operating expenses 1.81% 2.46% 2.45%
==== ==== ====
<CAPTION>
Counterpoint Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 61 $ 68 $ 28 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $101 $105 $ 85 $ 83
Other expenses (a) .89% .98% .91% After 5 years $143 $144 $144 $141
---- ---- ---- After 10 years $259 $287(b) $287(b) $299
Total fund
operating expenses 1.94% 2.73% 2.66%
==== ==== ====
</TABLE>
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Please refer to the footnotes on page 6.
4
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- --------------------------------------------------------------- ---------------------------------------------------------------
Technology Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 65 $ 25 $ 24
12b-1 fees .30% 1.00% 1.00% After 3 years $ 93 $ 96 $ 76 $ 75
Other expenses (a) .36% .43% .41% After 5 years $129 $130 $130 $129
---- ---- ---- After 10 years $231 $258(b) $258(b) $275
Total fund
operating expenses 1.66% 2.43% 2.41%
==== ==== ====
<CAPTION>
Quasar Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 65 $ 25 $ 25
12b-1 fees .21% 1.00% 1.00% After 3 years $ 93 $ 98 $ 78 $ 77
Other expenses (a) .46% .50% .48% After 5 years $129 $133 $133 $132
---- ---- ---- After 10 years $232 $263(b) $263(b) $282
Total fund
operating expenses 1.67% 2.50% 2.48%
==== ==== ====
<CAPTION>
International Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 59 $ 66 $ 26 $ 26
12b-1 fees .18% 1.00% 1.00% After 3 years $ 95 $100 $ 80 $ 79
Other expenses (a) .55% .57% .54% After 5 years $132 $137 $137 $135
---- ---- ---- After 10 years $238 $270(b) $270(b) $288
Total fund
operating expenses 1.73% 2.57% 2.54%
==== ==== ====
<CAPTION>
Worldwide Privatization Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 60 $ 65 $ 25 $ 25
12b-1 fees .30% 1.00% 1.00% After 3 years $ 96 $ 97 $ 77 $ 77
Other expenses (a) .48% .48% .48% After 5 years $135 $132 $132 $132
---- ---- ---- After 10 years $243 $264(b) $264(b) $282
Total fund
operating expenses 1.78% 2.48% 2.48%
==== ==== ====
<CAPTION>
New Europe Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.07% 1.07% 1.07% After 1 year $ 63 $ 68 $ 28 $ 28
12b-1 fees .30% 1.00% 1.00% After 3 years $105 $107 $ 87 $ 86
Other expenses (a) .72% .72% .71% After 5 years $150 $147 $147 $147
---- ---- ---- After 10 years $274 $295(b) $295(b) $311
Total fund
operating expenses 2.09% 2.79% 2.78%
==== ==== ====
<CAPTION>
All-Asia Investment Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees After 1 year $ 70 $ 75 $ 35 $ 35
(after waiver) (c) 0.00% 0.00% 0.00% After 3 years $126 $127 $107 $107
12b-1 fees .30% 1.00% 1.00% After 5 years $184 $182 $182 $182
Other expenses After 10 years $342 $362(b) $362(b) $377
Administration fees
(after waiver) (f) 0.00% 0.00% 0.00%
Other operating expenses (a)
(after reimbursement) (d) 2.50% 2.50% 2.50%
---- ---- ----
Total other expenses 2.50% 2.50% 2.50%
---- ---- ----
Total fund
operating expenses (d) 2.80% 3.50% 3.50%
==== ==== ====
<CAPTION>
Global Small Cap Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees 1.00% 1.00% 1.00% After 1 year $ 67 $ 72 $ 32 $ 33
12b-1 fees .30% 1.00% 1.00% After 3 years $118 $119 $ 99 $100
Other expenses (a) 1.24% 1.20% 1.25% After 5 years $172 $167 $167 $170
---- ---- ---- After 10 years $318 $335(b) $335(b) $355
Total fund
operating expenses (g) 2.54% 3.20% 3.25%
==== ==== ====
<CAPTION>
Strategic Balanced Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees
(after waiver) (c) .45% .45% .45% After 1 year $ 56 $ 61 $ 21 $ 21
12b-1 fees .30% 1.00% 1.00% After 3 years $ 85 $ 86 $ 66 $ 66
Other expenses (a) After 5 years $116 $113 $113 $113
(after reimbursement) (d) .65% .65% .65% After 10 years $203 $225(b) $225(b) $243
---- ---- ----
Total fund
operating expenses (d) 1.40% 2.10% 2.10%
==== ==== ====
</TABLE>
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Please refer to the footnotes on page 6.
5
<PAGE>
<TABLE>
<CAPTION>
Operating Expenses Examples
- --------------------------------------------------------------- ---------------------------------------------------------------
Balanced Shares Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .63% .63% .63% After 1 year $ 55 $ 61 $ 21 $ 21
12b-1 fees .24% 1.00% 1.00% After 3 years $ 83 $ 86 $ 66 $ 65
Other expenses (a) .45% .48% .46% After 5 years $112 $113 $113 $112
---- ---- ---- After 10 years $195 $224(b) $224(b) $242
Total fund
operating expenses 1.32% 2.11% 2.09%
==== ==== ====
<CAPTION>
Income Builder Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 67 $ 71 $ 31 $ 27
12b-1 fees .30% 1.00% 1.00% After 3 years $118 $115 $ 95 $ 83
Other expenses (a) 1.47% 1.34% .92% After 5 years $171 $162 $162 $141
---- ---- ---- After 10 years $316 $327(b) $327(b) $300
Total fund
operating expenses 2.52% 3.09% 2.67%
==== ==== ====
<CAPTION>
Utility Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .75% .75% .75% After 1 year $ 57 $ 62 $ 22 $ 22
12b-1 fees .30% 1.00% 1.00% After 3 years $ 88 $ 89 $ 69 $ 69
Other expenses (a) .45% .45% .45% After 5 years $121 $118 $118 $118
---- ---- ---- After 10 years $214 $236(b) $236(b) $253
Total fund
operating expenses (e) 1.50% 2.20% 2.20%
==== ==== ====
<CAPTION>
Growth and Income Fund Class A Class B Class C Class A Class B+ Class B++ Class C
------- ------- ------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Management fees .53% .53% .53% After 1 year $ 53 $ 59 $ 19 $ 19
12b-1 fees .20% 1.00% 1.00% After 3 years $ 74 $ 78 $ 58 $ 58
Other expenses (a) .30% .32% .31% After 5 years $ 97 $100 $100 $100
---- ---- ---- After 10 years $163 $195(b) $195(b) $216
Total fund
operating expenses 1.03% 1.85% 1.84%
==== ==== ====
</TABLE>
- --------------------------------------------------------------------------------
+ Assumes redemption at end of period.
++ Assumes no redemption at end of period.
(a) These expenses include a transfer agency fee payable to Alliance Fund
Services, Inc., an affiliate of Alliance, based on a fixed dollar amount
charged to the Fund for each shareholder's account.
(b) Assumes Class B shares converted to Class A shares after eight years, or six
years with respect to Premier Growth Fund.
(c) Net of voluntary fee waiver. In the absence of such waiver, management fees
would be .75% for Strategic Balanced Fund and 1.00% for All-Asia Investment
Fund.
(d) Net of voluntary fee waiver and expense reimbursement. In the absence of
such waiver and reimbursement, other expenses for Strategic Balanced Fund
would have been .76%, .74% and .75%, respectively, for Class A, Class B and
Class C shares, and total fund operating expenses for Strategic Balanced
Fund would have been 1.81%, 2.49% and 2.50%, respectively, for Class A,
Class B and Class C shares. In the absence of such waiver and
reimbursements, other expenses for All-Asia Investment Fund would have been
7.81%, 7.83% and 7.83%, respectively for Class A, Class B and Class C
shares, and total fund operating expenses for All-Asia Investment Fund would
have been 9.26%, 9.98% and 9.98%, respectively, for Class A, Class B and
Class C shares.
(e) Net of expense reimbursements. Absent expense reimbursements, total fund
operating expenses for Utility Income Fund would be 13.72%, 14.42% and
14.42%, respectively, for Class A, Class B and Class C shares.
(f) Reflects the fees payable by All-Asia Investment Fund to Alliance pursuant
to an administration agreement net of voluntary fee waiver. In the absence
of such fee waiver, the administration fee would be .15%.
(g) Net of expense reimbursements. Absent of expense reimbursements, total fund
operating expenses for Global Small Cap Fund would be 2.61%, 3.27% and
3.31%, respectively, for Class A, Class B and Class C shares.
The purpose of the foregoing table is to assist the investor in understanding
the various costs and expenses that an investor in a Fund will bear directly or
indirectly. Long-term shareholders of a Fund may pay aggregate sales charges
totaling more than the economic equivalent of the maximum initial sales charges
permitted by the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. See "Management of the Funds--Distribution Services
Agreements." The Rule 12b-1 fee for each class comprises a service fee not
exceeding .25% of the aggregate average daily net assets of the Fund
attributable to the class and an asset-based sales charge equal to the remaining
portion of the Rule 12b-1 fee. The information shown in the table for Alliance
Fund, Growth Fund and Technology Fund reflects annualized expenses based on the
Fund's most recent fiscal periods. The information shown in the table for
Alliance Premier Growth Fund and All-Asia Investment Fund reflects estimated
annualized expenses for the Fund's current fiscal period. "Total Fund Operating
Expenses" for Utility Income Fund are based on estimated amounts for the Funds'
current fiscal year. See "Management of the Funds." "Other Expenses" for Class
A, Class B and Class C shares of All-Asia Investment Fund and Worldwide
Privatization Fund are based on estimated amounts for each Fund's current fiscal
year. The management fee rates of Growth Fund, Premier Growth Fund, Counterpoint
Fund, Strategic Balanced Fund, Technology Fund, International Fund, Worldwide
Privatization Fund, New Europe Fund, All-Asia Investment Fund, Income Builder
Fund, Utility Income Fund and Global Small Cap Fund are higher than those paid
by most other investment companies, but Alliance believes the fees are
comparable to those paid by investment companies of similar investment
orientation. The expense ratios for Class B and Class C shares of Counterpoint
Fund, Technology Fund and Quasar Fund, and for each Class of shares of Global
Small Cap Fund and Worldwide Privatization Fund, are higher than the expense
ratios of most other mutual funds, but are comparable to the expense ratios of
mutual funds whose shares are similarly priced. The examples set forth above
assume reinvestment of all dividends and distributions and utilize a 5% annual
rate of return as mandated by Commission regulations. The examples should not be
considered representative of past or future expenses; actual expenses may be
greater or less than those shown.
6
<PAGE>
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Financial Highlights
- --------------------------------------------------------------------------------
The tables on the following pages present, for each Fund, per share income and
capital changes for a share outstanding throughout each period indicated. The
information in the tables for Alliance Fund, Growth Fund, Premier Growth Fund,
Strategic Balanced Fund, Balanced Shares, Utility Income Fund, Worldwide
Privatization Fund and Growth and Income Fund has, except as noted otherwise,
been audited by Price Waterhouse LLP, the independent accountants for each Fund,
and for Counterpoint Fund, Technology Fund, Quasar Fund, International Fund, New
Europe Fund, Global Small Cap Fund and Income Builder Fund by Ernst & Young LLP,
the independent auditors for each Fund. A report of Price Waterhouse LLP or
Ernst & Young LLP, as the case may be, on the information with respect to each
Fund, except All-Asia Investment Fund which has not yet been audited or it has
not completed a fiscal year, appears in the Fund's Statement of Additional
Information. The following information for each Fund should be read in
conjunction with the financial statements and related notes which are included
in the Fund's Statement of Additional Information.
Further information about a Fund's performance is contained in the Fund's annual
report to shareholders, which may be obtained without charge by contacting
Alliance Fund Services, Inc. at the address or the "Literature" telephone number
shown on the cover of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
All-Asia Investment Fund
Class A
11/28/94+ to 4/30/95+++... $ 10.00 $ .11 (c) $ .13 $ .24 $ 0.00 $ 0.00
Class B
11/28/94+ to 4/30/95+++... $ 10.00 $ .09 (c) $ .13 $ .22 $ 0.00 $ 0.00
Class C
11/28/94+ to 4/30/95+++... $ 10.00 $ .08 (c) $ .16 $ .24 $ 0.00 $ 0.00
Alliance Fund
Class A
12/1/94 to 5/31/95+++..... $ 6.63 $ .01 $ .81 $ .82 $ (.01) $ (1.00)
1/1/94 to 11/30/94**...... 6.85 .01 (.23) (.22) 0.00 0.00
Year ended 12/31/93....... 6.68 .02 .93 .95 (.02) (.76)
Year ended 12/31/92....... 6.29 .05 .87 .92 (.05) (.48)
Year ended 12/31/91....... 5.22 .07 1.70 1.77 (.07) (.63)
Year ended 12/31/90....... 6.87 .09 (.32) (.23) (.18) (1.24)
Year ended 12/31/89....... 5.60 .12 1.19 1.31 (.04) 0.00
Year ended 12/31/88....... 5.15 .08 .80 .88 (.08) (.35)
Year ended 12/31/87....... 6.87 .08 .27 .35 (.13) (1.94)
Year ended 12/31/86....... 11.15 .11 .87 .98 (.10) (5.16)
Year ended 12/31/85....... 9.18 .20 2.51 2.71 (.23) (.51)
Class B
12/1/94 to 5/31/95+++..... $ 6.50 $ .05 $ .72 $ .77 $ 0.00 $ (1.00)
1/1/94 to 11/30/94**...... 6.76 (.03) (.23) (.26) 0.00 0.00
Year ended 12/31/93....... 6.64 (.03) .91 .88 0.00 (.76)
Year ended 12/31/92....... 6.27 (.01)(b) .87 .86 (.01) (.48)
3/4/91++ to 12/31/91...... 6.14 .01 (b) .79 .80 (.04) (.63)
Class C
12/1/94 to 5/31/95+++..... $ 6.50 $ (.10) $ .87 $ .77 $ 0.00 $ (1.00)
1/1/94 to 11/30/94**...... 6.77 (.03) (.24) (.27) 0.00 0.00
5/3/93++ to 12/31/93...... 6.67 (.02) .88 .86 0.00 (.76)
Growth Fund (i)
Class A
11/1/94 to 4/30/95+++..... $ 25.08 $ .08 $ .88 $ .96 $ (.11) $ (.41)
5/1/94 to 10/31/94**...... 23.89 .09 1.10 1.19 0.00 0.00
Year ended 4/30/94........ 22.67 (.01)(c) 3.55 3.54 0.00 (2.32)
Year ended 4/30/93........ 20.31 .05 (c) 3.68 3.73 (.14) (1.23)
Year ended 4/30/92........ 17.94 .29 (c) 3.95 4.24 (.26) (1.61)
9/4/90++ to 4/30/91....... 13.61 .17 (c) 4.22 4.39 (.06) 0.00
Class B
11/1/94 to 4/30/95+++..... $ 21.21 $ 0.00 $ .74 $ .74 $ (.01) $ (.41)
5/1/94 to 10/31/94**...... 20.27 .01 .93 .94 0.00 0.00
Year ended 4/30/94........ 19.68 (.07)(c) 2.98 2.91 0.00 (2.32)
Year ended 4/30/93........ 18.16 (.06)(c) 3.23 3.17 (.03) (1.62)
Year ended 4/30/92........ 16.88 .17 (c) 3.67 3.84 (.21) (2.35)
Year ended 4/30/91........ 14.38 .08 (c) 3.22 3.30 (.09) (.71)
Year ended 4/30/90........ 14.13 .01 (b)(c) 1.26 1.27 0.00 (1.02)
Year ended 4/30/89........ 12.76 (.01)(c) 2.44 2.43 0.00 (1.06)
10/23/87+ to 4/30/88...... 10.00 (.02)(c) 2.78 2.76 0.00 0.00
Class C
11/1/94 to 4/30/95+++..... $ 21.22 $ 0.00 $ .73 $ .73 $ (.01) $ (.41)
5/1/94 to 10/31/94**...... 20.28 .01 .93 .94 0.00 0.00
8/2/93++ to 4/30/94....... 21.47 (.02)(c) 1.15 1.13 0.00 (2.32)
Premier Growth Fund
Class A
12/1/94 to 5/31/95+++..... $ 11.41 $ (.02) $ 2.15 $ 2.13 $ 0.00 $ (.67)
Year ended 11/30/94....... 11.78 (.09) (.28) (.37) 0.00 0.00
Year ended 11/30/93....... 10.79 (.05) 1.05 1.00 (.01) 0.00
9/28/92+ to 11/30/92...... 10.00 .01 .78 .79 0.00 0.00
Class B
12/1/94 to 5/31/95+++..... $ 11.29 $ (.05) $ 2.13 $ 2.08 $ 0.00 $ (.67)
Year ended 11/30/94....... 11.72 (.15) (.28) (.43) 0.00 0.00
Year ended 11/30/93....... 10.79 (.10) 1.03 .93 0.00 0.00
9/28/92+ to 11/30/92...... 10.00 0.00 .79 .79 0.00 0.00
Class C
12/1/94 to 5/31/95+++..... $ 11.30 $ (.05) $ 2.13 $ 2.08 $ 0.00 $ (.67)
Year ended 11/30/94....... 11.72 (.09) (.33) (.42) 0.00
5/3/93++ to 11/30/93...... 10.48 (.05) 1.29 1.24 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
8
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.00 $10.24 2.40% $ 1,917 .19%* 3.44%* 51%
$ 0.00 $10.22 2.20% $ 3,019 .90%* 2.73%* 51%
$ 0.00 $10.24 2.40% $ 185 .71%* 2.87%* 51%
$(1.01) $ 6.44 15.01% $ 812,401 1.07%* .44%* 41%
0.00 6.63 (3.21) 760,679 1.05* .21* 63
(.78) 6.85 14.26 831,814 1.01 .27 66
(.53) 6.68 14.70 794,733 .81 .79 58
(.70) 6.29 33.91 748,226 .83 1.03 74
(1.42) 5.22 (4.36) 620,374 .81 1.56 71
(.04) 6.87 23.42 837,429 .75 1.79 81
(.43) 5.60 17.10 760,619 .82 1.38 65
(2.07) 5.15 4.90 695,812 .76 1.03 100
(5.26) 6.87 12.60 652,009 .61 1.39 46
(.74) 11.15 31.52 710,851 .59 1.96 62
$(1.00) $ 6.27 14.36% $ 22,603 1.88%* (.32)%* 41%
0.00 6.50 (3.85) 18,138 1.89* (.60)* 63
(.76) 6.76 13.28 12,402 1.90 (.64) 66
(.49) 6.64 13.75 3,825 1.64 (.04) 58
(.67) 6.27 13.10 852 1.64* .10* 74
$(1.00) $ 6.27 14.36% $ 6,868 1.91%* (.38)%* 41%
0.00 6.50 (3.99) 6,230 1.87* (.59)* 63
(.76) 6.77 13.95 4,006 1.94* (.74)* 66
$ (.52) $25.52 4.04% $ 213,281 1.37%* .69%* 25%
0.00 25.08 4.98 167,800 1.35* .86* 24
(2.32) 23.89 15.66 102,406 1.40 (f) .32 87
(1.37) 22.67 18.89 13,889 1.40 (f) .20 124
(1.87) 20.31 23.61 8,228 1.40 (f) 1.44 137
(.06) 17.94 32.40 713 1.40*(f) 1.99* 130
$ (.42) $21.53 3.68% $1,051,753 2.07%* (.01)%* 25%
0.00 21.21 4.64 751,521 2.05* .16* 24
(2.32) 20.27 14.79 394,227 2.10 (f) (.36) 87
(1.65) 19.68 18.16 56,704 2.15 (f) (.53) 124
(2.56) 18.16 22.75 37,845 2.15 (f) .78 137
(.80) 16.88 24.72 22,710 2.10 (f) .56 130
(1.02) 14.38 8.81 15,800 2.00 (f) .07 165
(1.06) 14.13 20.31 7,672 2.00 (f) (.03) 139
0.00 12.76 27.60 1,938 2.00*(f) (.40)* 52
$ (.42) $21.53 3.63% $ 154,857 2.07%* (.01)%* 25%
0.00 21.22 4.64 114,455 2.05* .16* 24
(2.32) 20.28 5.27 64,030 2.10*(f) (.31)* 87
$ (.67) $12.87 19.94% $ 41,921 1.92%* (.36)%* 58%
0.00 11.41 (3.14) 35,146 1.96 (.67) 98
(.01) 11.78 9.26 40,415 2.18 (.61) 68
0.00 10.79 7.90 4,893 2.17*(f) .91*(f) 0
$ (.67) $12.70 19.70% $ 157,167 2.43%* (.88)%* 58%
0.00 11.29 (3.67) 139,988 2.47 (1.19) 98
0.00 11.72 8.64 151,600 2.70 (1.14) 68
0.00 10.79 7.90 19,941 2.68*(f) .35*(f) 0
$ (.67) $12.71 19.68% $ 8,638 2.42%* (.87)%* 58%
0.00 11.30 (3.58) 7,332 2.47 (1.16) 98
0.00 11.72 11.83 3,899 2.79* (1.35)* 68
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Counterpoint Fund
Class A
10/1/94 to 3/31/95+++..... $17.14 $(.07) $ 1.31 $ 1.24 $0.00 $(2.62)
Year ended 9/30/94........ 20.89 (.10) (.82) (.92) 0.00 (2.83)
Year ended 9/30/93........ 19.45 (.01) 2.60 2.59 (.04) (1.11)
Year ended 9/30/92........ 19.08 .13 1.76 1.89 (.16) (1.36)
Year ended 9/30/91........ 15.18 .17 4.92 5.09 (.20) (.99)
Year ended 9/30/90........ 19.86 .23 (3.63) (3.40) (.20) (1.08)
Year ended 9/30/89........ 15.02 .21 5.30 5.51 (.23) (.44)
Year ended 9/30/88........ 18.05 .27 (2.09) (1.82) (.26) (.95)
Year ended 9/30/87........ 14.26 .26 4.20 4.46 (.36) (.31)
Year ended 9/30/86........ 10.98 .37 3.31 3.68 (.35) (.09)
2/28/85+ to 9/30/85....... 10.00 .13 .85 .98 0.00 0.00
Class B
10/1/94 to 3/31/95+++..... $16.94 $(.07) $ 1.23 $ 1.16 $0.00 $(2.62)
Year ended 9/30/94........ 20.82 (.08) (.97) (1.05) 0.00 (2.83)
5/3/93++ to 9/30/93....... 18.51 (.07) 2.38 2.31 0.00 0.00
Class C
10/1/94 to 3/31/95+++..... $16.95 $(.10) $ 1.26 $ 1.16 $0.00 $(2.62)
Year ended 9/30/94........ 20.83 (.14) (.91) (1.05) 0.00 (2.83)
5/3/93++ to 9/30/93....... 18.51 (.05) 2.37 2.32 0.00 0.00
Technology Fund
Class A
12/1/94 to 5/31/95+++..... $31.98 $(.11) $ 7.94 $ 7.83 $0.00 $(3.17)
1/1/94 to 11/30/94**...... 26.12 (.32) 6.18 5.86 0.00 0.00
Year ended 12/31/93....... 28.20 (.29) 6.39 6.10 0.00 (8.18)
Year ended 12/31/92....... 26.38 (.22)(b) 4.31 4.09 0.00 (2.27)
Year ended 12/31/91....... 19.44 (.02) 10.57 10.55 0.00 (3.61)
Year ended 12/31/90....... 21.57 (.03) (.56) (.59) 0.00 (1.54)
Year ended 12/31/89....... 20.35 0.00 1.22 1.22 0.00 0.00
Year ended 12/31/88....... 20.22 (.03) .16 .13 0.00 0.00
Year ended 12/31/87....... 23.11 (.10) 4.54 4.44 0.00 (7.33)
Year ended 12/31/86....... 20.64 (.14) 2.62 2.48 (.01) 0.00
Year ended 12/31/85....... 16.52 .02 4.30 4.32 (.20) 0.00
Class B
12/1/94 to 5/31/95+++..... $31.61 $(.14) $ 7.75 $ 7.61 $0.00 $(3.17)
1/1/94 to 11/30/94**...... 25.98 (.23) 5.86 5.63 0.00 0.00
5/3/93++ to 12/31/93...... 27.44 (.12) 6.84 6.72 0.00 (8.18)
Class C
12/1/94 to 5/31/95+++..... $31.61 $(.18) $ 7.79 $ 7.61 $0.00 $(3.17)
1/1/94 to 11/30/94**...... 25.98 (.24) 5.87 5.63 0.00 0.00
5/3/93++ to 12/31/93...... 27.44 (.13) 6.85 6.72 0.00 (8.18)
Quasar Fund
Class A
10/1/94 to 3/31/95+++..... $22.65 $(.13) $ .54 $ .41 $0.00 $(3.86)
Year ended 9/30/94........ 24.43 (.60) (.36) (.96) 0.00 (.82)
Year ended 9/30/93........ 19.34 (.41) 6.38 5.97 0.00 (.88)
Year ended 9/30/92........ 21.27 (.24) (1.53) (1.77) 0.00 (.16)
Year ended 9/30/91........ 15.67 (.05) 5.71 5.66 (.06) 0.00
Year ended 9/30/90........ 24.84 .03 (b) (7.18) (7.15) 0.00 (2.02)
Year ended 9/30/89........ 17.60 .02 (b) 7.40 7.42 0.00 (.18)
Year ended 9/30/88........ 24.47 (.08) (2.08) (2.16) 0.00 (4.71)
Year ended 9/30/87(d)..... 21.80 (.14) 5.88 5.74 0.00 (3.07)
Year ended 9/30/86(d)..... 17.25 0.00 5.54 5.54 (.03) (.96)
Year ended 9/30/85(d)..... 14.67 .04 2.87 2.91 (.11) (.22)
Class B
10/1/94 to 3/31/95+++..... $21.92 $(.19) $ .50 $ .31 $0.00 $(3.86)
Year ended 9/30/94........ 23.88 (.53) (.61) (1.14) 0.00 (.82)
Year ended 9/30/93........ 19.07 (.18) 5.87 5.69 0.00 (.88)
Year ended 9/30/92........ 21.14 (.39) (1.52) (1.91) 0.00 (.16)
Year ended 9/30/91........ 15.66 (.13) 5.67 5.54 (.06) 0.00
9/17/90++ to 9/30/90...... 17.17 (.01) (1.50) (1.51) 0.00 0.00
Class C
10/1/94 to 3/31/95+++..... $21.92 $(.20) $ .53 $ .33 $0.00 $(3.86)
Year ended 9/30/94........ 23.88 (.36) (.78) (1.14) 0.00 (.82)
5/3/93++ to 9/30/93....... 20.33 (.10) 3.65 3.55 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
10
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$(2.62) $15.76 9.07% $ 36,714 2.23%* (.84)%* 8%
(2.83) 17.14 (4.91) 42,712 1.94 (.43) 25
(1.15) 20.89 13.76 67,356 1.79 (.04) 48
(1.52) 19.45 10.76 70,876 1.62 .79 39
(1.19) 19.08 35.39 59,690 1.64 1.02 38
(1.28) 15.18 (17.91) 49,198 1.72 1.38 57
(.67) 19.86 38.25 60,478 1.69 1.28 37
(1.21) 15.02 (8.94) 44,789 1.76 1.93 33
(.67) 18.05 32.24 57,752 1.64 (f) 1.68 (f) 24
(.40) 14.26 34.00 36,713 1.55 (f) 2.88 (f) 17
0.00 10.98 9.80 22,365 1.50*(f) 3.20*(f) 6
$(2.62) $15.48 8.67% $ 1,303 3.03%* (1.57)%* 8%
(2.83) 16.94 (5.63) 527 2.73 (1.17) 25
0.00 20.82 12.48 120 3.35* (1.60)* 48
$(2.62) $15.49 8.66% $ 483 2.94%* (1.54)%* 8%
(2.83) 16.95 (5.62) 418 2.66 (1.11) 25
0.00 20.83 12.53 242 3.22* (1.34)* 48
$(3.17) $36.64 27.21% $255,131 1.59%* (.65)%* 23%
0.00 31.98 22.43 202,929 1.66* (1.22)* 55
(8.18) 26.12 21.63 173,732 1.73 (1.32) 64
(2.27) 28.20 15.50 173,566 1.61 (.90) 73
(3.61) 26.38 54.24 191,693 1.71 (.20) 134
(1.54) 19.44 (3.08) 131,843 1.77 (.18) 147
0.00 21.57 6.00 141,730 1.66 .02 139
0.00 20.35 0.64 169,856 1.42(f) (.16)(f) 139
(7.33) 20.22 19.16 167,608 1.31(f) (.56)(f) 248
(.01) 23.11 12.03 147,733 1.13(f) (.57)(f) 141
(.20) 20.64 26.24 147,114 1.14(f) .07 (f) 259
$(3.17) $36.05 26.80% $ 88,367 2.47%* (1.51)%* 23%
0.00 31.61 21.67 18,397 2.43* (1.95)* 55
(8.18) 25.98 24.49 1,645 2.57* (2.30)* 64
$(3.17) $36.05 26.80% $ 16,555 2.45%* (1.49)%* 23%
0.00 31.61 21.67 7,470 2.41* (1.94)* 55
(8.18) 25.98 24.49 1,096 2.52* (2.25)* 64
$(3.86) $19.20 3.89% $131,172 1.80%* (1.26)%* 80%
(.82) 22.65 (4.05) 155,470 1.67 (1.15) 110
(.88) 24.43 31.58 228,874 1.65 (1.00) 102
(.16) 19.34 (8.34) 252,140 1.62 (.89) 128
(.06) 21.27 36.28 333,806 1.64 (.22) 118
(2.02) 15.67 (30.81) 251,102 1.66 .16 90
(.18) 24.84 42.68 263,099 1.73 .10 90
(4.71) 17.60 (8.61) 90,713 1.28(f) (.40)(f) 58
(3.07) 24.47 29.61 134,676 1.18(f) (.56)(f) 76
(.99) 21.80 33.79 144,959 1.18 .02 84
(.33) 17.25 20.29 77,067 1.18 .22 77
$(3.86) $18.37 3.52% $ 12,876 2.63%* (2.08)%* 80%
(.82) 21.92 (4.92) 13,901 2.50 (1.98) 110
(.88) 23.88 30.53 16,779 2.46 (1.81) 102
(.16) 19.07 (9.05) 9,454 2.42 (1.67) 128
(.06) 21.14 35.54 7,346 2.41 (1.28) 118
0.00 15.66 (8.79) 71 2.09* (.26)* 90
$(3.86) $18.39 3.62% $ 1,032 2.59%* (2.06)%* 80%
(.82) 21.92 (4.92) 1,220 2.48 (1.96) 110
0.00 23.88 17.46 118 2.49* (1.90)* 102
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
International Fund
Class A
Year ended 6/30/95....... $18.38 $ .04 $ .01 $ .05 $0.00 $(1.62)
Year ended 6/30/94....... 16.01 (.09) 3.02 2.93 0.00 (.56)
Year ended 6/30/93....... 14.98 (.01) 1.17 1.16 (.04) (.09)
Year ended 6/30/92....... 14.00 .01 (b) 1.04 1.05 (.07) 0.00
Year ended 6/30/91....... 17.99 .05 (3.54) (3.49) (.03) (.47)
Year ended 6/30/90....... 17.24 .03 2.87 2.90 (.04) (2.11)
Year ended 6/30/89....... 16.09 .05 3.73 3.78 (.13) (2.50)
Year ended 6/30/88....... 23.70 .17 (1.22) (1.05) (.21) (6.35)
Year ended 6/30/87....... 22.02 .15 4.31 4.46 (.03) (2.75)
Year ended 6/30/86....... 11.94 .02 10.50 10.52 (.03) (.41)
Class B
Year ended 6/30/95....... $17.90 $(.01) $ (.08) $ (.09) $0.00 $(1.62)
Year ended 6/30/94....... 15.74 (.19) (b) 2.91 2.72 0.00 (.56)
Year ended 6/30/93....... 14.81 (.12) 1.14 1.02 0.00 (.09)
Year ended 6/30/92....... 13.93 (.11) (b) 1.02 .91 (.03) 0.00
9/17/90++ to 6/30/91..... 15.52 .03 (1.12) (1.09) (.03) (.47)
Class C
Year ended 6/30/95....... $17.91 $(.14) $ .05 $ (.09) $0.00 $(1.62)
Year ended 6/30/94....... 15.74 (.11) 2.84 2.73 0.00 (.56)
5/3/93++ to 6/30/93...... 15.93 0.00 (.19) (.19) 0.00 0.00
Worldwide Privatization Fund
Class A
Year ended 6/30/95....... $ 9.75 $ .06 $ .37 $ .43 $0.00 $ 0.00
6/2/94+ to 6/30/94....... 10.00 .01 (.26) (.25) 0.00 0.00
Class B
Year ended 6/30/95....... $ 9.74 $ .02 $ .34 $ .36 $0.00 $ 0.00
6/2/94+ to 6/30/94....... 10.00 .00 (.26) (.26) 0.00 0.00
Class C
2/8/95++ to 6/30/95...... $ 9.53 $ .05 $ .52 $ .57 $0.00 $ 0.00
New Europe Fund
Class A
Year ended 7/31/95....... $12.66 $ .04 $ 2.50 $ 2.54 $ (.09) $ 0.00
Period ended 7/31/94**... 12.53 .09 .04 .13 0.00 0.00
Year ended 2/28/94....... 9.37 .02 (b) 3.14 3.16 0.00 0.00
Year ended 2/28/93....... 9.81 .04 (.33) (.29) (.15) 0.00
Year ended 2/29/92....... 9.76 .02 (b) .05 .07 (.02) 0.00
4/2/90+ to 2/28/91....... 11.11 (e) .26 (.91) (.65) (.26) (.44)
Class B
Year ended 7/31/95....... $12.41 $(.05) $ 2.44 $ 2.39 $ (.09) $ 0.00
Period ended 7/31/94**... 12.32 .07 .02 .09 0.00 0.00
Year ended 2/28/94....... 9.28 (.05) (b) 3.09 3.04 0.00 0.00
Year ended 2/28/93....... 9.74 (.02) (.33) (.35) (.11) 0.00
3/5/91++ to 2/29/92...... 9.84 (.04) (b) (.04) (.08) (.02) 0.00
Class C
Year ended 7/31/95....... $12.42 $(.07) $ 2.46 $ 2.39 $ (.09) $ 0.00
Period ended 7/31/94**... 12.33 .06 .03 .09 0.00 0.00
5/3/93++ to 2/28/94...... 10.21 (.04) (b) 2.16 2.12 0.00 0.00
Global Small Cap Fund
Class A
Year ended 7/31/95....... $11.08 $(.09) $ 1.50 $ 1.41 $0.00 $(2.11) (k)
Period ended 7/31/94**... 11.24 (.15) (.01) (.16) 0.00 0.00
Year ended 9/30/93....... 9.33 (.15) 2.49 2.34 0.00 (.43)
Year ended 9/30/92....... 10.55 (.16) (1.03) (1.19) 0.00 (.03)
Year ended 9/30/91....... 8.26 (.06) 2.35 2.29 0.00 0.00
Year ended 9/30/90....... 15.54 (.05) (b) (4.12) (4.17) 0.00 (3.11)
Year ended 9/30/89....... 11.41 (.03) 4.25 4.22 0.00 (.09)
Year ended 9/30/88....... 15.07 (.05) (1.83) (1.88) 0.00 (1.78)
Year ended 9/30/87....... 15.47 (.07) 4.19 4.12 (.04) (4.48)
Year ended 9/30/86....... 12.94 .05 3.74 3.79 (.04) (1.22)
Class B
Year ended 7/31/95....... $10.78 $(.12) $ 1.40 $ 1.28 $0.00 $(2.11) (k)
Period ended 7/31/94**... 11.00 (.17) (b) (.05) (.22) 0.00 0.00
Year ended 9/30/93....... 9.20 (.15) 2.38 2.23 0.00 (.43)
Year ended 9/30/92....... 10.49 (.20) (1.06) (1.26) 0.00 (.03)
Year ended 9/30/91....... 8.26 (.07) 2.30 2.23 0.00 0.00
9/17/90++ to 9/30/90..... 9.12 (.01) (.85) (.86) 0.00 0.00
Class C
Year ended 7/31/95....... $10.79 $(.17) $ 1.45 $ 1.28 $0.00 $(2.11) (k)
Period ended 7/31/94**... 11.00 (.17) (b) (.04) (.21) 0.00 0.00
5/3/93++ to 9/30/93...... 9.86 (.05) 1.19 1.14 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
12
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$(1.62) $16.81 .59% $165,584 1.73% .26% 119%
(.56) 18.38 18.68 201,916 1.90 (.50) 97
(.13) 16.01 7.86 161,048 1.88 (.14) 94
(.07) 14.98 7.52 179,807 1.82 .07 72
(.50) 14.00 (19.34) 214,442 1.73 .37 71
(2.15) 17.99 16.98 265,999 1.45 .33 37
(2.63) 17.24 27.65 166,003 1.41 .39 87
(6.56) 16.09 (4.20) 132,319 1.41 .84 55
(2.78) 23.70 23.05 194,716 1.30 .77 58
(.44) 22.02 90.87 139,326 1.29 .16 62
$(1.62) $16.19 (.22)% $ 48,998 2.57% (.62)% 119%
(.56) 17.90 17.65 29,943 2.78 (1.15) 97
(.09) 15.74 6.98 6,363 2.70 (.96) 94
(.03) 14.81 6.54 5,585 2.68 (.70) 72
(.50) 13.93 (6.97) 3,515 3.39* .84* 71
$(1.62) $16.20 (.22)% $ 19,395 2.54% (.88)% 119%
(.56) 17.91 17.72 13,503 2.78 (1.12) 97
0.00 15.74 (1.19) 229 2.57* .08* 94
$ 0.00 $10.18 4.41% $ 13,535 2.56% .66% 36%
0.00 9.75 (2.50) 4,990 2.75* 1.03* 0
$ 0.00 $10.10 3.70% $ 79,359 3.27% .01% 36%
0.00 9.74 (2.60) 22,859 3.45* .33* 0
$ 0.00 $10.10 5.98% $ 338 3.27%* 2.65%* 36%
$ (.09) $15.11 20.22% $ 86,112 2.09% .37% 74%
0.00 12.66 1.04 86,739 2.06* 1.85* 35
0.00 12.53 33.73 90,372 2.30 .17 94
(.15) 9.37 (2.82) 79,285 2.25 .47 125
(.02) 9.81 .74 108,510 2.24 .16 34
(.70) 9.76 (5.63) 188,016 1.52* 2.71* 48
$ (.09) $14.71 19.42% $ 34,527 2.79% (.33)% 74%
0.00 12.41 .73 31,404 2.76* 1.15* 35
0.00 12.32 32.76 20,729 3.02 (.52) 94
(.11) 9.28 (3.49) 1,732 3.00 (.50) 125
(.02) 9.74 .03 1,423 3.02* (.71)* 34
$ (.09) $14.72 19.40% $ 7,802 2.78% (.33)% 74%
0.00 12.42 .73 11,875 2.76* 1.15* 35
0.00 12.33 20.77 10,886 3.00* (.52)* 94
$(2.11) $10.38 16.62% $ 60,057 2.54%(f) (1.17)%(f) 128%
0.00 11.08 (1.42) 61,372 2.42* (1.26)* 78
(.43) 11.24 25.83 65,713 2.53 (1.13) 97
(.03) 9.33 (11.30) 58,491 2.34 (.85) 108
0.00 10.55 27.72 84,370 2.29 (.55) 104
(3.11) 8.26 (31.90) 68,316 1.73 (.46) 89
(.09) 15.54 37.34 113,583 1.56 (.17) 106
(1.78) 11.41 (8.11) 90,071 1.54 (f) (.50) (f) 74
(4.52) 15.07 34.11 113,305 1.41 (f) (.44) (f) 98
(1.26) 15.47 31.76 90,354 1.22 (f) .30 (f) 107
$(2.11) $ 9.95 15.77% $ 5,164 3.20%(f) (1.92)%(f) 128%
0.00 10.78 (2.00) 3,889 3.15* (1.93)* 78
(.43) 11.00 24.97 1,150 3.26 (1.85) 97
(.03) 9.20 (12.03) 819 3.11 (1.31) 108
0.00 10.49 27.00 121 2.98 (1.39) 104
0.00 8.26 (9.43) 183 2.61* (1.30)* 89
$(2.11) $ 9.96 15.75% $ 1,407 3.25%(f) (2.10)%(f) 128%
0.00 10.79 (1.91) 1,330 3.13* (1.92)* 78
0.00 11.00 11.56 261 3.75* (2.51)* 97
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Strategic Balanced Fund (i)
Class A
Year ended 7/31/95........ $16.26 $ .34 (c) $ 1.64 $ 1.98 $ (.22) $ (.04)
Period ended 7/31/94**.... 16.46 .07 (c) (.27) (.20) 0.00 0.00
Year ended 4/30/94........ 16.97 .16 (c) .74 .90 (.24) (1.17)
Year ended 4/30/93........ 17.06 .39 (c) .59 .98 (.42) (.65)
Year ended 4/30/92........ 14.48 .27 (c) 2.80 3.07 (.17) (.32)
9/4/90++ to 4/30/91....... 12.51 .34 (c) 1.66 2.00 (.03) 0.00
Class B
Year ended 7/31/95........ $14.10 $ .22 (c) $ 1.40 $ 1.62 $ (.12) $ (.04)
Period ended 7/31/94**.... 14.30 .03 (c) (.23) (.20) 0.00 0.00
Year ended 4/30/94........ 14.92 .06 (c) .63 .69 (.14) (1.17)
Year ended 4/30/93........ 15.51 .23 (c) .53 .76 (.25) (1.10)
Year ended 4/30/92........ 13.96 .22 (c) 2.70 2.92 (.29) (1.08)
Year ended 4/30/91........ 12.40 .43 (c) 1.60 2.03 (.47) 0.00
Year ended 4/30/90........ 11.97 .50 (b)(c) .60 1.10 (.25) (.42)
Year ended 4/30/89........ 11.45 .48 (c) 1.11 1.59 (.30) (.77)
10/23/87+ to 4/30/88...... 10.00 .13 (c) 1.38 1.51 (.06) 0.00
Class C
Year ended 7/31/95........ $14.11 $ .16 (c) $ 1.46 $ 1.62 $ (.12) $ (.04)
Period ended 7/31/94**.... 14.31 .03 (c) (.23) (.20) 0.00 0.00
8/2/93++ to 4/30/94....... 15.64 .15 (c) (.17) (.02) (.14) (1.17)
Balanced Shares
Class A
Year ended 7/31/95........ $13.38 $ .46 $ 1.62 $ 2.08 $ (.36) $ (.02)
Period ended 7/31/94**.... 14.40 .29 (.74) (.45) (.28) (.29)
Year ended 9/30/93........ 13.20 .34 1.29 1.63 (.43) 0.00
Year ended 9/30/92........ 12.64 .44 .57 1.01 (.45) 0.00
Year ended 9/30/91........ 10.41 .46 2.17 2.63 (.40) 0.00
Year ended 9/30/90........ 14.13 .45 (2.14) (1.69) (.40) (1.63)
Year ended 9/30/89........ 12.53 .42 2.18 2.60 (.46) (.54)
Year ended 9/30/88........ 16.33 .46 (1.07) (.61) (.44) (2.75)
Year ended 9/30/87........ 14.64 .67 1.62 2.29 (.60) 0.00
Year ended 9/30/86........ 11.74 .68 3.40 4.08 (.65) (.53)
Class B
Year ended 7/31/95........ $13.23 $ .30 $ 1.65 $ 1.95 $ (.28) $ (.02)
Period ended 7/31/94**.... 14.27 .22 (.75) (.53) (.22) (.29)
Year ended 9/30/93........ 13.13 .29 1.22 1.51 (.37) 0.00
Year ended 9/30/92........ 12.61 .37 .54 .91 (.39) 0.00
2/4/91++ to 9/30/91....... 11.84 .25 .80 1.05 (.28) 0.00
Class C
Year ended 7/31/95........ $13.24 $ .30 $ 1.65 $ 1.95 $ (.28) $ (.02)
Period ended 7/31/94**.... 14.28 .24 (.77) (.53) (.22) (.29)
5/3/93++ to 9/30/93....... 13.63 .11 .71 .82 (.17) 0.00
Income Builder Fund (h)
Class A
11/1/94 to 4/30/95+++..... $ 9.69 $ .28 $ .04 $ .32 $ (.25) $ 0.00
3/25/94++ to 10/31/94..... 10.00 .96 (1.02) (.06) (.05)(g) (.20)
Class B
11/1/94 to 4/30/95+++..... $ 9.68 $ .24 $ .06 $ .30 $ (.22) $ 0.00
3/25/94++ to 10/31/94..... 10.00 .88 (.98) (.10) (.06)(g) (.16)
Class C
11/1/94 to 4/30/95+++..... $ 9.66 $ .25 $ .04 $ .29 $ (.22) $ 0.00
Year ended 10/31/94....... 10.47 .50 (.85) (.35) (.11)(g) (.35)
Year ended 10/31/93....... 9.80 .52 .51 1.03 (.36) 0.00
Year ended 10/31/92....... 10.00 .55 (.28) .27 (.47) 0.00
10/25/91+ to 10/31/91..... 10.00 .01 0.00 .01 (.01) 0.00
Utility Income Fund
Class A
12/1/94 to 5/31/95+++..... $ 8.97 $ .20 (c) $ .67 $ .87 $ (.23) $ 0.00
Year ended 11/30/94....... 9.92 .42 (c) (.89) (.47) (.48) 0.00
10/18/93+ to 11/30/93..... 10.00 .02 (c) (.10) (.08) 0.00 0.00
Class B
12/1/94 to 5/31/95+++..... $ 8.96 $ .15 (c) $ .69 $ .84 $ (.20) $ 0.00
Year ended 11/30/94....... 9.91 .37 (c) (.91) (.54) (.41) 0.00
10/18/93+ to 11/30/93..... 10.00 .01 (c) (.10) (.09) 0.00 0.00
Class C
12/1/94 to 5/31/95+++..... $ 8.97 $ .13 (c) $ .71 $ .84 $ (.20) $ 0.00
Year ended 11/30/94....... 9.92 .39 (c) (.93) (.54) (.41) 0.00
10/27/93+ to 11/30/93..... 10.00 .01 (c) (.09) (.08) 0.00 0.00
</TABLE>
- --------------------------------------------------------------------------------
Please refer to the footnotes on page 16.
14
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (.26) $17.98 12.40% $ 10,952 1.40% (f) 2.07% 172%
0.00 16.26 (1.22) 9,640 1.40* (f) 1.63* 21
(1.41) 16.46 5.06 9,822 1.40 (f) 1.67 139
(1.07) 16.97 5.85 8,637 1.40 (f) 2.29 98
(.49) 17.06 20.96 6,843 1.40 (f) 1.92 103
(.03) 14.48 16.00 443 1.40* (f) 3.54* 137
$ (.16) $15.56 11.63% $ 37,301 2.10% (f) 1.38% 172%
0.00 14.10 (1.40) 43,578 2.10* (f) .92* 21
(1.31) 14.30 4.29 43,616 2.10 (f) .93 139
(1.35) 14.92 4.96 36,155 2.15 (f) 1.55 98
(1.37) 15.51 20.14 31,842 2.15 (f) 1.34 103
(.47) 13.96 16.73 22,552 2.10 (f) 3.23 137
(.67) 12.40 8.85 19,523 2.00 (f) 3.85 120
(1.07) 11.97 14.66 5,128 2.00 (f) 4.31 103
(.06) 11.45 15.10 2,344 2.00* (f) 2.44* 72
$ (.16) $15.57 11.62% $ 4,113 2.10% (f) 1.38% 172%
0.00 14.11 (1.40) 4,317 2.10* (f) .93* 21
(1.31) 14.31 .45 4,289 2.10* (f) .69* 139
$ (.38) $15.08 15.99% $122,033 1.32% 3.12% 179%
(.57) 13.38 (3.21) 157,637 1.27* 2.50* 116
(.43) 14.40 12.52 172,484 1.35 2.50 188
(.45) 13.20 8.14 143,883 1.40 3.26 204
(.40) 12.64 25.52 154,230 1.44 3.75 70
(2.03) 10.41 (13.12) 140,913 1.36 4.01 169
(1.00) 14.13 22.27 159,290 1.42 3.29 132
(3.19) 12.53 (1.10) 111,515 1.42 3.74 190
(.60) 16.33 15.80 129,786 1.17 4.14 136
(1.18) 14.64 35.01 78,900 .99 4.78 26
$ (.30) $14.88 15.07% $ 15,080 2.11% 2.30% 179%
(.51) 13.23 (3.80) 14,347 2.05* 1.73* 116
(.37) 14.27 11.65 12,789 2.13 1.72 188
(.39) 13.13 7.32 6,499 2.16 2.46 204
(.28) 12.61 8.96 1,830 2.13* 3.19* 70
$ (.30) $14.89 15.06% $ 5,108 2.09% 2.32% 179%
(.51) 13.24 (3.80) 6,254 2.03* 1.81* 116
(.17) 14.28 6.01 1,487 2.29* 1.47* 188
$ (.25) $ 9.76 3.48% $ 1,237 2.25%* 6.00%* 105%
(.25) 9.69 (.54) 600 2.52* 6.11* 126
$ (.22) $ 9.76 3.21% $ 2,876 2.93%* 5.30%* 105%
(.22) 9.68 (.99) 1,998 3.09* 5.07* 126
$ (.22) $ 9.73 3.11% $ 52,193 2.89%* 5.28%* 105%
(.46) 9.66 (3.44) 64,027 2.67 3.82 126
(.36) 10.47 10.65 106,034 2.32 6.85 101
(.47) 9.80 2.70 152,617 2.33 5.47 108
(.01) 10.00 .11 41,813 0.00* (f) .94* 0
$ (.23) $ 9.61 9.71% $ 2,510 1.50%*(f) 3.42*% 63%
(.48) 8.97 (4.86) 1,068 1.50 (f) 4.13 30
0.00 9.92 (.80) 229 1.50* (f) 2.35* 11
$ (.20) $ 9.60 9.31% $ 5,580 2.20%*(f) 2.74*% 63%
(.41) 8.96 (5.59) 2,353 2.20 (f) 3.53 30
0.00 9.91 (.90) 244 2.20* (f) 2.84* 11
$ (.20) $ 9.61 9.41 % $ 3,504 2.20%*(f) 2.83*% 63%
(.41) 8.97 (5.58) 2,651 2.20 (f) 3.60 30
0.00 9.92 (.80) 18 2.20* (f) 3.08* 11
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
<TABLE>
<CAPTION>
Net Net Net
Asset Realized and Increase
Value Unrealized (Decrease) In Dividends From Distributions
Beginning Of Net Investment Gain (Loss) On Net Asset Value Net Investment From Net
Fiscal Year or Period Period Income (Loss) Investments From Operations Income Realized Gains
--------------------- ------------ -------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Growth and Income Fund
Class A
11/1/94 to 4/30/95+++.... $ 2.35 $ .02 $ .13 $ .15 $ (.03) $ (.12)
Year ended 10/31/94...... 2.61 .06 (.08) (.02) (.06) (.18)
Year ended 10/31/93...... 2.48 .06 .29 .35 (.06) (.16)
Year ended 10/31/92...... 2.52 .06 .11 .17 (.06) (.15)
Year ended 10/31/91...... 2.28 .07 .56 .63 (.09) (.30)
Year ended 10/31/90...... 3.02 .09 (.30) (.21) (.10) (.43)
Year ended 10/31/89...... 3.05 .10 .43 .53 (.08) (.48)
Year ended 10/31/88...... 3.48 .10 .33 .43 (.08) (.78)
Year ended 10/31/87...... 3.52 .11 (.03) .08 (.12) 0.00
Year ended 10/31/86...... 3.01 .12 .92 1.04 (.13) (.40)
Year ended 10/31/85...... 2.93 .14 .42 .56 (.15) (.33)
Class B
11/1/94 to 4/30/95+++.... $ 2.34 $ .01 $ .13 $ .14 $ (.02) $ (.12)
Year ended 10/31/94...... 2.60 .04 (.08) (.04) (.04) (.18)
Year ended 10/31/93...... 2.47 .05 .28 .33 (.04) (.16)
Year ended 10/31/92...... 2.52 .04 .11 .15 (.05) (.15)
2/8/91++ to 10/31/91..... 2.40 .04 .12 .16 (.04) 0.00
Class C
11/1/94 to 4/30/95+++.... $ 2.34 $ .01 $ .13 $ .14 $ (.02) $ (.12)
Year ended 10/31/94...... 2.60 .04 (.08) (.04) (.04) (.18)
5/3/93++ to 10/31/93..... 2.43 .02 .17 .19 (.02) 0.00
</TABLE>
- --------------------------------------------------------------------------------
+ Commencement of operations.
++ Commencement of distribution.
+++ Unaudited.
* Annualized.
** Reflects a change in fiscal year end.
(a) Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at the net asset value during the period, and a
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return. Total investment returns calculated for periods of less
than one year are not annualized.
(b) Based on average shares outstanding.
(c) Net of fee waiver and/or expense reimbursement.
(d) Adjusted for a 200% stock dividend paid to shareholders of record on
January 15, 1988.
(e) Net of offering costs of ($.05).
(f) Net of expenses assumed and/or waived/reimbursed. If Growth Fund had borne
all expenses, the expense ratios would have been, with respect to Class A
shares, 8.79% (annualized) for 1991, 1.94% for 1992, 1.84% for 1993 and
1.46% for the fiscal period ended April 30, 1994; with respect to Class B
shares, 13.92% (annualized) for 1988, 7.03% for 1989, 3.62% for 1990, 3.06%
for 1991, 2.65% for 1992, 2.52% for 1993 and 2.13% for the fiscal period
ended April 30, 1994; and with respect to Class C shares, 2.13% (annualized)
for the fiscal period ended April 30, 1994. If Premier Growth Fund had borne
all expenses, the expense ratios would have been 3.33% (annualized) and
3.78% (annualized) for Class A and Class B shares, respectively; and net
investment income ratios would have been (.25)% (annualized) and (.75)%
(annualized) for Class A and Class B shares, respectively. If Counterpoint
Fund had borne all expenses, the expense ratios for Class A shares would
have been 1.77% (annualized), 1.60% and 1.73% for the periods ended in 1985,
1986 and 1987, respectively; and the investment income ratios for Class A
shares would have been 2.93% (annualized) for 1985, 2.83% for 1986 and 1.51%
for 1987. If Technology Fund had borne all expenses, the expense ratios
would have been 1.43%, 1.40%, 1.59% and 1.73% for the periods ended in 1985,
1986, 1987, and 1988, respectively; and the investment income ratios would
have been (.23)% for 1985, (.85)% for 1986, (.84)% for 1987, and (.46)% for
1988. If Quasar Fund had borne all expenses, the expense ratios would have
been 1.37% for 1987 and 1.64% for 1988; and the investment income ratios
would have been (.75)% for 1987 and (.75)% for 1988. If Global Small Cap
Fund had borne all expenses, the expense ratios would have been 1.33% for
1986, 1.61% for 1987 and 1.86% for 1988; and 2.61%, 3.27%, and 3.31% for
Class A, Class B and Class C shares, respectively, for the fiscal year ended
July 31, 1995 and the investment income ratios would have been .19% for
1986, (.63)% for 1987 and (.82)% for 1988. If Strategic Balanced Fund had
borne all expenses, the expense ratios would have been, with respect to
Class A shares, 11.59% (annualized) for 1991, 2.05% for 1992, 1.85% for
1993, 1.70% for the fiscal year ended April 30, 1994, 1.94% (annualized) for
the fiscal period ended July 31, 1994, and 1.81% for fiscal year ended July
31, 1995; with respect to Class B shares, 10.61% (annualized) for 1988,
7.82% for 1989, 3.59% for 1990, 2.93% for 1991, 2.70% for 1992, 2.56% for
1993, 2.42% for the fiscal year ended April 30, 1994, 2.64% (annualized) for
the fiscal period ended July 31, 1994 and 2.49% for fiscal year ended July
31, 1995; and with respect to Class C shares, 2.07% (annualized) for the
fiscal period ended April 30, 1994, 2.64% (annualized) for the fiscal period
ended July 31, 1994 and 2.50% for the fiscal year ended July 31, 1995. If
Income Builder Fund had borne all expenses, the expense ratio would have
been 1.99% (annualized). If Utility Income Fund had borne all expenses, the
expense ratios would have been 145.63% (annualized), 133.62% (annualized)
and 148.03% (annualized) for Class A, Class B and Class C shares,
respectively, for the fiscal period ended November 30, 1993, 13.72%, 14.42%
and 14.42% for Class A, Class B and Class C shares, respectively, for 1994,
and 6.70% (annualized), 7.41% (annualized), and 7.40% (annualized) for Class
A, Class B, and Class C shares respectively for the fiscal period ended
May 31, 1995.
(g) "Dividends from Net Investment Income" includes a return of capital. Income
Builder Fund had a return of capital with respect to Class A shares, for the
period ended October 31, 1994, of $(.01); with respect to Class B shares,
$(.01); and with respect to Class C shares, for the year ended October 31,
1994, $(.02).
(h) On March 25, 1994, all existing shares of Income Builder Fund, previously
known as Alliance Multi-Market Income and Growth Trust, were converted into
Class C shares.
(i) Prior to July 22, 1993, Equitable Capital Management Corporation ("Equitable
Capital") served as the investment adviser to the predecessor to The
Alliance Portfolios, of which Growth Fund and Strategic Balanced Fund are
series. On July 22, 1993, Alliance acquired the business and substantially
all assets of Equitable Capital and became investment adviser to the Funds.
(j) Includes $(.08) distribution from paid-in capital.
(k) "Distributions from Net Realized Gains" includes a return of capital. Global
Small Cap Fund had a return of capital with respect to Class A shares, for
the year ended July 31, 1995, of $(.12); with respect to Class B shares,
$(.12); and with respect to Class C shares, $(.12).
16
<PAGE>
<TABLE>
<CAPTION>
Total Net Assets Ratio Of Net
Total Net Asset Investment At End Of Ratio Of Investment
Dividends Value Return Based Period Expenses Income (Loss)
And End Of on Net Asset (000's To Average To Average Portfolio
Distributions Period Value (a) omitted) Net Assets Net Assets Turnover Rate
------------- --------- ------------ ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$ (.15) $ 2.35 5.70 % $410,917 2.00%* 1.07%* 92%
(.24) 2.35 (.67) 414,386 1.03 2.36 68
(.22) 2.61 14.98 459,372 1.07 2.38 91
(.21) 2.48 7.23 417,018 1.09 2.63 104
(.39) 2.52 31.03 409,597 1.14 2.74 84
(.53) 2.28 (8.55) 314,670 1.09 3.40 76
(.56) 3.02 21.59 377,168 1.08 3.49 79
(.86) 3.05 16.45 350,510 1.09 3.09 66
(.12) 3.48 2.04 348,375 .86 2.77 60
(.53) 3.52 34.92 347,679 .81 3.31 11
(.48) 3.01 19.53 275,681 .95 3.78 15
$ (.14) $ 2.34 6.25 % $108,846 1.17%* 1.88%* 92%
(.22) 2.34 (1.50) 102,546 1.85 1.56 68
(.20) 2.60 14.22 76,633 1.90 1.58 91
(.20) 2.47 6.22 29,656 1.90 1.69 104
(.04) 2.52 6.83 10,221 1.99* 1.67* 84
$ (.14) $ 2.34 6.25 % $ 23,863 1.16%* 1.87%* 92%
(.22) 2.34 (1.50) 19,395 1.84 1.61 68
(.02) 2.60 7.85 7,774 1.96* 1.45* 91
</TABLE>
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Please refer to the footnotes on page 16.
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Glossary
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The following terms are frequently used in this Prospectus.
Equity securities are (i) common stocks, partnership interests, business trust
shares and other equity or ownership interests in business enterprises, and (ii)
securities convertible into, and rights and warrants to subscribe for the
purchase of, such stocks, shares and interests.
Debt securities are bonds, debentures, notes, bills, repurchase agreements,
loans, other direct debt instruments and other fixed, floating and variable rate
debt obligations, but do not include convertible securities.
Fixed-income securities are debt securities and dividend-paying preferred stocks
and include floating rate and variable rate instruments.
Convertible securities are fixed-income securities that are convertible into
common stock.
U.S. Government securities are securities issued or guaranteed by the United
States Government, its agencies or instrumentalities.
Foreign government securities are securities issued or guaranteed, as to payment
of principal and interest, by governments, quasi-governmental entities,
governmental agencies or other governmental entities.
Asian company is an entity that (i) is organized under the laws of an Asian
country and conducts business in an Asian country, (ii) derives 50% or more of
its total revenues from business in Asian countries, or (iii) issues equity or
debt securities that are traded principally on a stock exchange in an Asian
country.
Asian countries are Australia, the Democratic Socialist Republic of Sri Lanka,
Hong Kong, the Islamic Republic of Pakistan, Japan, the Kingdom of Thailand,
Malaysia, Negara Brunei Darussalam (Brunei), New Zealand, the People's Republic
of China, the People's Republic of Kampuchea (Cambodia), the Republic of China
(Taiwan), the Republic of India, the Republic of Indonesia, the Republic of
Korea (South Korea), the Republic of the Philippines, the Republic of Singapore,
the Socialist Republic of Vietnam and the Union of Myanmar.
Moody's is Moody's Investors Service, Inc.
S&P is Standard & Poor's Ratings Services.
Duff & Phelps is Duff & Phelps Credit Rating Co.
Fitch is Fitch Investors Service, Inc.
Investment grade securities are fixed-income securities rated Baa and above by
Moody's or BBB and above by S&P, Duff & Phelps or Fitch, or determined by
Alliance to be of equivalent quality.
Lower-rated securities are fixed-income securities rated Ba or below by Moody's
or BB or below by S&P, Duff & Phelps or Fitch, or determined by Alliance to be
of equivalent quality, and are commonly referred to as "junk bonds."
Prime commercial paper is commercial paper rated Prime 1 by Moody's or A-1 or
higher by S&P or, if not rated, issued by companies that have an outstanding
debt issue rated Aa or higher by Moody's or AA or higher by S&P.
Qualifying bank deposits are certificates of deposit, bankers' acceptances and
interest-bearing savings deposits of banks having total assets of more than $1
billion and which are members of the Federal Deposit Insurance Corporation.
Rule 144A securities are securities that may be resold pursuant to Rule 144A
under the Securities Act of 1933, as amended (the "Securities Act").
Depositary receipts include American Depositary Receipts ("ADRs"), Global
Depositary Receipts ("GDRs") and other types of depositary receipts.
Commission is the Securities and Exchange Commission.
1940 Act is the Investment Company Act of 1940, as amended.
Code is the Internal Revenue Code of 1986, as amended.
17
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Description Of The Funds
- --------------------------------------------------------------------------------
Except as noted, (i) the Funds' investment objectives are "fundamental" and
cannot be changed without shareholder vote, and (ii) the Funds' investment
policies are not fundamental and thus can be changed without a shareholder vote.
No Fund will change a non-fundamental objective or policy without notifying its
shareholders. There is no guarantee that any Fund will achieve its investment
objective.
INVESTMENT OBJECTIVES AND POLICIES
Domestic Stock Funds
The Domestic Stock Funds have been designed to offer investors seeking capital
appreciation a range of alternative approaches to investing in the U.S. equity
markets.
The Alliance Fund
The Alliance Fund, Inc. ("Alliance Fund") is a diversified investment company
that seeks long-term growth of capital and income primarily through investment
in common stocks. The Fund normally invests substantially all of its assets in
common stocks that Alliance believes will appreciate in value, but it may invest
in other types of securities such as convertible securities, high-grade
instruments, U.S. Government securities and high-quality, short-term obligations
such as repurchase agreements, bankers' acceptances and domestic certificates of
deposit, and may invest without limit in foreign securities. While the
diversification and generally high quality of the Fund's investments cannot
prevent fluctuations in market values, they tend to limit investment risk and
contribute to achieving the Fund's objective. The Fund generally does not effect
portfolio transactions in order to realize short-term trading profits or
exercise control.
The Fund may also: (i) make secured loans of its portfolio securities equal
in value up to 25% of its total assets to brokers, dealers and financial
institutions; (ii) enter into repurchase agreements of up to one week in
duration with commercial banks, but only if those agreements together with
any restricted securities and any securities which do not have readily
available market quotations do not exceed 10% of its net assets; and (iii)
write exchange-traded covered call options with respect to up to 25% of its
total assets. For additional information on the use, risks and costs of these
policies and practices see "Additional Investment Practices."
Alliance Growth Fund
Alliance Growth Fund ("Growth Fund") is a diversified investment company that
seeks long-term growth of capital. Current income is only an incidental
consideration. The Fund seeks its objective by investing primarily in equity
securities of companies with favorable earnings outlooks and whose long-term
growth rates are expected to exceed that of the U.S. economy. The Fund's
investment objective is not fundamental.
The Fund may also invest up to 25% of its total assets in lower-rated
fixed-income and convertible securities. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The Fund
generally will not invest in securities with ratings below Caa- by Moody's
and CCC- by S&P, Duff & Phelps or Fitch or in securities judged by Alliance
to be of comparable investment quality. However, from time to time, the Fund
may invest in securities rated in the lowest grades (i.e., C by Moody's or D
or equivalent by S&P, Duff & Phelps or Fitch), or securities Alliance judges
to be of comparable investment quality, if there are prospects for an upgrade
or a favorable conversion into equity securities. For the period ended
September 29, 1995, the Fund did not invest in any lower-rated securities. If
the credit rating of a security held by the Fund falls below its rating at
the time of purchase (or Alliance determines that the quality of such
security has so deteriorated), the Fund may continue to hold the security if
such investment is considered appropriate under the circumstances.
The Fund may also: (i) invest in "zero-coupon" bonds and "payment-in-kind"
bonds; (ii) invest in foreign securities, although the Fund will not
generally invest more than 15% of its total assets in foreign securities;
(iii) invest in securities that are not publicly traded, including Rule 144A
securities; (iv) buy or sell foreign currencies, options on foreign
currencies, foreign currency futures contracts (and related options) and deal
in forward foreign exchange contracts; (v) lend portfolio securities
amounting to not more than 25% of its total assets; (vi) enter into
repurchase agreements on up to 25% of its total assets and purchase and sell
securities on a forward commitment basis; (vii) buy and sell stock index
futures contracts and buy and sell options on those contracts and on stock
indices; (viii) purchase and sell futures contracts, options thereon and
options with respect to U.S. Treasury securities; (ix) write covered call and
put options on securities it owns or in which it may invest; and (x) purchase
and sell put and call options. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment
Practices."
Alliance Premier Growth Fund
Alliance Premier Growth Fund, Inc. ("Premier Growth Fund") is a
non-diversified investment company that seeks long-term growth of capital by
investing predominantly in the equity securities of a limited number of
large, carefully selected, high-quality U.S. companies that are judged likely
to achieve superior earnings growth. Normally, about 40 companies will be
represented in the Fund's portfolio, with the 25 most highly regarded of
these companies usually constituting approximately 70% of the Fund's net
assets. The Fund is thus atypical from most equity mutual funds in its focus
on a relatively small number of intensively researched companies and is
designed for those seeking to accumulate capital over time with less
volatility than that associated with investment in smaller companies.
As a matter of fundamental policy, the Fund normally invests at least 85% of
its total assets in the equity securities of U.S. companies. These are
companies (i) organized under U.S. law that have their principal office in
the U.S., and (ii) the equity securities of which are traded principally in
the U.S.
Alliance's investment strategy for the Fund emphasizes stock selection and
investment in the securities of a limited number of issuers. Alliance relies
heavily upon the fundamental analysis and research of its large internal
research staff, which generally
18
<PAGE>
follows a primary research universe of more than 600 companies that have
strong management, superior industry positions, excellent balance sheets and
superior earnings growth prospects. An emphasis is placed on identifying
companies whose substantially above average prospective earnings growth is
not fully reflected in current market valuations.
In managing the Fund, Alliance seeks to utilize market volatility judiciously
(assuming no change in company fundamentals), striving to capitalize on
apparently unwarranted price fluctuations, both to purchase or increase
positions on weakness and to sell or reduce overpriced holdings. The Fund
normally remains nearly fully invested and does not take significant cash
positions for market timing purposes. During market declines, while adding to
positions in favored stocks, the Fund becomes somewhat more aggressive,
gradually reducing the number of companies represented in its portfolio.
Conversely, in rising markets, while reducing or eliminating fully valued
positions, the Fund becomes somewhat more conservative, gradually increasing
the number of companies represented in its portfolio. Alliance thus seeks to
gain positive returns in good markets while providing some measure of
protection in poor markets.
Alliance expects the average market capitalization of companies represented
in the Fund's portfolio normally to be in the range, or in excess, of the
average market capitalization of companies comprising the "S&P 500" (the
Standard & Poor's 500 Composite Stock Price Index, a widely recognized
unmanaged index of market activity).
The Fund may also: (i) invest up to 20% of its net assets in convertible
securities of companies whose common stocks are eligible for purchase by it;
(ii) invest up to 5% of its net assets in rights or warrants; (iii) invest up to
15% of its total assets in securities of foreign issuers whose common stocks are
eligible for purchase by it; (iv) purchase and sell exchange-traded index
options and stock index futures contracts; and (v) write covered exchange-traded
call options on common stocks, unless as a result, the amount of its securities
subject to call options would exceed 15% of its total assets, and purchase and
sell exchange-traded call and put options on common stocks written by others,
but the total cost of all options held by the Fund (including exchange-traded
index options) may not exceed 10% of its total assets. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices." The Fund will not write put options.
Alliance Counterpoint Fund
Alliance Counterpoint Fund ("Counterpoint Fund") is a diversified investment
company that seeks long-term capital growth by investing principally in
price-depressed, undervalued or out-of-favor equity securities. Secondarily,
the Fund seeks current income. The Fund follows a flexible investment policy
which allows it to shift among equity alternatives depending on such factors
as relative growth rates, normalized price-earnings ratios and yields. It
selects securities based on fundamental business and financial factors (e.g.,
financial strength, book values, asset values, earnings and dividends) and
reasonable current valuations (weighing the factors against market prices)
and focuses on the relationship of a company's earning power and dividend
payout to the price of its stock. The Fund's investment strategy can be
characterized as unconventional or "contrarian" in that its holdings often
have relatively low normalized price-earnings ratios and, when purchased, are
often believed by Alliance to be overlooked or undervalued in the
marketplace. (A "normalized" price-earnings ratio is one that has been
adjusted to eliminate the effects of the economic cycle. Alliance may
conclude that a company's normalized price-earnings ratio is low in
comparison to either the company's price-earnings history or the
price-earnings ratios of comparable companies.)
Because it evaluates securities based on their long-term potential, the Fund is
best suited for investors who understand and can accept the risk that the
securities held by the Fund may not appreciate or yield significant income over
the shorter term. The Fund invests in companies experiencing poor operating
results, which may include companies whose earnings have been severely depressed
by unfavorable operating conditions or special competitive or product
obsolescence problems, if it believes that they will react positively to
changing economic conditions or will restructure or take other actions to
overcome adversity. The Fund invests in listed and unlisted securities, and will
invest in any company and industry and in any type of security that may help it
achieve its objectives. While its strategy normally emphasizes equity
securities, the Fund also invests in fixed-income securities when such
investments can provide capital growth, such as when interest rates decline, and
to generate income.
The Fund may also: (i) invest up to 5% of its total assets in warrants; (ii)
invest up to 15% of its total assets in foreign securities; (iii) invest in
restricted securities and in other assets having no ready market if as a
result no more than 5% of its net assets would be invested in such securities
and assets; (iv) write exchange-listed covered call options, unless as a
result the amount of its securities subject to call options would exceed 5%
of its total assets; (v) lend portfolio securities equal in value to not more
than 15% of its total assets; (vi) purchase and sell stock index futures
contracts; and (vii) enter into repurchase agreements on U.S. Government
securities with member banks of the Federal Reserve System or primary dealers
in such securities. For additional information on the use, risks and costs of
these policies and practices see "Additional Investment Practices."
Alliance Technology Fund
Alliance Technology Fund, Inc. ("Technology Fund") is a diversified
investment company that emphasizes growth of capital and invests for capital
appreciation, and only incidentally for current income. The Fund may seek
income by writing listed call options. The Fund invests primarily in
securities of companies expected to benefit from technological advances and
improvements (i.e., companies that use technology extensively in the
development of new or improved products or processes). The Fund will normally
have at least 80% of its assets invested in the securities of these
19
<PAGE>
companies. The Fund normally will have substantially all its assets invested
in equity securities, but it also invests in debt securities offering an
opportunity for price appreciation. The Fund will invest in listed and
unlisted securities and U.S. and foreign securities, but it will not purchase
a foreign security if as a result 10% or more of the Fund's total assets
would be invested in foreign securities.
The Fund's policy is to invest in any company and industry and in any type of
security with potential for capital appreciation. It invests in well-known
and established companies and in new and unseasoned companies.
The Fund may also: (i) write and purchase exchange-listed call options and
purchase listed put options, including exchange-traded index put options;
(ii) invest up to 10% of its total assets in warrants; (iii) invest in
restricted securities and in other assets having no ready market if as a
result no more than 10% of the Fund's net assets are invested in such
securities and assets; (iv) lend portfolio securities equal in value to not
more than 30% of the Fund's total assets; and (v) invest up to 10% of its
total assets in foreign securities. For additional information on the use,
risks and costs of the policies and practices see "Additional Investment
Practices."
Alliance Quasar Fund
Alliance Quasar Fund, Inc. ("Quasar Fund") is a diversified investment
company that seeks growth of capital by pursuing aggressive investment
policies. It invests for capital appreciation and only incidentally for
current income. The selection of securities based on the possibility of
appreciation cannot prevent loss in value. Moreover, because the Fund's
investment policies are aggressive, an investment in the Fund is risky and
investors who want assured income or preservation of capital should not
invest in the Fund.
The Fund invests in any company and industry and in any type of security with
potential for capital appreciation. It invests in well-known and established
companies and in new and unseasoned companies. When selecting securities,
Alliance considers the economic and political outlook, the values of specific
securities relative to other investments, trends in the determinants of
corporate profits and management capability and practices.
The Fund invests principally in equity securities, but it also invests to a
limited degree in non-convertible bonds and preferred stocks. The Fund
invests in listed and unlisted U.S. and foreign securities. The Fund
periodically invests in special situations, which occur when the securities
of a company are expected to appreciate due to a development particularly or
uniquely applicable to that company and regardless of general business
conditions or movements of the market as a whole.
The Fund may also: (i) invest in restricted securities and in other assets
having no ready market, but not more than 10% of its total assets may be
invested in such securities or assets; (ii) make short sales of securities
"against the box," but not more than 15% of its net assets may be deposited
on short sales; and (iii) write call options and purchase and sell put and
call options written by others. For additional information on the use, risks
and costs of these policies and practices see "Additional Investment
Practices."
Global Stock Funds
The Global Stock Funds have been designed to enable investors to participate
in the potential for long-term capital appreciation available from investment
in foreign securities.
Alliance International Fund
Alliance International Fund ("International Fund") is a diversified investment
company that seeks a total return on its assets from long-term growth of capital
and from income primarily through a broad portfolio of marketable securities of
established non-U.S. companies, companies participating in foreign economies
with prospects for growth, including U.S. companies having their principal
activities and interests outside the U.S. and foreign government securities.
Normally, more than 80% of the Fund's assets will be invested in such issuers.
The Fund expects to invest primarily in common stocks of established non-U.S.
companies that Alliance believes have potential for capital appreciation or
income or both, but the Fund is not required to invest exclusively in common
stocks or other equity securities, and it may invest in any other type of
investment grade security, including convertible securities, warrants, or
obligations of the U.S. or foreign governments and their political
subdivisions.
The Fund intends to diversify its investments broadly among countries and
normally invests in at least three foreign countries, although it may invest
a substantial portion of its assets in one or more of such countries. At July
31, 1995, approximately 36% of the Fund's assets were invested in securities
of Japanese issuers. The Fund may invest in companies, wherever organized,
that Alliance judges have their principal activities and interests outside
the U.S. These companies may be located in developing countries, which
involves exposure to economic structures that are generally less diverse and
mature, and to political systems which can be expected to have less
stability, than those of developed countries. The Fund currently does not
intend to invest more than 10% of its total assets in companies in, or
governments of, developing countries.
The Fund may also: (i) purchase or sell forward foreign currency exchange
contracts; (ii) write, sell and purchase U.S. or foreign exchange-listed put
and call options, including exchange-traded index options; (iii) enter into
financial futures contracts, including contracts for the purchase or sale for
future delivery of foreign currencies and stock index futures, and purchase
and write put and call options on futures contracts traded on U.S. or foreign
exchanges or over-the-counter; (iv) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or
over-the-counter; (v) lend portfolio securities equal in value to not more
than 30% of its total assets; and (vi) enter into repurchase agreements of up
to seven days' duration,
20
<PAGE>
provided that more than 10% of the Fund's total assets would be so invested.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices."
Alliance Worldwide Privatization Fund
Alliance Worldwide Privatization Fund, Inc. ("Worldwide Privatization Fund")
is a non-diversified investment company that seeks long-term capital
appreciation. As a fundamental policy, the Fund invests at least 65% of its
total assets in equity securities issued by enterprises that are undergoing,
or have undergone, privatization (as described below), although normally
significantly more of its assets will be invested in such securities. The
balance of its investments will include securities of companies believed by
Alliance to be beneficiaries of privatizations. The Fund is designed for
investors desiring to take advantage of investment opportunities,
historically inaccessible to U.S. individual investors, that are created by
privatizations of state enterprises in both established and developing
economies, including those in Western Europe and Scandinavia, Australia, New
Zealand, Latin America, Asia and Eastern and Central Europe and, to a lesser
degree, Canada and the United States.
The Fund's investments in enterprises undergoing privatization may comprise
three distinct situations. First, the Fund may invest in the initial offering
of publicly traded equity securities (an "initial equity offering") of a
government- or state-owned or controlled company or enterprise (a "state
enterprise"). Secondly, the Fund may purchase securities of a current or
former state enterprise following its initial equity offering. Finally, the
Fund may make privately negotiated purchases of stock or other equity
interests in a state enterprise that has not yet conducted an initial equity
offering. Alliance believes that substantial potential for capital
appreciation exists as privatizing enterprises rationalize their management
structures, operations and business strategies in order to compete
efficiently in a market economy, and the Fund will thus emphasize investments
in such enterprises.
The Fund diversifies its investments among a number of countries and normally
invests in issuers based in at least four, and usually considerably more,
countries. No more than 15% of the Fund's total assets, however, will be
invested in issuers in any one foreign country, except that the Fund may
invest up to 30% of its total assets in issuers in any one of France,
Germany, Great Britain, Italy and Japan. The Fund may invest all of its
assets within a single region of the world. To the extent that the Fund's
assets are invested within any one region, the Fund may be subject to any
special risks that may be associated with that region.
Privatization is a process through which the ownership and control of
companies or assets changes in whole or in part from the public sector to the
private sector. Through privatization a government or state divests or
transfers all or a portion of its interest in a state enterprise to some form
of private ownership. Governments and states with established economies,
including France, Great Britain, Germany and Italy, and those with developing
economies, including Argentina, Mexico, Chile, Indonesia, Malaysia, Poland
and Hungary, are engaged in privatizations. Although the Fund will invest in
any country believed to present attractive investment opportunities,
currently approximately 70% of the Fund's total assets are invested in
countries with established economies.
A major premise of the Fund's approach is that the equity securities of
privatized companies offer opportunities for significant capital
appreciation. In particular, because privatizations are integral to a
country's economic restructuring, securities sold in initial equity offerings
often are priced attractively so as to secure the issuer's successful
transition to private sector ownership. Additionally, these enterprises often
dominate their local markets and typically have the potential for significant
managerial and operational efficiency gains.
Although the Fund anticipates that it will not concentrate its investments in
any industry, it is permitted to invest more than 25% of its total assets in
issuers whose primary business activity is that of national commercial
banking. Prior to so concentrating, however, the Fund's Directors must
determine that its ability to achieve its investment objective would be
adversely affected if it were not permitted to concentrate. The staff of the
Commission is of the view that registered investment companies may not,
absent shareholder approval, change between concentration and
non-concentration in a single industry. The Fund disagrees with the staff's
position but has undertaken that it will not concentrate in the securities of
national commercial banks until, if ever, the issue is resolved. If the Fund
were to invest more than 25% of its total assets in national commercial
banks, the Fund's performance could be significantly influenced by events or
conditions affecting this industry, which is subject to, among other things,
increases in interest rates and deteriorations in general economic
conditions, and the Fund's investments may be subject to greater risk and
market fluctuation than if its portfolio represented a broader range of
investments.
The Fund may invest up to 35% of its total assets in debt securities and
convertible debt securities of issuers whose common stocks are eligible for
purchase by the Fund. The Fund may maintain not more than 5% of its net
assets in lower-rated securities. See "Risk Considerations--Securities
Ratings" and "--Investment in Lower-Rated Fixed-Income Securities." The Fund
will not retain a non-convertible security that is downgraded below C or
determined by Alliance to have undergone similar credit quality deterioration
following purchase.
The Fund may also: (i) invest up to 20% of its total assets in rights or
warrants; (ii) write covered put and call options and purchase put and call
options on securities of the types in which it is permitted to invest and on
exchange-traded index options; (iii) enter into contracts for the purchase or
sale for future delivery of fixed-income securities or foreign currencies, or
contracts based on financial indices, including any index of U.S. Government
securities, foreign government securities, or common stock and may purchase
and write options on future contracts; (iv) purchase and write put and call
options on
21
<PAGE>
foreign currencies for hedging purposes; (v) purchase or sell forward
contracts; (vi) enter in forward commitments for the purchase or sale of
securities; (vii) enter into standby commitment agreements; (viii) enter into
currency swaps for hedging purposes; (ix) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (x) make short sales of
securities or maintain a short position; and (xi) make secured loans of its
portfolio securities not in excess of 30% of its total assets to entities
with which it can enter into repurchase agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices".
Alliance New Europe Fund
Alliance New Europe Fund, Inc. ("New Europe Fund") is a non-diversified
investment company that seeks long-term capital appreciation through
investment primarily in the equity securities of companies based in Europe.
The Fund intends to invest substantially all of its assets in the equity
securities of European companies and has a fundamental policy of normally
investing at least 65% of its total assets in such securities. Up to 35% of
its total assets may be invested in high-quality U.S. dollar or foreign
currency denominated fixed-income securities issued or guaranteed by European
governmental entities, or by European or multinational companies or
supranational organizations.
Alliance believes that the quickening pace of economic integration and
political change in Europe creates the potential for many European companies
to experience rapid growth and that the emergence of new market economies in
Europe and the broadening and strengthening of other European economies may
significantly accelerate economic development. The Fund will invest in
companies that Alliance believes possess rapid growth potential. Thus, the
Fund will emphasize investments in smaller, emerging companies, but will also
invest in larger, established companies in such growing economic sectors as
capital goods, telecommunications, pollution control and consumer services.
The Fund will emphasize investment in companies believed to be the likely
beneficiaries of a program, originally known as the "1992 Program," to remove
substantially all barriers to the free movement of goods, persons, services
and capital within the European Community. Alliance believes that the
beneficial effects of this program upon economies, sectors and companies may
be most pronounced in the decade following 1992. The European Community is a
Western European economic cooperative organization consisting of Belgium,
Denmark, France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain and the United Kingdom.
In recent years, economic ties between the former "east bloc" countries of
Eastern Europe and certain other European countries have been strengthened.
Alliance believes that as this strengthening continues, some Western European
financial institutions and other companies will have special opportunities to
facilitate East-West transactions. The Fund will seek investment
opportunities among such companies and, as such become available, within the
former "east bloc," although the Fund will not invest more than 20% of its
total assets in issuers based therein, or more than 10% of its total assets
in issuers based in any one such country.
The Fund diversifies its investments among a number of European countries and,
under normal circumstances, will invest in companies based in at least three
such countries. Subject to the foregoing and to the limitation on investment in
any one former "east bloc" country, the Fund may invest without limit in a
single European country. While the Fund does not intend to concentrate its
investments in a single country, at times 25% or more of its assets may be
invested in issuers located in a single country. During such times, the Fund
would be subject to a correspondingly greater risk of loss due to adverse
political or regulatory developments, or an economic downturn, within that
country. At July 31, 1995, approximately 30% of the Fund's assets were invested
in securities of issuers in the United Kingdom.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants and rights to purchase equity securities of European companies;
(iii) invest in depositary receipts or other securities convertible into
securities of companies based in European countries, debt securities of
supranational entities denominated in the currency of any European country,
debt securities denominated in European Currency Units of an issuer in a
European country (including supranational issuers) and "semi-governmental
securities"; (iv) purchase and sell forward contracts; (v) write, sell and
purchase exchange-traded put and call options, including exchange-traded
index options; (vi) enter into financial futures contracts, including
contracts for the purchase or sale for future delivery of foreign currencies
and futures contracts based on stock indices, and purchase and write options
on futures contracts; (vii) purchase and write put options on foreign
currencies traded on securities exchanges or boards of trade or
over-the-counter; (viii) make secured loans of portfolio securities not in
excess of 30% of its total assets to brokers, dealers and financial
institutions; (ix) enter into forward commitments for the purchase or sale of
securities; and (x) enter into standby commitment agreements. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance All-Asia Investment Fund
Alliance All-Asia Investment Fund, Inc. ("All-Asia Fund") is a
non-diversified investment company whose investment objective is to seek
long-term capital appreciation. In seeking to achieve its investment
objective, the Fund will invest at least 65% of its total assets in equity
securities (for the purposes of this investment policy, rights, warrants and
options to purchase common stocks are not deemed to be equity securities),
preferred stocks and equity-linked debt securities issued by Asian companies.
The Fund may invest up to 35% of its total assets in debt securities issued
or guaranteed by Asian companies or by Asian governments, their
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agencies or instrumentalities. The Fund may also invest in securities issued
by non-Asian issuers, provided that the Fund will invest at least 80% of its
total assets in securities issued by Asian companies and the Asian debt
securities referred to above. The Fund expects to invest, from time to time,
a significant portion, but less than 50%, of its assets in equity securities
of Japanese companies.
In the past decade, Asian countries generally have experienced a high level
of real economic growth due to political and economic changes, including
foreign investment and reduced government intervention in the economy.
Alliance believes that certain conditions exist in Asian countries which
create the potential for continued rapid economic growth. These conditions
include favorable demographics and competitive wage rates, increasing levels
of foreign direct investment, rising per capita incomes and consumer demand,
a high savings rate and numerous privatization programs. Asian countries are
also becoming more industrialized and are increasing their intra-Asian
exports while reducing their dependence on Western export demand. Alliance
believes that these conditions are important to the long-term economic growth
of Asian countries.
As the economies of many Asian countries move through the "emerging market"
stage, thus increasing the supply of goods, services and capital available to
less developed Asian markets and helping to spur economic growth in those
markets, the potential is created for many Asian companies to experience
rapid growth. In addition, many Asian companies the securities of which are
listed on exchanges in more developed Asian countries will be participants in
the rapid economic growth of the lesser developed countries. These companies
generally offer the advantages of more experienced management and more
developed market regulation.
As their economies have grown, the securities markets in Asian countries have
also expanded. New exchanges have been created and the number of listed
companies, annual trading volume and overall market capitalization have
increased significantly. Additionally, new markets continue to open to
foreign investments. For example, South Korea and India have recently relaxed
investment restrictions and Vietnamese direct investments have recently
become available to U.S. investors. The Fund also offers investors the
opportunity to access relatively restricted markets. Alliance believes that
investment opportunities in Asian countries will continue to expand.
The Fund will invest in companies believed to possess rapid growth potential.
Thus, the Fund will invest in smaller, emerging companies, but will also
invest in larger, more established companies in such growing economic sectors
as capital goods, telecommunications and consumer services.
The Fund will invest in investment grade debt securities, except that the
Fund may maintain not more than 5% of its net assets in lower-rated
securities and lower-rated loans and other lower-rated direct debt
instruments. See "Risk Considerations--Securities Ratings", "--Investment in
Lower-Rated Fixed-Income Securities" and Appendix C in the Fund's Statement
of Additional Information for a description of such ratings. The Fund will
not retain a security that is downgraded below C or determined by Alliance to
have undergone similar credit quality deterioration following purchase.
The Fund may also: (i) invest up to 25% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 20% of its net assets in rights or warrants; (iii)
invest in depositary receipts, instruments of supranational entities denominated
in the currency of any country, securities of multinational companies and "semi-
governmental securities;" (iv) invest up to 25% of its net assets in equity-
linked debt securities with the objective of realizing capital appreciation; (v)
invest up to 25% of its net assets in loans and other direct debt instruments;
(vi) write covered put and call options on securities of the types in which it
is permitted to invest and on exchange-traded index options; (vii) enter into
contracts for the purchase or sale for future delivery of fixed-income
securities or foreign currencies, or contracts based on financial indices,
including any index of U.S. Government securities, securities issued by foreign
government entities, or common stock and may purchase and write options on
future contracts; (viii) purchase and write put and call options on foreign
currencies for hedging purposes; (ix) purchase or sell forward contracts; (x)
enter into interest rate swaps and purchase or sell interest rate caps and
floors; (xi) enter into forward commitments for the purchase or sale of
securities; (xii) enter into standby commitment agreements; (xiii) enter into
currency swaps for hedging purposes; (xiv) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xv) make short sales of
securities or maintain a short position, in each case only if "against the box;"
and (xvi) make secured loans of its portfolio securities not in excess of 30% of
its total assets to entities with which it can enter into repurchase agreements.
For additional information on the use, risks and costs of these policies and
practices see "Additional Investment Practices".
Alliance Global Small Cap Fund
Alliance Global Small Cap Fund, Inc. ("Global Small Cap Fund") is a
diversified investment company that seeks long-term growth of capital through
investment in a global portfolio of the equity securities of selected
companies with relatively small market capitalization. The Fund's portfolio
emphasizes companies with market capitalizations that would have placed them
(when purchased) in about the smallest 20% by market capitalization of
actively traded U.S. companies, or market capitalizations of up to about $1
billion. Because the Fund applies the U.S. size standard on a global basis,
its foreign investments might rank above the lowest 20%, and, in fact, might
in some countries rank among the largest, by market capitalization in local
markets. Normally, the Fund invests at least 65% of its assets in equity
securities of these smaller capitalization issuers, and these issuers are
located in at least three countries, one of which may be the U.S. Up to 35%
of the Fund's total assets may be invested in securities of
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companies whose market capitalizations exceed the Fund's size standard. The
Fund's portfolio securities may be listed on a U.S. or foreign exchange or
traded over-the-counter.
Alliance believes that smaller capitalization issuers often have sales and
earnings growth rates exceeding those of larger companies, and that these
growth rates tend to cause more rapid share price appreciation. Investing in
smaller capitalization stocks, however, involves greater risk than is
associated with larger, more established companies. For example, smaller
capitalization companies often have limited product lines, markets, or
financial resources. They may be dependent for management on one or a few key
persons, and can be more susceptible to losses and risks of bankruptcy. Their
securities may be thinly traded (and therefore have to be sold at a discount
from current market prices or sold in small lots over an extended period of
time), may be followed by fewer investment research analysts and may be
subject to wider price swings and thus may create a greater chance of loss
than when investing in securities of larger capitalization companies.
Transaction costs in small capitalization stocks may be higher than in those
of larger capitalization companies.
The Fund may also: (i) invest up to 10% of its total assets in securities for
which there is no ready market; (ii) invest up to 20% of its total assets in
warrants to purchase equity securities; (iii) invest in depositary receipts
or other securities representing securities of companies based in countries
other than the U.S.; (iv) purchase or sell forward foreign currency
contracts; (v) write and purchase exchange-traded call options and purchase
exchange-traded put options, including put options on market indices; and
(vi) make secured loans of portfolio securities not in excess of 30% of its
total assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Total Return Funds
The Total Return Funds have been designed to provide a range of investment
alternatives to investors seeking both growth of capital and current income.
Alliance Strategic Balanced Fund
Alliance Strategic Balanced Fund ("Strategic Balanced Fund") is a diversified
investment company that seeks a high long-term total return by investing in a
combination of equity and debt securities. The portion of the Fund's assets
invested in each type of security varies in accordance with economic
conditions, the general level of common stock prices, interest rates and
other relevant considerations, including the risks associated with each
investment medium. The Fund's investment objective is not fundamental.
The Fund's equity securities will generally consist of dividend-paying common
stocks and other equity securities of companies with favorable earnings outlooks
and long-term growth rates that Alliance expects will exceed that of the U.S.
economy. The Fund's debt securities may include U.S. Government securities and
securities issued by private corporations. The Fund may also invest in mortgage-
backed securities, adjustable rate securities, asset-backed securities and so-
called "zero-coupon" bonds and "payment-in-kind" bonds.
As a fundamental policy, the Fund will invest at least 25% of its total
assets in fixed-income securities, which for this purpose include debt
securities, preferred stocks and that portion of the value of convertible
securities that is attributable to the fixed-income characteristics of those
securities.
The Fund's debt securities will generally be of investment grade. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." In the event that the rating of any debt securities
held by the Fund falls below investment grade, the Fund will not be
obligated to dispose of such obligations and may continue to hold them if
considered appropriate under the circumstances.
The Fund may also: (i) invest in foreign securities, although the Fund will
not generally invest more than 15% of its total assets in foreign securities;
(ii) invest, without regard to this 15% limit, in Eurodollar CDs, which are
dollar-denominated certificates of deposit issued by foreign branches of U.S.
banks that are not insured by any agency or instrumentality of the U.S.
Government; (iii) write covered call and put options on securities it owns or
in which it may invest; (iv) buy and sell put and call options and buy and
sell combinations of put and call options on the same underlying securities;
(v) lend portfolio securities amounting to not more than 25% of its total
assets; (vi) enter into repurchase agreements on up to 25% of its total
assets; (vii) purchase and sell securities on a forward commitment basis;
(viii) buy or sell foreign currencies, options on foreign currencies, foreign
currency futures contracts (and related options) and deal in forward foreign
exchange contracts; (ix) buy and sell stock index futures contracts and buy
and sell options on those contracts and on stock indices; (x) purchase and
sell futures contracts, options thereon and options with respect to U.S.
Treasury securities; and (xi) invest in securities that are not publicly
traded, including Rule 144A securities. For additional information on the
use, risks and costs of these policies and practices see "Additional
Investment Practices."
Alliance Balanced Shares
Alliance Balanced Shares, Inc. ("Balanced Shares") is a diversified
investment company that seeks a high return through a combination of current
income and capital appreciation. Although the Fund's investment objective is
not fundamental, the Fund is a "balanced fund" as a matter of fundamental
policy. The Fund will not purchase a security if as a result less than 25% of
its total assets will be in fixed-income senior securities (including short-
and long-term debt securities, preferred stocks, and convertible debt
securities and convertible preferred stocks to the extent that their values
are attributable to their fixed-income characteristics). Subject to these
restrictions, the percentage of the Fund's assets invested in each type of
security will vary. The Fund's assets are invested in U.S. Government
securities,
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bonds, senior debt securities and preferred and common stocks in such
proportions and of such type as are deemed best adapted to the current
economic and market outlooks. The Fund may invest up to 15% of the value of
its total assets in foreign equity and fixed-income securities eligible for
purchase by the Fund under its investment policies described above. See
"Risk Considerations--Foreign Investment."
The Fund may also: (i) enter into contracts for the purchase or sale for
future delivery of foreign currencies; and (ii) purchase and write put and
call options on foreign currencies and enter into forward foreign currency
exchange contracts for hedging purposes. Subject to market conditions, the
Fund may also seek to realize income by writing covered call options listed
on a domestic exchange. For additional information on the use, risks and
costs of these policies and practices see "Additional Investment Practices."
Alliance Income Builder Fund
Alliance Income Builder Fund, Inc. ("Income Builder Fund") is a
non-diversified investment company that seeks an attractive level of current
income and long-term growth of income and capital by investing principally in
fixed-income securities and dividend-paying common stocks. Its investments in
equity securities emphasize common stocks of companies with a historical or
projected pattern of paying rising dividends. Normally, at least 65% of the
Fund's total assets are invested in income-producing securities. The Fund may
vary the percentage of assets invested in any one type of security based upon
Alliance's evaluation as to the appropriate portfolio structure for achieving
the Fund's investment objective, although Alliance currently maintains
approximately 60% of the Fund's net assets in fixed-income securities and 40%
in equity securities.
The Fund may invest in fixed-income securities of domestic and foreign
issuers, including U.S. Government securities and repurchase agreements
pertaining thereto, corporate fixed-income securities of U.S. issuers,
qualifying bank deposits and prime commercial paper.
The Fund may maintain up to 35% of its net assets in lower-rated securities.
See "Risk Considerations--Securities Ratings" and "--Investment in
Lower-Rated Fixed-Income Securities." The Fund will not retain a
non-convertible security that is downgraded below CCC or determined by
Alliance to have undergone similar credit quality deterioration following
purchase.
Foreign securities in which the Fund invests may include fixed-income
securities of foreign corporate and governmental issuers, denominated in U.S.
Dollars, and equity securities of foreign corporate issuers, denominated in
foreign currencies or in U.S. Dollars. The Fund will not invest more than 10%
of its net assets in equity securities of foreign issuers nor more than 15%
of its total assets in issuers of any one foreign country. See "Risk
Considerations--Foreign Investment."
The Fund may also: (i) invest up to 5% of its net assets in rights or warrants;
(ii) invest in depositary receipts and U.S. Dollar denominated securities issued
by supranational entities: (iii) write covered put and call options and purchase
put and call options on securities of the types in which it is permitted to
invest that are exchange-traded; (iv) purchase and sell exchange-traded options
on any securities index composed of the types of securities in which it may
invest; (v) enter into contracts for the purchase or sale for future delivery of
fixed-income securities or foreign currencies, or contracts based on financial
indices, including any index of U.S. Government securities, foreign government
securities, corporate fixed income securities, or common stock, and purchase and
write options on future contracts; (vi) purchase and write put and call options
on foreign currencies and enter into forward contracts for hedging purposes;
(vii) enter into interest rate swaps and purchase or sell interest rate caps and
floors; (viii) enter into forward commitments for the purchase or sale of
securities; (ix) enter into standby commitment agreements; (x) enter into
repurchase agreements pertaining to U.S. Government securities with member banks
of the Federal Reserve System or primary dealers in such securities; (xi) make
short sales of securities or maintain a short position as described below under
"Additional Investment Policies and Practices--Short Sales;" and (xii) make
secured loans of its portfolio securities not in excess of 20% of its total
assets to brokers, dealers and financial institutions. For additional
information on the use, risks and costs of these policies and practices see
"Additional Investment Practices."
Alliance Utility Income Fund
Alliance Utility Income Fund, Inc. ("Utility Income Fund") is a diversified
investment company that seeks current income and capital appreciation by
investing primarily in equity and fixed-income securities of companies in the
utilities industry. The Fund may invest in securities of both U.S. and
foreign issuers, although no more than 15% of the Fund's total assets will be
invested in issuers in any one foreign country. The utilities industry
consists of companies engaged in (i) the manufacture, production, generation,
provision, transmission, sale and distribution of gas and electric energy,
and communications equipment and services, including telephone, telegraph,
satellite, microwave and other companies providing communication facilities
for the public, or (ii) the provision of other utility or utility-related
goods and services, including, but not limited to, entities engaged in water
provision, cogeneration, waste disposal system provision, solid waste
electric generation, independent power producers and non-utility generators.
The Fund is designed to take advantage of the characteristics and historical
performance of securities of utility companies, many of which pay regular
dividends and increase their common stock dividends over time. As a
fundamental policy, the Fund normally invests at least 65% of its total
assets in securities of companies in the utilities industry. The Fund
considers a company to be in the utilities industry if, during the most
recent twelve-month period, at
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least 50% of the company's gross revenues, on a consolidated basis, were
derived from its utilities activities.
At least 65% of the Fund's total assets are invested in income-producing
securities, but there is otherwise no limit on the allocation of the Fund's
investments between equity securities and fixed-income securities. The Fund
may maintain up to 35% of its net assets in lower-rated securities. See "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities." The Fund will not retain a security that is
downgraded below B or determined by Alliance to have undergone similar credit
quality deterioration following purchase.
The United States utilities industry has experienced significant changes in
recent years. Electric utility companies in general have been favorably
affected by lower fuel costs, the full or near completion of major
construction programs and lower financing costs. In addition, many utility
companies have generated cash flows in excess of current operating expenses
and construction expenditures, permitting some degree of diversification into
unregulated businesses. Regulatory changes with respect to nuclear and
conventionally fueled generating facilities, however, could increase costs or
impair the ability of such electric utilities to operate such facilities,
thus reducing their ability to service dividend payments with respect to the
securities they issue. Furthermore, rates of return of utility companies
generally are subject to review and limitation by state public utilities
commissions and tend to fluctuate with marginal financing costs. Rate
changes, however, ordinarily lag behind the changes in financing costs, and
thus can favorably or unfavorably affect the earnings or dividend pay-outs on
utilities stocks depending upon whether such rates and costs are declining or
rising.
Gas transmission companies, gas distribution companies and telecommunications
companies are also undergoing significant changes. Gas utilities have been
adversely affected by declines in the prices of alternative fuels, and have
also been affected by oversupply conditions and competition. Telephone
utilities are still experiencing the effects of the break-up of American
Telephone & Telegraph Company, including increased competition and rapidly
developing technologies with which traditional telephone companies now
compete. Although there can be no assurance that increased competition and
other structural changes will not adversely affect the profitability of such
utilities, or that other negative factors will not develop in the future, in
Alliance's opinion, increased competition and change may provide better
positioned utility companies with opportunities for enhanced profitability.
Utility companies historically have been subject to the risks of increases in
fuel and other operating costs, high interest costs, costs associated with
compliance with environmental and nuclear safety regulations, service
interruptions, economic slowdowns, surplus capacity, competition and
regulatory changes. There can also be no assurance that regulatory policies
or accounting standards changes will not negatively affect utility companies'
earnings or dividends. Utility companies are subject to regulation by various
authorities and may be affected by the imposition of special tariffs and
changes in tax laws. To the extent that rates are established or reviewed by
governmental authorities, utility companies are subject to the risk that such
authorities will not authorize increased rates. Because of the Fund's policy
of concentrating its investments in utility companies, the Fund is more
susceptible than most other mutual funds to economic, political or regulatory
occurrences affecting the utilities industry.
Foreign utility companies, like those in the U.S., are generally subject to
regulation, although such regulations may or may not be comparable to domestic
regulations. Foreign utility companies in certain countries may be more heavily
regulated by their respective governments than utility companies located in the
U.S. and, as in the U.S., generally are required to seek government approval for
rate increases. In addition, because many foreign utility companies use fuels
that cause more pollution than those used in the U.S., such utilities may yet be
required to invest in pollution control equipment. Foreign utility regulatory
systems vary from country to country and may evolve in ways different from
regulation in the U.S. The percentage of the Fund's assets invested in issuers
of particular countries will vary. See "Risk Considerations--Foreign
Investments."
The Fund may invest up to 35% of its total assets in equity and fixed-income
securities of domestic and foreign corporate and governmental issuers other
than utility companies, including U.S. Government securities and repurchase
agreements pertaining thereto, foreign government securities, corporate
fixed-income securities of domestic issuers, corporate fixed-income
securities of foreign issuers denominated in foreign currencies or in U.S.
dollars (in each case including fixed-income securities of an issuer in one
country denominated in the currency of another country), qualifying bank
deposits and prime commercial paper.
The Fund may also: (i) invest up to 30% of its net assets in the convertible
securities of companies whose common stocks are eligible for purchase by the
Fund; (ii) invest up to 5% of its net assets in rights or warrants; (iii)
invest in depositary receipts, securities of supranational entities denominated
in the currency of any country, securities denominated in European Currency
Units and "semi-governmental securities;" (iv) write covered put and call
options and purchase put and call options on securities of the types in which
it is permitted to invest that are exchange-traded and over-the-counter; (v)
purchase and sell exchange-traded options on any securities index composed of
the types of securities in which it may invest; (vi) enter into contracts for
the purchase or sale for future delivery of fixed-income securities or
foreign currencies, or contracts based on financial indices, including an
index of U.S. Government securities, foreign government securities, corporate
fixed-income securities, or common stock, and may purchase and write options
on futures contracts; (vii) purchase and write put and call options on
foreign currencies traded on U.S. and foreign exchanges or over-the-counter
for hedging purposes; (viii) purchase or sell forward contracts; (ix) enter
into interest
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rate swaps and purchase or sell interest rate caps and floors; (x) enter in
forward commitments for the purchase or sale of securities; (xi) enter into
standby commitment agreements; (xii) enter into repurchase agreements
pertaining to U.S. Government securities with member banks of the Federal
Reserve System or primary dealers in such securities; (xiii) make short sales
of securities or maintain a short position as described below under
"Additional Investment Practices--Short Sales;" and (xiv) make secured loans
of its portfolio securities not in excess of 20% of its total assets to
brokers, dealers and financial institutions. For additional information on
the use, risk and costs of these policies and practices see "Additional
Investment Practices."
Alliance Growth and Income Fund
Alliance Growth and Income Fund, Inc. ("Growth and Income Fund") is a
diversified investment company that seeks appreciation through investments
primarily in dividend-paying common stocks of good quality, although it is
permitted to invest in fixed-income securities and convertible securities.
The Fund may also try to realize income by writing covered call options
listed on domestic securities exchanges. See "Additional Investment Practices
- --Options." The Fund also invests in foreign securities. Since the purchase of
foreign securities entails certain political and economic risks, the Fund has
restricted its investments in securities in this category to issues of high
quality. See "Risk Considerations--Foreign Investment."
ADDITIONAL INVESTMENT PRACTICES
Some or all of the Funds may engage in the following investment practices to
the extent described above.
Convertible Securities. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities, which
provide a stable stream of income with generally higher yields than those of
equity securities of the same or similar issuers. The price of a convertible
security will normally vary with changes in the price of the underlying
stock, although the higher yield tends to make the convertible security less
volatile than the underlying common stock. As with debt securities, the
market value of convertible securities tends to decline as interest rates
increase and increase as interest rates decline. While convertible securities
generally offer lower interest or dividend yields than non-convertible debt
securities of similar quality, they enable investors to benefit from
increases in the market price of the underlying common stock. Convertible
debt securities that are rated Baa or lower by Moody's or BBB or lower by
S&P, Duff & Phelps or Fitch and comparable unrated securities as determined
by Alliance may share some or all of the risks of non-convertible debt
securities with those ratings. For a description of these risks, see "Risk
Considerations--Securities Ratings" and "--Investment in Lower-Rated
Fixed-Income Securities."
Rights and Warrants. A Fund will invest in rights or warrants only if the
underlying equity securities themselves are deemed appropriate by Alliance for
inclusion in the Fund's portfolio. Rights and warrants entitle the holder to buy
equity securities at a specific price for a specific period of time. Rights are
similar to warrants except that they have a substantially shorter duration.
Rights and warrants may be considered more speculative than certain other types
of investments in that they do not entitle a holder to dividends or voting
rights with respect to the underlying securities nor do they represent any
rights in the assets of the issuing company. The value of a right or warrant
does not necessarily change with the value of the underlying security, although
the value of a right or warrant may decline because of a decrease in the value
of the underlying security, the passage of time or a change in perception as to
the potential of the underlying security, or any combination thereof. If the
market price of the underlying security is below the exercise price set forth in
the warrant on the expiration date, the warrant will expire worthless. Moreover,
a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Depositary Receipts and Securities of Supranational Entities. Depositary
receipts may not necessarily be denominated in the same currency as the
underlying securities into which they may be converted. In addition, the
issuers of the stock of unsponsored depositary receipts are not obligated to
disclose material information in the United States and, therefore, there may
not be a correlation between such information and the market value of the
depositary receipts. ADRs are depositary receipts typically issued by a U.S.
bank or trust company that evidence ownership of underlying securities issued
by a foreign corporation. GDRs and other types of depositary receipts are
typically issued by foreign banks or trust companies and evidence ownership
of underlying securities issued by either a foreign or a U.S. company.
Generally, depositary receipts in registered form are designed for use in the
U.S. securities markets, and depositary receipts in bearer form are designed
for use in foreign securities markets. The investments of Growth Fund,
Strategic Balanced Fund and Income Builder Fund in ADRs are deemed to be
investments in securities issued by U.S. issuers and those in GDRs and other
types of depositary receipts are deemed to be investments in the underlying
securities. The investments of All-Asia Investment Fund in depositary
receipts are deemed to be investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include, among others, the
World Bank (International Bank for Reconstruction and Development) and the
European Investment Bank. A European Currency Unit is a basket of specified
amounts of the currencies of the member states of the European Economic
Community. "Semi-governmental securities" are securities issued by entities
owned by either a national, state or equivalent government or are obligations
of one of such government jurisdictions which are not backed by its full
faith and credit and general taxing powers.
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Mortgage-Backed Securities. Interest and principal payments (including
prepayments) on the mortgages underlying mortgage-backed securities are passed
through to the holders of the securities. As a result of the pass-through of
prepayments of principal on the underlying securities, mortgage-backed
securities are often subject to more rapid prepayment of principal than their
stated maturity would indicate. Prepayments occur when the mortgagor on a
mortgage prepays the remaining principal before the mortgage's scheduled
maturity date. Because the prepayment characteristics of the underlying
mortgages vary, it is impossible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayments are
important because of their effect on the yield and price of the mortgage-backed
securities. During periods of declining interest rates, prepayments can be
expected to accelerate and a Fund investing in such securities would be required
to reinvest the proceeds at the lower interest rates then available. In
addition, prepayments of mortgages underlying securities purchased at a premium
could result in capital losses.
Adjustable Rate Securities. Adjustable rate securities have interest rates
that are reset at periodic intervals, usually by reference to some interest
rate index or market interest rate. Some adjustable rate securities are
backed by pools of mortgage loans. Although the rate-adjustment feature may
reduce sharp changes in the value of adjustable rate securities, these
securities can change in value based on changes in market interest rates or
the issuer's creditworthiness. Changes in the interest rate on adjustable
rate securities may lag behind changes in prevailing market interest rates.
Also, some adjustable rate securities (or the underlying mortgages) are
subject to caps or floors that limit the maximum change in interest rate.
Asset-Backed Securities. Asset-backed securities (unrelated to first mortgage
loans) represent fractional interests in pools of leases, retail installment
loans, revolving credit receivables and other payment obligations, both
secured and unsecured. These assets are generally held by a trust and
payments of principal and interest or interest only are passed through
monthly or quarterly to certificate holders and may be guaranteed up to
certain amounts by letters of credit issued by a financial institution
affiliated or unaffiliated with the trustee or originator of the trust.
Like mortgages underlying mortgage-backed securities, underlying automobile
sales contracts or credit card receivables are subject to prepayment, which
may reduce the overall return to certificate holders. Certificate holders may
also experience delays in payment on the certificates if the full amounts due
on underlying sales contracts or receivables are not realized by the trust
because of unanticipated legal or administrative costs of enforcing the
contracts or because of depreciation or damage to the collateral (usually
automobiles) securing certain contracts, or other factors.
Zero-Coupon and Payment-in-Kind Bonds. Zero-coupon bonds are issued at a
significant discount from their principal amount in lieu of paying interest
periodically. Payment-in-kind bonds allow the issuer to make current interest
payments on the bonds in additional bonds. Because zero-coupon bonds and
payment-in-kind bonds do not pay current interest in cash, their value is
generally subject to greater fluctuation in response to changes in market
interest rates than bonds that pay interest in cash currently. Both
zero-coupon and payment-in-kind bonds allow an issuer to avoid the need to
generate cash to meet current interest payments. Accordingly, such bonds may
involve greater credit risks than bonds paying interest currently. Even
though such bonds do not pay current interest in cash, a Fund is nonetheless
required to accrue interest income on such investments and to distribute such
amounts at least annually to shareholders. Thus, a Fund could be required at
times to liquidate other investments in order to satisfy its dividend
requirements.
Equity-Linked Debt Securities. Equity-linked debt securities are securities with
respect to which the amount of interest and/or principal that the issuer thereof
is obligated to pay is linked to the performance of a specified index of equity
securities. Such amount may be significantly greater or less than payment
obligations in respect of other types of debt securities. Adverse changes in
equity securities indices and other adverse changes in the securities markets
may reduce payments made under, and/or the principal of, equity-linked debt
securities held by the Fund. Furthermore, as with any debt securities, the
values of equity-linked debt securities will generally vary inversely with
changes in interest rates. The Fund's ability to dispose of equity-linked debt
securities will depend on the availability of liquid markets for such
securities. Investment in equity-linked debt securities may be considered to be
speculative. As with other securities, the Fund could lose its entire investment
in equity-linked debt securities.
Loans and Other Direct Debt Instruments. Loans and other direct debt
instruments are interests in amounts owned by a corporate, governmental or
other borrower to another party. They may represent amounts owed to lenders
or lending syndicates (loans and loan participations), to suppliers of goods
or services (trade claims or other receivables), or to other creditors.
Direct debt instruments involve the risk of loss in case of default or
insolvency of the borrower and may offer less legal protection to the Fund in
the event of fraud or misrepresentation than debt securities. In addition,
loan participations involve a risk of insolvency of the lending bank or other
financial intermediary. Direct debt instruments may also include standby
financing commitments that obligate the Fund to supply additional cash to the
borrower on demand. Loans and other direct debt instruments are generally
illiquid and may be transferred only through individually negotiated private
transactions.
Purchasers of loans and other forms of direct indebtedness depend primarily
upon the creditworthiness of the borrower for payment of principal and
interest. Direct debt instruments may not be rated by any nationally
recognized rating service. If the Fund does not receive scheduled interest or
principal payments on such indebtedness, the Fund's share price and yield
could
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be adversely affected. Loans that are fully secured offer the Fund more
protection than unsecured loans in the event of non-payment of scheduled
interest or principal. However, there is no assurance that the liquidation of
collateral from a secured loan would satisfy the borrower's obligation, or
that the collateral can be liquidated. Indebtedness of borrowers whose
creditworthiness is poor may involve substantial risks, and may be highly
speculative.
Borrowers that are in bankruptcy or restructuring may never pay off their
indebtedness, or may pay only a small fraction of the amount owed. Direct
indebtedness of Asian countries will also involve a risk that the
governmental entities responsible for the repayment of the debt may be
unable, or unwilling, to pay interest and repay principal when due.
Investments in loans through direct assignment of a financial institution's
interests with respect to a loan may involve additional risks to the Fund.
For example, if a loan is foreclosed, the Fund could become part owner of any
collateral, and would bear the costs and liabilities associated with owning
and disposing of the collateral. Direct debt instruments may also involve a
risk of insolvency of the lending bank or other intermediary.
A loan is often administered by a bank or other financial institution that
acts as agent for all holders. The agent administers the terms of the loan,
as specified on the loan agreement. Unless, under the terms of the loan or
other indebtedness, the Fund has direct recourse against the borrower, it may
have to rely on the agent to apply appropriate credit remedies against a
borrower. If assets held by the agent for the benefit of the Fund were
determined to be subject to the claims of the agent's general creditors, the
Fund might incur certain costs and delays in realizing payment on the loan or
loan participation and could suffer a loss of principal or interest.
Direct indebtedness purchased by the Fund may include letters of credit,
revolving credit facilities, or other standby financing commitments
obligating the Fund to pay additional cash on demand. These commitments may
have the effect of requiring the Fund to increase its investment in a
borrower at a time when it would not otherwise have done so, even if the
borrower's condition makes it unlikely that the amount will ever be repaid.
Illiquid Securities. Subject to any more restrictive applicable fundamental
investment policy, none of the Funds will maintain more than 15% of its net
assets in illiquid securities. Illiquid securities generally include (i)
direct placements or other securities that are subject to legal or contractual
restrictions on resale or for which there is no readily available market
(e.g., when trading in the security is suspended or, in the case of unlisted
securities, when market makers do not exist or will not entertain bids or
offers), including many individually negotiated currency swaps and any assets
used to cover currency swaps and most privately negotiated investments in
state enterprises that have not yet conducted an initial equity offering,
(ii) over-the-counter options and assets used to cover over-the-counter
options, and (iii) repurchase agreements not terminable within seven days.
Because of the absence of a trading market for illiquid securities, a Fund
may not be able to realize their full value upon sale. With respect to each
Fund that may invest in such securities, Alliance will monitor their
illiquidity under the supervision of the Directors of the Fund. To the extent
permitted by applicable law, Rule 144A securities will not be treated as
"illiquid" for purposes of the foregoing restriction so long as such
securities meet liquidity guidelines established by a Fund's Directors.
Investment in non-publicly traded securities by each of Growth Fund and
Strategic Balanced Fund is restricted to 5% of its total assets (not
including for these purposes Rule 144A securities, to the extent permitted by
applicable law) and is also subject to the 15% restriction on investment in
illiquid securities described above.
A Fund that invests in securities for which there is no ready market may
therefore not be able to readily sell such securities. To the extent that
these securities are foreign securities, there is no law in many of the
countries in which a Fund may invest similar to the Securities Act requiring
an issuer to register the sale of securities with a governmental agency or
imposing legal restrictions on resales of securities, either as to length of
time the securities may be held or manner of resale. However, there may be
contractual restrictions on resale of securities.
Options. An option gives the purchaser of the option, upon payment of a
premium, the right to deliver to (in the case of a put) or receive from (in
the case of a call) the writer a specified amount of a security on or before
a fixed date at a predetermined price. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of
another security it holds, or holds a call option on the underlying security
with an exercise price equal to or less than that of the call option it has
written. A put option written by a Fund is covered if the Fund holds a put
option on the underlying securities with an exercise price equal to or
greater than that of the put option it has written.
A call option is for cross-hedging purposes if a Fund does not own the
underlying security, and is designed to provide a hedge against a decline in
value in another security which the Fund owns or has the right to acquire.
Worldwide Privatization Fund, All-Asia Investment Fund, Income Builder Fund
and Utility Income Fund each may write call options for cross-hedging
purposes. A Fund would write a call option for cross-hedging purposes,
instead of writing a covered call option, when the premium to be received
from the cross-hedge transaction would exceed that which would be received
from writing a covered call option, while at the same time achieving the
desired hedge.
In purchasing an option, a Fund would be in a position to realize a gain if,
during the option period, the price of the underlying security increased (in
the case of a call) or
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decreased (in the case of a put) by an amount in excess of the premium paid;
otherwise the Fund would experience a loss equal to the premium paid for the
option.
If an option written by a Fund were exercised, the Fund would be obligated to
purchase (in the case of a put) or sell (in the case of a call) the
underlying security at the exercise price. The risk involved in writing an
option is that, if the option were exercised, the underlying security would
then be purchased or sold by the Fund at a disadvantageous price. These risks
could be reduced by entering into a closing transaction (i.e., by disposing
of the option prior to its exercise). A Fund retains the premium received
from writing a put or call option whether or not the option is exercised. The
writing of covered call options could result in increases in a Fund's
portfolio turnover rate, especially during periods when market prices of the
underlying securities appreciate.
Technology Fund, Quasar Fund, International Fund, New Europe Fund and Global
Small Cap Fund will not write uncovered call options. Technology Fund and
Global Small Cap Fund will not write a call option if the premium to be
received by the Fund in doing so would not produce an annualized return of at
least 15% of the then current market value of the securities subject to the
option (without giving effect to commissions, stock transfer taxes and other
expenses that are deducted from premium receipts). Technology Fund, Quasar
Fund and Global Small Cap Fund will not write a call option if, as a result,
the aggregate of the Fund's portfolio securities subject to outstanding call
options (valued at the lower of the option price or market value of such
securities) would exceed 15% of the Fund's total assets or more than 10% of
the Fund's assets would be committed to call options that at the time of sale
have a remaining term of more than 100 days. The aggregate cost of all
outstanding options purchased and held by each of Premier Growth Fund,
Technology Fund, Quasar Fund and Global Small Cap Fund will at no time exceed
10% of the Fund's total assets. Neither International Fund nor New Europe
Fund will write uncovered put options.
A Fund that purchases or writes options on securities in privately negotiated
(i.e., over-the-counter) transactions will effect such transactions only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan institutions) deemed creditworthy by Alliance, and
Alliance has adopted procedures for monitoring the creditworthiness of such
entities. Options purchased or written by a Fund in negotiated transactions
are illiquid and it may not be possible for the Fund to effect a closing
transaction at an advantageous time. See "Illiquid Securities."
Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than the right to take or make
delivery of a security at a specified price, an option on a securities index
gives the holder the right to receive, upon exercise of the option, an amount
of cash if the closing level of the chosen index is greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option.
Futures Contracts and Options on Futures Contracts. A "sale" of a futures
contract means the acquisition of a contractual obligation to deliver the
securities or foreign currencies or other commodity called for by the
contract at a specified price on a specified date. A "purchase" of a futures
contract means the incurring of an obligation to acquire the securities,
foreign currencies or other commodity called for by the contract at a
specified price on a specified date. The purchaser of a futures contract on
an index agrees to take or make delivery of an amount of cash equal to the
difference between a specified dollar multiple of the value of the index on
the expiration date of the contract ("current contract value") and the price
at which the contract was originally struck. No physical delivery of the
securities underlying the index is made.
Options on futures contracts written or purchased by a Fund will be traded on
U.S. or foreign exchanges or over-the-counter. These investment techniques
will be used only to hedge against anticipated future changes in market
conditions and interest or exchange rates which otherwise might either
adversely affect the value of the Fund's portfolio securities or adversely
affect the prices of securities which the Fund intends to purchase at a later
date.
No Fund will enter into any futures contracts or options on futures contracts
if immediately thereafter the market values of the outstanding futures
contracts of the Fund and the currencies and futures contracts subject to
outstanding options written by the Fund would exceed 50% of its total assets
and Income Builder Fund will also not do so if immediately thereafter the
aggregate of initial margin deposits on all the outstanding futures contracts
of the Fund and premiums paid on outstanding options on futures contracts
would exceed 5% of the market value of the total assets of the Fund. Neither
Premier Growth Fund nor Counterpoint Fund may purchase or sell a stock index
future if immediately thereafter more than 30% of its total assets would be
hedged by stock index futures. In connection with the purchase of stock index
futures contracts, a Fund will deposit in a segregated account with its
custodian an amount of cash, U.S. Government securities or other liquid
high-quality debt securities equal to the market value of the futures
contracts less any amounts maintained in a margin account with the Fund's
broker. Premier Growth Fund and Counterpoint Fund may not purchase or sell a
stock index future if, immediately thereafter, the sum of the amount of
margin deposits on the Fund's existing futures positions would exceed 5% of
the market value of the Fund's total assets.
Options on Foreign Currencies. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a partial hedge,
up to the amount of the premium received, and a Fund could be required to
purchase or sell foreign currencies at disadvantageous exchange rates,
thereby incurring losses. The purchase of an option on a foreign currency may
constitute an effective hedge against fluctuations in exchange rates
although, in the event of rate movements
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adverse to a Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs. See the Statement of Additional Information
of each Fund that may invest in options on foreign currencies for further
discussion of the use, risks and costs of options on foreign currencies.
Forward Foreign Currency Exchange Contracts. A Fund purchases or sells
forward contracts to minimize the risk to it from adverse changes in the
relationship between the U.S. dollar and other currencies. A forward contract
is an obligation to purchase or sell a specific currency for an agreed price
at a future date, and is individually negotiated and privately traded.
A Fund may enter into a forward contract, for example, when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of the security
("transaction hedge"). A Fund will not engage in transaction hedges with
respect to the currency of a particular country to an extent greater than the
aggregate amount of the Fund's transactions in that currency. When a Fund
believes that a foreign currency may suffer a substantial decline against the
U.S. dollar, it may enter into a forward sale contract to sell an amount of
that foreign currency approximating the value of some or all of the Fund's
portfolio securities denominated in such foreign currency, or when the Fund
believes that the U.S. dollar may suffer a substantial decline against a
foreign currency, it may enter into a forward purchase contract to buy that
foreign currency for a fixed dollar amount ("position hedge"). A Fund will
not position hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of making such
sale) of the securities held in its portfolio denominated or quoted in that
particular foreign currency. Instead of entering into a position hedge, a
Fund may, in the alternative, enter into a forward contract to sell a
different foreign currency for a fixed U.S. dollar amount where the Fund
believes that the U.S. dollar value of the currency to be sold pursuant to
the forward contract will fall whenever there is a decline in the U.S. dollar
value of the currency in which portfolio securities of the Fund are
denominated ("cross-hedge"). Unanticipated changes in currency prices may
result in poorer overall performance for the Fund than if it had not entered
into such forward contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise.
Moreover, it may not be possible for a Fund to hedge against a devaluation
that is so generally anticipated that the Fund is not able to contract to
sell the currency at a price above the devaluation level it anticipates.
International Fund, New Europe Fund and Global Small Cap Fund will not enter
into a forward contract with a term of more than one year or if, as a result,
more than 50% of its total assets would be committed to such contracts. The
dealings of International Fund, New Europe Fund and Global Small Cap Fund in
forward contracts will be limited to hedging involving either specific
transactions or portfolio positions.
Growth Fund and Strategic Balanced Fund may also purchase and sell foreign
currency on a spot basis.
Forward Commitments. Forward commitments for the purchase or sale of
securities may include purchases on a "when-issued" basis or purchases or
sales on a "delayed delivery" basis. In some cases, a forward commitment may
be conditioned upon the occurrence of a subsequent event, such as approval
and consummation of a merger, corporate reorganization or debt restructuring
(i.e., a "when, as and if issued" trade).
When forward commitment transactions are negotiated, the price is fixed at the
time the commitment is made, but delivery and payment for the securities take
place at a later date. Normally, the settlement date occurs within two months
after the transaction, but settlements beyond two months may be negotiated.
Securities purchased or sold under a forward commitment are subject to market
fluctuation, and no interest or dividends accrue to the purchaser prior to the
settlement date. At the time a Fund intends to enter into a forward commitment,
it records the transaction and thereafter reflects the value of the security
purchased or, if a sale, the proceeds to be received, in determining its net
asset value. Any unrealized appreciation or depreciation reflected in such
valuation of a "when, as and if issued" security would be canceled in the event
that the required conditions did not occur and the trade was canceled.
The use of forward commitments enables a Fund to protect against anticipated
changes in interest rates and prices. For instance, in periods of rising
interest rates and falling bond prices, a Fund might sell securities in its
portfolio on a forward commitment basis to limit its exposure to falling
prices. In periods of falling interest rates and rising bond prices, a Fund
might sell a security in its portfolio and purchase the same or a similar
security on a when-issued or forward commitment basis, thereby obtaining the
benefit of currently higher cash yields. However, if Alliance were to
forecast incorrectly the direction of interest rate movements, a Fund might
be required to complete such when-issued or forward transactions at prices
inferior to the then current market values. When-issued securities and
forward commitments may be sold prior to the settlement date, but a Fund
enters into when-issued and forward commitments only with the intention of
actually receiving securities or delivering them, as the case may be. If a
Fund chooses to dispose of the right to acquire a when-issued security prior
to its acquisition or dispose of its right to deliver or receive against a
forward commitment, it may incur a gain or loss. Any significant commitment
of Fund assets to the purchase of securities on a "when, as and if issued"
basis may increase the volatility of the Fund's net asset value. No forward
commitments will be made by New Europe Fund, All-Asia Investment Fund,
Worldwide Privatization Fund, Income Builder Fund or Utility Income Fund if,
as a result, the Fund's aggregate commitments under such transactions would
be more than 30% of the Fund's total assets. In the event the other party to
a forward commitment transaction were to default, a Fund might lose the
opportunity to invest money at favorable rates or to dispose of securities at
favorable prices.
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Standby Commitment Agreements. Standby commitment agreements commit a Fund,
for a stated period of time, to purchase a stated amount of a security that
may be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment. At the time
of entering into the agreement the Fund is paid a commitment fee, regardless
of whether the security ultimately is issued, typically equal to
approximately 0.5% of the aggregate purchase price of the security the Fund
has committed to purchase. A Fund will enter into such agreements only for
the purpose of investing in the security underlying the commitment at a yield
and price considered advantageous to the Fund and unavailable on a firm
commitment basis. Each Fund, other than Income Builder Fund, will not enter
into a standby commitment with a remaining term in excess of 45 days and will
limit its investment in such commitments so that the aggregate purchase price
of the securities subject to the commitments will not exceed 25% with respect
to New Europe Fund, 50% with respect to Worldwide Privatization Fund and
All-Asia Investment Fund, and 20% with respect to Utility Income Fund, of its
assets taken at the time of making the commitment.
There is no guarantee that the securities subject to a standby commitment
will be issued and the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the
security underlying the commitment is at the option of the issuer, a Fund
will bear the risk of capital loss in the event the value of the security
declines and may not benefit from an appreciation in the value of the
security during the commitment period if the issuer decides not to issue and
sell the security to the Fund.
Currency Swaps. Currency swaps involve the individually negotiated exchange by a
Fund with another party of a series of payments in specified currencies. A
currency swap may involve the delivery at the end of the exchange period of a
substantial amount of one designated currency in exchange for the other
designated currency. Therefore the entire principal value of a currency swap is
subject to the risk that the other party to the swap will default on its
contractual delivery obligations. The net amount of the excess, if any, of a
Fund's obligations over its entitlements with respect to each currency swap will
be accrued on a daily basis. A Fund will not enter into any currency swap unless
the credit quality of the unsecured senior debt or the claims-paying ability of
the other party thereto is rated in the highest rating category of at least one
nationally recognized rating organization at the time of entering into the
transaction. If there is a default by the other party to such a transaction,
such Fund will have contractual remedies pursuant to the agreements related to
the transactions.
Interest Rate Transactions. Each Fund that may enter into interest rate
transactions expects to do so primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipates purchasing at a
later date. The Funds do not intend to use these transactions in a
speculative manner.
Interest rate swaps involve the exchange by a Fund with another party of their
respective commitments to pay or receive interest (e.g., an exchange of floating
rate payments for fixed rate payments). Interest rate swaps are entered on a net
basis (i.e., the two payment streams are netted out, with the Fund receiving or
paying, as the case may be, only the net amount of the two payments). With
respect to All-Asia Investment Fund and Utility Income Fund, the exchange
commitments can involve payments in the same currency or in different
currencies. The purchase of an interest rate cap entitles the purchaser, to the
extent that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the party
selling such interest rate cap. The purchase of an interest rate floor entitles
the purchaser, to the extent that a specified index falls below a predetermined
interest rate, to receive payments of interest on an agreed principal amount
from the party selling the interest rate floor.
A Fund may enter into interest rate swaps, caps and floors on either an
asset-based or liability-based basis, depending upon whether it is hedging
its assets or liabilities. The net amount of the excess, if any, of a Fund's
obligations over its entitlements with respect to each interest rate swap,
cap and floor is accrued daily. A Fund will not enter into an interest rate
swap, cap or floor transaction unless the unsecured senior debt or the
claims-paying ability of the other party thereto is then rated in the highest
rating category of at least one nationally recognized rating organization.
Alliance will monitor the creditworthiness of counterparties on an ongoing
basis. The swap market has grown substantially in recent years, with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps and floors are more recent
innovations for which standardized documentation has not yet been developed
and, accordingly, they are less liquid than swaps.
The use of interest rate transactions is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. If Alliance incorrectly
forecasted market values, interest rates and other applicable factors, the
investment performance of a Fund would be adversely affected by the use of
these investment techniques. Moreover, even if Alliance is correct in its
forecasts, there is a risk that the transaction position may correlate
imperfectly with the price of the asset or liability being hedged. There is
no limit on the amount of interest rate transactions that may be entered into
by a Fund that is permitted to enter into such transactions. These
transactions do not involve the delivery of securities or other underlying
assets or principal. Accordingly, the risk of loss with respect to interest
rate transactions is limited to the net amount of interest payments that a
Fund is contractually obligated to make. If the other party to an interest
rate transaction defaults, a Fund's risk of loss consists of the net
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amount of interest payments that the Fund contractually is entitled to
receive.
Repurchase Agreements. A repurchase agreement arises when a buyer purchases a
security and simultaneously agrees to resell it to the vendor at an
agreed-upon future date, normally a day or a few days later. The resale price
is greater than the purchase price, reflecting an agreed-upon interest rate
for the period the buyer's money is invested in the security. Such agreements
permit a Fund to keep all of its assets at work while retaining "overnight"
flexibility in pursuit of investments of a longer-term nature. If a vendor
defaults on its repurchase obligation, a Fund would suffer a loss to the
extent that the proceeds from the sale of the collateral were less than the
repurchase price. If a vendor goes bankrupt, a Fund might be delayed in, or
prevented from, selling the collateral for its benefit. Alliance monitors the
creditworthiness of the vendors with which the Fund enters into repurchase
agreements. There is no percentage restriction on a Fund's ability to enter
into repurchase agreements, other than as indicated under "Investment
Objectives and Policies."
Short Sales. A short sale is effected by selling a security that a Fund does
not own, or if the Fund does own such security, it is not to be delivered
upon consummation of the sale. A short sale is "against the box" to the
extent that a Fund contemporaneously owns or has the right to obtain
securities identical to those sold short without payment. Worldwide
Privatization Fund, All-Asia Investment Fund, Income Builder Fund and Utility
Income Fund each may make short sales of securities or maintain short
positions only for the purpose of deferring realization of gain or loss for
U.S. federal income tax purposes, provided that at all times when a short
position is open the Fund owns an equal amount of securities of the same issue
as, and equal in amount to, the securities sold short. In addition, each of
those Funds may not make a short sale if as a result more than 10% of the Fund's
net assets would be held as collateral for short sales, except that All-Asia
Investment Fund may not make a short sale if as a result more than 25% of the
Fund's net assets would be held as collateral for short sales. If the price of
the security sold short increases between the time of the short sale and the
time a Fund replaces the borrowed security, the Fund will incur a loss;
conversely, if the price declines, the Fund will realize a capital gain. See
"Certain Fundamental Investment Policies." Certain special federal income tax
considerations may apply to short sales entered into by a Fund. See "Dividends,
Distributions and Taxes" in the relevant Fund's Statement of Additional
Information.
Loans of Portfolio Securities. The risks in lending portfolio securities, as
with other extensions of credit, consist of possible loss of rights in the
collateral should the borrower fail financially. In determining whether to
lend securities to a particular borrower, Alliance will consider all relevant
facts and circumstances, including the creditworthiness of the borrower.
While securities are on loan, the borrower will pay the Fund any income
earned thereon and the Fund may invest any cash collateral in portfolio
securities, thereby earning additional income, or receive an agreed upon
amount of income from a borrower who has delivered equivalent collateral.
Each Fund will have the right to regain record ownership of loaned securities
or equivalent securities in order to exercise ownership rights such as voting
rights, subscription rights and rights to dividends, interest or
distributions. A Fund may pay reasonable finders', administrative and
custodial fees in connection with a loan. A Fund will not lend its portfolio
securities to any officer, director, employee or affiliate of the Fund or
Alliance.
General. The successful use of the foregoing investment practices draws upon
Alliance's special skills and experience with respect to such instruments and
usually depends on Alliance's ability to forecast price movements, interest
rates or currency exchange rate movements correctly. Should interest rates,
prices or exchange rates move unexpectedly, a Fund may not achieve the
anticipated benefits of the transactions or may realize losses and thus
be in a worse position than if such strategies had not been used. Unlike many
exchange-traded futures contracts and options on futures contracts, there are
no daily price fluctuation limits with respect to certain options and forward
contracts, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the prices of futures contracts, options and forward contracts
and movements in the prices of the securities and currencies hedged or used
for cover will not be perfect and could produce unanticipated losses.
A Fund's ability to dispose of its position in futures contracts, options and
forward contracts depends on the availability of liquid markets in such
instruments. Markets in options and futures with respect to a number of types
of securities and currencies are relatively new and still developing, and
there is no public market for forward contracts. It is impossible to predict
the amount of trading interest that may exist in various types of futures
contracts, options and forward contracts. If a secondary market does not
exist with respect to an option purchased or written by a Fund, it might not
be possible to effect a closing transaction in the option (i.e., dispose of
the option) with the result that (i) an option purchased by the Fund would
have to be exercised in order for the Fund to realize any profit and (ii) the
Fund may not be able to sell currencies or portfolio securities covering an
option written by the Fund until the option expires or it delivers the
underlying security, futures contract or currency upon exercise. Therefore,
no assurance can be given that the Funds will be able to utilize these
instruments effectively for the purposes set forth above. Furthermore, a
Fund's ability to engage in options and futures transactions may be limited
by tax considerations. See "Dividends, Distributions and Taxes" in the
Statement of Additional Information of each Fund that invests in options and
futures.
Future Developments. A Fund may, following written notice to
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its shareholders, take advantage of other investment practices that are not
currently contemplated for use by the Fund or are not available but may yet
be developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
Defensive Position. For temporary defensive purposes, each Fund may invest in
certain types of short-term, liquid, high-grade or high quality (depending on
the Fund) debt securities. These securities may include U.S. Government
securities, qualifying bank deposits, money market instruments, prime
commercial paper and other types of short-term debt securities including
notes and bonds. For Funds that may invest in foreign countries, such
securities may also include short-term, foreign-currency denominated
securities of the type mentioned above issued by foreign governmental
entities, companies and supranational organizations. For a complete
description of the types of securities each Fund may invest in while in a
temporary defensive position, please see such Fund's Statement of Additional
Information.
Portfolio Turnover. Portfolio turnover rates are set forth under "Financial
Highlights." These portfolio turnover rates are greater than those of most
other investment companies, including those which emphasize capital
appreciation as a basic policy. A high rate of portfolio turnover involves
correspondingly greater brokerage and other expenses than a lower rate, which
must be borne by the Fund and its shareholders. High portfolio turnover also
may result in the realization of substantial net short-term capital gains.
See "Dividends, Distributions and Taxes" in each Fund's Statement of
Additional Information.
CERTAIN FUNDAMENTAL INVESTMENT POLICIES
Each Fund has adopted certain fundamental investment policies listed below,
which may not be changed without the approval of its shareholders. Additional
investment restrictions with respect to a Fund are set forth in its Statement
of Additional Information.
Alliance Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer (other than the U.S. Government); (ii) acquire
more than 10% of the voting or other securities of any one issuer; or (iii)
buy securities of any company that (including its predecessors) has not been in
business at least three continuous years. Pursuant to investment policies
which are not fundamental, the Fund does not invest (i) in puts or calls
(except as discussed above); (ii) in straddles, spreads, or any combination
thereof; (iii) in oil, gas or other mineral exploration or development
programs; or (iv) more than 5% of its gross assets in securities the
disposition of which would be subject to restrictions under the federal
securities laws.
Growth Fund and Strategic Balanced Fund each may not: (i) invest more than 5%
of its total assets in the securities of any one issuer (other than U.S.
Government securities and repurchase agreements relating thereto), although
up to 25% of each Fund's total assets may be invested without regard to this
restriction; or (ii) invest 25% or more of its total assets in the securities
of any one industry.
Premier Growth Fund may not: (i) purchase more than 10% of the outstanding
voting securities of any one issuer; (ii) invest 25% or more of the value of its
total assets in the same industry; (iii) borrow money or issue senior securities
except for temporary or emergency purposes in an amount not exceeding 5% of the
value of its total assets at the time the borrowing is made; (iv) pledge,
mortgage, hypothecate or otherwise encumber any of its assets except in
connection with the writing of call options and except to secure permitted
borrowings; or (v) invest in the securities of any issuer that has a record of
less than three years of continuous operation (including the operation of any
predecessor) if as a result more than 10% of the value of the total assets of
the Fund would be invested in the securities of such issuer or issuers.
Counterpoint Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities,
if as a result more than 5% of the value of its total assets would be
invested in such issuer or the Fund would own more than 10% of the
outstanding voting securities of such issuer, except that up to 25% of the
Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in a particular
industry; (iii) borrow money except for temporary or emergency purposes,
including meeting redemption requests which might require the untimely
disposition of securities; borrowing in the aggregate may not exceed 15%, and
borrowing for purposes other than meeting redemptions may not exceed 5% of
its total assets at the time the borrowing is made; (iv) invest more than 10%
of its net assets in the aggregate in restricted and not readily marketable
securities; (v) invest more than 10% of its total assets in the securities of
any issuer that has a record of less than three years of continuous operation
(including the operation of any predecessor); or (vi) invest more than 10% of
the value of its total assets in the aggregate in illiquid securities or
repurchase agreements not terminable within seven days.
Technology Fund may not: (i) with respect to 75% of its total assets, have
such assets represented by other than: (a) cash and cash items, (b) U.S.
Government securities, or (c) securities of any one issuer (other than the
U.S. Government and its agencies or instrumentalities) not greater in value
than 5% of the Fund's total assets, and not more than 10% of the outstanding
voting securities of such issuer; (ii) purchase the securities of any one
issuer, other than the U.S. Government and its agencies or instrumentalities,
if as a result (a) the value of the holdings of the Fund in the securities of
such issuer exceeds 25% of its total assets, or (b) the Fund owns more than
25% of the outstanding securities of any one
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class of securities of such issuer; (iii) concentrate its investments in any
one industry, but the Fund has reserved the right to invest up to 25% of its
total assets in a particular industry; and (iv) invest in the securities of
any issuer which has a record of less than three years of continuous
operation (including the operation of any predecessor) if such purchase would
cause 10% or more of its total assets to be invested in the securities of
such issuers.
Quasar Fund may not: (i) purchase the securities of any one issuer, other
than the U.S. Government or any of its agencies or instrumentalities, if as a
result more than 5% of its total assets would be invested in such issuer or
the Fund would own more than 10% of the outstanding voting securities of such
issuer, except that up to 25% of its total assets may be invested without
regard to these 5% and 10% limitations; (ii) invest more than 25% of its
total assets in any particular industry; (iii) borrow money except for
temporary or emergency purposes in an amount not exceeding 5% of its total
assets at the time the borrowing is made; or (iv) invest more than 10% of its
assets in restricted securities.
International Fund may not: (i) invest more than 5% of the value of its total
assets in securities of a single issuer (including repurchase agreements with
any one entity), except U.S. Government securities or foreign government
securities; provided, however, that the Fund may not, with respect to 75% of
its total assets, invest more than 5% of its total assets in securities of
any one foreign government issuer; (ii) own more than 10% of the outstanding
securities of any class of any issuer (for this purpose, all preferred stocks
of an issuer shall be deemed a single class, and all indebtedness of an
issuer shall be deemed a single class), except U.S. Government securities;
(iii) invest more than 25% of the value of its total assets in securities of
issuers having their principal business activities in the same industry;
provided, that this limitation does not apply to U.S. Government securities
or foreign government securities; (iv) invest more than 5% of the value of
its total assets in the securities of any issuer that has a record of less
than three years of continuous operation (including the operation of any
predecessor or unconditional guarantor), except U.S. Government securities or
foreign government securities; (v) invest more than 5% of the value of its
total assets in securities with legal or contractual restrictions on resale,
other than repurchase agreements, or more than 10% of the value of its total
assets in securities that are not readily marketable (including restricted
securities and repurchase agreements not terminable within seven business
days); and (vi) borrow money, except as a temporary measure for extraordinary
or emergency purposes, and then only from banks in amounts not exceeding 5%
of its total assets.
Worldwide Privatization Fund may not: (i) invest 25% or more of its total
assets in securities of issuers conducting their principal business
activities in the same industry, except that this restriction does not apply
to (a) U.S. Government securities, or (b) the purchase of securities of
issuers whose primary business activity is in the national commercial banking
industry, so long as the Fund's Directors determine, on the basis of factors
such as liquidity, availability of investments and anticipated returns, that
the Fund's ability to achieve its investment objective would be adversely
affected if the Fund were not permitted to invest more than 25% of its total
assets in those securities, and so long as the Fund notifies its shareholders
of any decision by the Directors to permit or cease to permit the Fund to
invest more than 25% of its total assets in those securities, such notice to
include a discussion of any increased investment risks to which the Fund may
be subjected as a result of the Directors' determination; (ii) borrow money
except from banks for temporary or emergency purposes, including the meeting
of redemption requests that might require the untimely disposition of
securities; borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5%, of the Fund's
total assets (including the amount borrowed) less liabilities
(not including the amount borrowed) at the time the borrowing is made;
outstanding borrowings in excess of 5% of the value of the Fund's total
assets will be repaid before any investments are made; or (iii) pledge,
hypothecate, mortgage or otherwise encumber its assets, except to secure
permitted borrowings. The exception contained in clause (i)(b) above is
subject to the operating policy regarding concentration described in this
Prospectus.
New Europe Fund may not: (i) purchase more than 10% of the outstanding voting
securities of any one issuer; (ii) invest more than 15% of its total assets
in the securities of any one issuer or 25% or more of its total assets in the
same industry, provided, however, that the foregoing restriction shall not be
deemed to prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the issuer,
except that no such purchase may be made if as a result the Fund will fail to
meet the diversification requirements of the Code and any such acquisition in
excess of the foregoing 15% or 25% limits will be sold by the Fund as soon as
reasonably practicable (this restriction does not apply to U.S. Government
securities, but will apply to foreign government securities unless the
Commission permits their exclusion); (iii) borrow money except from banks for
temporary or emergency purposes, including the meeting of redemption requests
that might require the untimely disposition of securities; borrowing in the
aggregate may not exceed 15%, and borrowing for purposes other than meeting
redemptions may not exceed 5%, of the Fund's total assets (including the
amount borrowed) less liabilities (not including the amount borrowed) at the
time the borrowing is made; outstanding borrowings in excess of 5% of the
Fund's total assets will be repaid before any subsequent investments are
made; or (iv) purchase a security (unless the security is acquired pursuant
to a plan of reorganization or an offer of exchange) if, as a result, the
Fund would own any securities of an open-end investment company or more than
3% of the total outstanding voting stock of any closed-end investment
company, or more than 5% of the value of the Fund's total assets would be
invested in securities of any closed-end investment company, or more than 10%
of such value in closed-end investment companies in general.
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All-Asia Investment Fund may not: (i) invest 25% or more of its total assets
in securities of issuers conducting their principal business activities in
the same industry; (ii) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate
may not exceed 15%, and borrowing for purposes other than meeting redemptions
may not exceed 5%, of the Fund's total assets (including the amount borrowed)
less liabilities (not including the amount borrowed) at the time the
borrowing is made; outstanding borrowings in excess of 5% of the value of the
Fund's total assets will be repaid before any investments are made; or (iii)
pledge, hypothecate, mortgage or otherwise encumber its assets, except to
secure permitted borrowings.
Global Small Cap Fund may not: (i) purchase the securities of any one issuer,
other than the U.S. Government or any of its agencies or instrumentalities,
if immediately after such purchase more than 5% of the value of its total
assets would be invested in such issuer or the Fund would own more than 10%
of the outstanding voting securities of such issuer, except that up to 25% of
the Fund's total assets may be invested without regard to these 5% and 10%
limitations; (ii) invest 25% or more of its total assets in the same
industry; this restriction does not apply to U.S. Government securities, but
will apply to foreign government securities unless the Commission permits
their exclusion; (iii) borrow money except from banks for emergency or
temporary purposes in an amount not exceeding 5% of the total assets of the
Fund; or (iv) make short sales of securities or maintain a short position,
unless at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable for, without
payment of any further consideration, securities of the same issue as, and
equal in amount to, the securities sold short and unless not more than 5% of
the Fund's net assets is held as collateral for such sales at any one time.
Balanced Shares may not: (i) invest more than 5% of its total assets in the
securities of any one issuer, except U.S. Government securities; or (ii) own
more than 10% of the outstanding voting securities of any one issuer.
Income Builder Fund may not: (i) invest 25% or more of its total assets in
securities of companies engaged principally in any one industry, except that
this restriction does not apply to U.S. Government securities; (ii) borrow
money except from banks for temporary or emergency purposes, including the
meeting of redemption requests that might require the untimely disposition of
securities; borrowing in the aggregate may not exceed 15%, and borrowing for
purposes other than meeting redemptions may not exceed 5%, of the Fund's
total assets (including the amount borrowed) less liabilities (not including
the amount borrowed) at the time borrowing is made; securities will not be
purchased while borrowings in excess of 5% of the Fund's total assets are
outstanding; or (iii) pledge, hypothecate, mortgage or otherwise encumber its
assets, except to secure permitted borrowings.
Utility Income Fund may not: (i) invest more than 5% of its total assets in the
securities of any one issuer except the U.S. Government, although with respect
to 25% of its total assets it may invest in any number of issuers; (ii) invest
25% or more of its total assets in the securities of issuers conducting their
principal business activities in any one industry, other than the utilities
industry, except that this restriction does not apply to U.S. Government
securities; (iii) purchase more than 10% of any class of the voting securities
of any one issuer; (iv) borrow money except from banks for temporary or
emergency purposes, including the meeting of redemption requests that might
require the untimely disposition of securities; borrowing in the aggregate may
not exceed 15%, and borrowing for purposes other than meeting redemptions may
not exceed 5%, of the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the borrowing is
made; outstanding borrowings in excess of 5% of the Fund's total assets will be
repaid before any subsequent investments are made; or (v) purchase a security
if, as a result (unless the security is acquired pursuant to a plan of
reorganization or an offer of exchange), the Fund would own any securities of an
open-end investment company or more than 3% of the total outstanding voting
stock of any closed-end investment company or more than 5% of the value of the
Fund's net assets would be invested in securities of any one or more closed-end
investment companies.
Growth and Income Fund may not (i) invest more than 5% of its net assets in
the security of any one issuer, except U.S. Government obligations or (ii)
own more than 10% of the outstanding voting securities of any issuer.
RISK CONSIDERATIONS
Investment in certain of the Funds involves the special risk considerations
described below. These risks may be heightened when investing in emerging
markets.
Investment in Privatized Enterprises by Worldwide Privatization Fund. In
certain jurisdictions, the ability of foreign entities, such as the Fund, to
participate in privatizations may be limited by local law, or the price or
terms on which the Fund may be able to participate may be less advantageous
than for local investors. Moreover, there can be no assurance that
governments that have embarked on privatization programs will continue to
divest their ownership of state enterprises, that proposed privatizations
will be successful or that governments will not re-nationalize enterprises
that have been privatized. Furthermore, in the case of certain of the
enterprises in which the Fund may invest, large blocks of the stock of those
enterprises may be held by a small group of stockholders, even after the
initial equity offerings by those enterprises. The sale of some portion or
all of those blocks could have an adverse effect on the price of the stock of
any such enterprise.
Most state enterprises or former state enterprises go through an internal
reorganization of management prior to conducting an initial equity offering
in an attempt to better enable these enterprises to compete in the private
sector. However, certain
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reorganizations could result in a management team that does not function as
well as the enterprise's prior management and may have a negative effect on
such enterprise. After making an initial equity offering, enterprises that
may have enjoyed preferential treatment from the respective state or
government that owned or controlled them may no longer receive such
preferential treatment and may become subject to market competition from
which they were previously protected. Some of these enterprises may not be
able to effectively operate in a competitive market and may suffer losses or
experience bankruptcy due to such competition. In addition, the privatization
of an enterprise by its government may occur over a number of years, with the
government continuing to hold a controlling position in the enterprise even
after the initial equity offering for the enterprise.
Currency Considerations. Substantially all of the assets of International
Fund, New Europe Fund, All-Asia Investment Fund, Global Small Cap Fund and
Worldwide Privatization Fund will be invested in securities denominated in
foreign currencies, and a corresponding portion of these Funds' revenues will
be received in such currencies. Therefore, the dollar equivalent of their net
assets, distributions and income will be adversely affected by reductions in
the value of certain foreign currencies relative to the U.S. dollar. If the
value of the foreign currencies in which a Fund receives its income falls
relative to the U.S. dollar between receipt of the income and the making of
Fund distributions, the Fund may be required to liquidate securities in order
to make distributions if it has insufficient cash in U.S. dollars to meet
distribution requirements that the Fund must satisfy to qualify as a
regulated investment company for federal income tax purposes. Similarly, if
an exchange rate declines between the time a Fund incurs expenses in U.S.
dollars and the time cash expenses are paid, the amount of the currency
required to be converted into U.S. dollars in order to pay expenses in U.S.
dollars could be greater than the equivalent amount of such expenses in the
currency at the time they were incurred. In light of these risks, a Fund may
engage in certain currency hedging transactions, which themselves involve
certain special risks. See "Additional Investment Practices" above.
Foreign Investment. The securities markets of many foreign countries are
relatively small, with the majority of market capitalization and trading volume
concentrated in a limited number of companies representing a small number of
industries. Consequently, a Fund whose investment portfolio includes such
securities may experience greater price volatility and significantly lower
liquidity than a portfolio invested solely in equity securities of United States
companies. These markets may be subject to greater influence by adverse events
generally affecting the market, and by large investors trading significant
blocks of securities, than is usual in the United States. Securities settlements
may in some instances be subject to delays and related administrative
uncertainties. These problems are particularly severe in India, where settlement
is through physical delivery, and, where, currently, a severe shortage of vault
capacity exists among custodial banks, although efforts are being undertaken to
alleviate the shortage. Certain foreign countries require governmental approval
prior to investments by foreign persons or limit investment by foreign persons
to only a specified percentage of an issuer's outstanding securities or a
specific class of securities which may have less advantageous terms (including
price) than securities of the company available for purchase by nationals. These
restrictions or controls may at times limit or preclude investment in certain
securities and may increase the costs and expenses of a Fund. In addition, the
repatriation of investment income, capital or the proceeds of sales of
securities from certain of the countries is controlled under regulations,
including in some cases the need for certain advance government notification or
authority, and if a deterioration occurs in a country's balance of payments, the
country could impose temporary restrictions on foreign capital remittances.
A Fund could be adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation, as well as by the application
to it of other restrictions on investment. Investing in local markets may
require a Fund to adopt special procedures, which may involve additional costs
to a Fund. The liquidity of a Fund's investments in any country in which any of
these factors exists could be affected and Alliance will monitor the effect of
any such factor or factors on a Fund's in vestments. Furthermore, transaction
costs including brokerage commissions for transactions both on and off the
securities exchanges in many foreign countries are generally higher than in
the U.S.
Issuers of securities in foreign jurisdictions are generally not subject to
the same degree of regulation as are U.S. issuers with respect to such
matters as insider trading rules, restrictions on market manipulation,
shareholder proxy requirements and timely disclosure of information. The
reporting, accounting and auditing standards of foreign countries may differ,
in some cases significantly, from U.S. standards in important respects and
less information may be available to investors in foreign securities than to
investors in U.S. securities. Substantially less information is publicly
available about certain non-U.S. issuers than is available about U.S.
issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross
domestic product or gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position.
Nationalization, expropriation or confiscatory taxation, currency blockage,
political changes, government regulation, political or social instability or
diplomatic developments could affect adversely the economy of a foreign
country or the Fund's investments in such country. In the event of
expropriation, nationalization or other confiscation, a Fund could lose its
entire investment in the country involved. In addition, laws in foreign
countries governing business organizations, bankruptcy
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and insolvency may provide less protection to security holders such as the
Fund than that provided by U.S. laws.
Investment in United Kingdom Issuers by New Europe Fund. Investment in
securities of United Kingdom issuers involves certain considerations not
present with investment in securities of U.S. issuers. As with any investment
not denominated in the U.S. dollar, the U.S. dollar value of the Fund's
investment denominated in the British pound sterling will fluctuate with
pound sterling--dollar exchange rate movements. Since 1972, when the pound
sterling was allowed to float against other currencies, it has generally
depreciated against most major currencies, including the U.S. dollar. From
1990 through 1994, the pound sterling declined at an average annual rate of
approximately 3.6% against the U.S. dollar. Between September and December
1992, after the United Kingdom's exit from the Exchange Rate Mechanism of the
European Monetary System, the value of the pound sterling fell by almost 20%
against the U.S. dollar. The pound sterling continued to fall in early 1993,
but recovered due to interest rate cuts throughout Europe and an upturn in
the economy of the United Kingdom.
The United Kingdom's largest stock exchange is the International Stock Exchange
of the United Kingdom and the Republic of Ireland (The London Stock Exchange),
which is the third largest exchange in the world. As measured by the FT-SE 100
index, the performance of the 100 largest companies in the United Kingdom
reached a record high of 3593.0 on October 18, 1995, up 17% from the end of
1994.
The public sector borrowing requirement ("PSBR"), a mandated measure of the
amount required to balance the budget, is running in excess of the November
1994 budget estimate, as a result of decreased revenue growth and increased
government spending. The PSBR estimate for the 1996-97 fiscal year has also
been raised, but is still expected to be under the European Union limit.
Since 1979, the Conservative Party has controlled Parliament. However, in
recent years, this dominance has been called into question. In 1990, due to
an internal challenge for leadership the Conservative Party chose John Major
to replace Margaret Thatcher as Prime Minister. Mr. Major's position has been
strengthened by his reelection as leader of the Conservative Party and is
expected to retain that position until the next general election. Unless the
Conservative Party calls for an earlier election, the next general election
will take place in April 1997. For further information regarding the United
Kingdom, see the Fund's Statement of Additional Information.
Investment in Japanese Issuers by All-Asia Investment Fund and International
Fund. Investment in securities of Japanese issuers involves certain
considerations not present with investment in securities of U.S. issuers. As
with any investment not denominated in the U.S. dollar, the U.S. dollar value
of each Fund's investments denominated in the Japanese yen will fluctuate
with yen-dollar exchange rate movements. The Japanese yen has generally been
appreciating against the U.S. dollar for the past decade but has recently
fallen from its post-World War II high against the U.S. dollar.
Japan's largest stock exchange is the Tokyo Stock Exchange, the First Section
of which is reserved for larger, established companies. As measured by the
TOPIX, a capitalization-weighted composite index of all common stocks listed
in the First Section, the performance of the First Section reached a peak in
1989. Thereafter, the TOPIX declined approximately 46% through the beginning
of 1993. In 1993, the TOPIX increased by approximately 9% from the end of
1992, and by the end of 1994 increased by approximately 8% from the end of
1993. As of October 27, 1995, the TOPIX had declined by approximately 11% from
the end of 1994. Certain valuation measures, such as price-to-book value and
price-to-cash flow ratios, indicate that the Japanese stock market is near its
lowest level in the last twenty years relative to other world markets. The
price/earnings ratios of First Section companies, however, are on average high
in comparison with other major stock markets.
In recent years, Japan has consistently recorded large current account trade
surpluses with the U.S. that have caused difficulties in the relations between
the two countries. On October 1, 1994, the U.S. and Japan reached an agreement
that may lead to more open Japanese markets with respect to trade in certain
goods and services. In June 1995, the two countries agreed in principle to
increase Japanese imports of American automobiles and automotive parts.
Nevertheless it is expected that the continuing friction between the U.S. and
Japan with respect to trade issues will continue for the foreseeable future.
Each Fund's investments in Japanese issuers also will be subject to
uncertainty resulting from the instability of recent Japanese ruling
coalitions. From 1955 to 1993, Japan's government was controlled by a single
political party. In August 1993, following a split in that party, a coalition
government was formed. That coalition government collapsed in April 1994, and
was replaced by a minority coalition that, in turn, collapsed in June 1994.
The stability of the current ruling coalition, the third since 1993, and the
first in 47 years led by a socialist, is not assured. For further information
regarding Japan, see each Fund's Statement of Additional Information.
Investment in Smaller, Emerging Companies. The Funds may invest in smaller,
emerging companies. Global Small Cap Fund and New Europe Fund will emphasize
investment in, and All-Asia Investment Fund may emphasize investment in,
smaller, emerging companies. Investment in such companies involves greater
risks than is customarily associated with securities of more established
companies. The securities of smaller companies may have relatively limited
marketability and may be subject to more abrupt or erratic market movements
than securities of larger companies or broad market indices.
U.S. and Foreign Taxes. Foreign taxes paid by a Fund may be creditable or
deductible by U.S. shareholders for U.S. income tax purposes. No assurance
can be given that applicable tax laws and interpretations will not change in
the future. Moreover, non-U.S. investors may not be able to credit or deduct
such foreign taxes. Investors should review carefully the information
discussed under the heading "Dividends, Distributions and Taxes" and should
discuss with their tax advisers the specific tax consequences of investing in
a Fund.
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Fixed-Income Securities. The value of each Fund's shares will fluctuate with
the value of its investments. The value of each Fund's investments in
fixed-income securities will change as the general level of interest rates
fluctuates. During periods of falling interest rates, the values of
fixed-income securities generally rise. Conversely, during periods of rising
interest rates, the values of fixed-income securities generally decline.
Under normal market conditions, the average dollar-weighted maturity of a
Fund's portfolio of debt or other fixed-income securities is expected to vary
between five and 30 years in the case of All-Asia Investment Fund, between
eight and 15 years in the case of Income Builder Fund, between five and 25
years in the case of Utility Income Fund and between one year or less and 30
years in the case of all other Funds that invest in such securities.
Securities Ratings. The ratings of securities by S&P, Moody's, Duff & Phelps
and Fitch are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In
addition, there may be varying degrees of difference in credit risk of
securities within each rating category.
Securities rated Aaa by Moody's and AAA by S&P, Duff & Phelps and Fitch are
considered to be of the highest quality; capacity to pay interest and repay
principal is extremely strong. Securities rated Aa by Moody's and AA by S&P,
Duff & Phelps and Fitch are considered to be high quality; capacity to repay
principal is considered very strong, although elements may exist that make
risks appear somewhat larger than exist with securities rated Aaa or AAA.
Securities rated A are considered by Moody's to possess adequate factors
giving security to principal and interest. S&P, Duff & Phelps and Fitch
consider such securities to have a strong capacity to pay interest and repay
principal. Such securities are more susceptible to adverse changes in
economic conditions and circumstances than higher-rated securities.
Securities rated Baa by Moody's and BBB by S&P, Duff & Phelps and Fitch are
considered to have an adequate capacity to pay interest and repay principal.
Such securities are considered to have speculative characteristics and share
some of the same characteristics as lower-rated securities. Sustained periods
of deteriorating economic conditions or of rising interest rates are more
likely to lead to a weakening in the issuer's capacity to pay interest and
repay principal than in the case of higher-rated securities. Securities rated
Ba by Moody's and BB by S&P, Duff & Phelps and Fitch are considered to have
speculative characteristics with respect to capacity to pay interest and
repay principal over time; their future cannot be considered as well-assured.
Securities rated B by Moody's, S&P, Duff & Phelps and Fitch are considered to
have highly speculative characteristics with respect to capacity to pay
interest and repay principal. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Securities rated Caa by Moody's and CCC by S&P, Duff & Phelps and Fitch are
of poor standing and there is a present danger with respect to payment of
principal or interest. Securities rated Ca by Moody's and CC by S&P and Fitch
are minimally protected, and default in payment of principal or interest is
probable. Securities rated C by Moody's, S&P and Fitch are in imminent
default in payment of principal or interest and have extremely poor prospects
of ever attaining any real investment standing. Securities rated D by S&P and
Fitch are in default. The issuer of securities rated DD by Duff & Phelps is
under an order of liquidation.
Investment in Lower-Rated Fixed-Income Securities. Lower-rated securities, i.e.,
those rated Ba and lower by Moody's or BB and lower by S&P, Duff & Phelps or
Fitch, are subject to greater risk of loss of principal and interest than
higher-rated securities. They are also generally considered to be subject to
greater market risk than higher-rated securities, and the capacity of issuers of
lower-rated securities to pay interest and repay principal is more likely to
weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition, lower-
rated securities may be more susceptible to real or perceived adverse economic
conditions than investment grade securities, although the market values of
securities rated below investment grade and comparable unrated securities tend
to react less to fluctuations in interest rate levels than do those of higher-
rated securities.
The market for lower-rated securities may be thinner and less active than
that for higher-rated securities, which can adversely affect the prices at
which these securities can be sold. To the extent that there is no
established secondary market for lower-rated securities, a Fund may
experience difficulty in valuing such securities and, in turn, the Fund's
assets. In addition, adverse publicity and investor perceptions about
lower-rated securities, whether or not factual, may tend to impair their
market value and liquidity.
Alliance will try to reduce the risk inherent in investment in lower-rated
securities through credit analysis, diversification and attention to current
developments and trends in interest rates and economic and political
conditions. However, there can be no assurance that losses will not occur.
Since the risk of default is higher for lower-rated securities, Alliance's
research and credit analysis are a correspondingly more important aspect of
its program for managing a Fund's securities than would be the case if a Fund
did not invest in lower-rated securities.
In seeking to achieve a Fund's investment objective, there will be times,
such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in a Fund's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in
yield and market values than higher-rated securities under certain market
conditions. Such fluctuations after a security is acquired do not affect the
cash income received from that security but are reflected in the net asset
value of a Fund. See the Statement of Additional Information for each Fund
that invests in lower-rated
39
<PAGE>
securities for a description of the bond ratings of Moody's, S&P, Duff & Phelps
and Fitch.
Certain lower-rated securities in which Growth Fund, Income Builder Fund and
Utility Income Fund may invest may contain call or buy-back features that permit
the issuers thereof to call or repurchase such securities. Such securities may
present risks based on prepayment expectations. If an issuer exercises such a
provision, a Fund may have to replace the called security with a lower yielding
security, resulting in a decreased rate of return to the Fund.
Non-Diversified Status. Each of Premier Growth Fund, Worldwide Privatization
Fund, New Europe Fund, All-Asia Investment Fund and Income Builder Fund is a
"non-diversified" investment company, which means the Fund is not limited in the
proportion of its assets that may be invested in the securities of a single
issuer. However, each Fund intends to conduct its operations so as to qualify to
be taxed as a "regulated investment company" for purposes of the Code, which
will relieve the Fund of any liability for federal income tax to the extent its
earnings are distributed to shareholders. See "Dividends, Distributions and
Taxes" in each Fund's Statement of Additional Information. To so qualify, among
other requirements, the Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) not more than 25% of the Fund's total
assets will be invested in the securities of a single issuer, and (ii) with
respect to 50% of its total assets, not more than 5% of its total assets will be
invested in the securities of a single issuer and the Fund will not own more
than 10% of the outstanding voting securities of a single issuer. A Fund's
investments in U.S. Government securities are not subject to these limitations.
Because Premier Growth Fund, Worldwide Privatization Fund, New Europe Fund,
All-Asia Investment Fund and Income Builder Fund is each a non-diversified
investment company, it may invest in a smaller number of individual issuers than
a diversified investment company, and an investment in such Fund may, under
certain circumstances, present greater risk to an investor than an investment in
a diversified investment company.
Foreign government securities are not treated like U.S. Government securities
for purposes of the diversification tests described in the preceding paragraph,
but instead are subject to these tests in the same manner as the securities of
non-governmental issuers.
- --------------------------------------------------------------------------------
Purchase And Sale
- --------------------------------------------------------------------------------
Of Shares
- --------------------------------------------------------------------------------
HOW TO BUY SHARES
You can purchase shares of any of the Funds through broker-dealers, banks or
other financial intermediaries, or directly through Alliance Fund Distributors,
Inc. ("AFD"), each Fund's principal underwriter. The minimum initial investment
in each Fund is $250. The minimum for subsequent investments in each Fund is
$50. Investments of $25 or more are allowed under the automatic investment
program of each Fund. Share certificates are issued only upon request. See the
Subscription Application and Statement of Additional Information for more
information.
Each Fund offers three classes of shares, Class A, Class B and Class C.
Class A Shares--Initial Sales Charge Alternative
You can purchase Class A shares at net asset value plus an initial sales charge,
as follows:
<TABLE>
<CAPTION>
Initial Sales Charge
as % of Commission to
Net Amount as % of Dealer/Agent as %
Amount Purchased Invested Offering Price of Offering Price
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $100,000 4.44% 4.25% 4.00%
- ---------------------------------------------------------------------------
$100,000 to
less than $250,000 3.36 3.25 3.00
- ---------------------------------------------------------------------------
$250,000 to
less than $500,000 2.30 2.25 2.00
- ---------------------------------------------------------------------------
$500,000 to
less than $1,000,000 1.78 1.75 1.50
- ---------------------------------------------------------------------------
</TABLE>
On purchases of $1,000,000 or more, you pay no initial sales charge but may pay
a contingent deferred sales charge ("CDSC") equal to 1% of the lesser of net
asset value at the time of redemption or original cost if you redeem within one
year; Alliance may pay the dealer or agent a fee of up to 1% of the dollar
amount purchased. Certain purchases of Class A shares may qualify for reduced or
eliminated sales charges in accordance with a Fund's Combined Purchase
Privilege, Cumulative Quantity Discount, Statement of Intention, Privilege for
Certain Retirement Plans, Reinstatement Privilege and Sales at Net Asset Value
programs. Consult the Subscription Application and Statement of Additional
Information.
Class B Shares--Deferred Sales Charge Alternative
You can purchase Class B shares at net asset value without an initial sales
charge. However, you may pay a CDSC if you redeem shares within four years after
purchase. The amount of the CDSC (expressed as a percentage of the lesser of the
current net asset value or original cost) will vary according to the number of
years from the purchase of Class B shares until the redemption of those shares.
40
<PAGE>
The amount of the CDSC for each Fund is as set forth below. Class B shares of a
Fund purchased prior to the date of this Prospectus may be subject to a
different CDSC schedule, which was disclosed in the Fund's prospectus in use at
the time of purchase and is set forth in the Fund's current Statement of
Additional Information.
<TABLE>
<CAPTION>
Year Since Purchase CDSC
-------------------------------------------------
<S> <C>
First.................................... 4.0%
Second................................... 3.0%
Third.................................... 2.0%
Fourth................................... 1.0%
Fifth.................................... None
</TABLE>
Class B shares are subject to higher distribution fees than Class A shares for a
period (after which they convert to Class A shares) of eight years, or six years
with respect to Premier Growth Fund. The higher fees mean a higher expense
ratio, so Class B shares pay correspondingly lower dividends and may have a
lower net asset value than Class A shares.
Class C Shares--Asset-Based Sales Charge Alternative
You can purchase Class C shares without any initial sales charge or a CDSC. A
Fund will thus receive the full amount of your purchase, and you will receive
the entire net asset value of your shares upon redemption. Class C shares incur
higher distribution fees than Class A shares and do not convert to any other
class of shares of the Fund. The higher fees mean a higher expense ratio, so
Class C shares pay correspondingly lower dividends and may have a lower net
asset value than Class A shares.
Application of the CDSC
Shares obtained from dividend or distribution reinvestment are not subject to
the CDSC on Class A and Class B shares. The CDSC is deducted from the amount of
the redemption and is paid to AFD. The CDSC will be waived on redemptions of
shares following the death or disability of a shareholder, to meet the
requirements of certain qualified retirement plans or pursuant to a systematic
withdrawal plan. See the Statements of Additional Information.
How the Funds Value Their Shares
The net asset value of each Class of shares of a Fund is calculated by dividing
the value of the Fund's net assets allocable to that Class by the outstanding
shares of that Class. Shares are valued each day the New York Stock Exchange
(the "Exchange") is open as of the close of regular trading (currently 4:00 p.m.
Eastern time). The securities in a Fund are valued at their current market value
determined on the basis of market quotations or, if such quotations are not
readily available, such other methods as the Fund's Directors believe would
accurately reflect fair market value.
General
The decision as to which Class of shares is more beneficial to you depends on
the amount and intended length of your investment. If you are making a large
investment, thus qualifying for a reduced sales charge, you might consider Class
A shares. If you are making a smaller investment, you might consider Class B
shares because 100% of your purchase is invested immediately. If you are unsure
of the length of your investment, you might consider Class C shares because
there are no initial or contingent deferred sales charges. Consult your
financial agent. Dealers and agents may receive differing compensation for
selling Class A, Class B or Class C shares. There is no size limit on purchases
of Class A shares. The maximum purchase of Class C shares is $5,000,000. The
maximum purchase of Class B shares is $250,000. The Funds may refuse any order
to purchase shares.
In addition to the discount or commission paid to dealers or agents, AFD from
time to time pays additional cash or other incentives to dealers or agents,
including Equico Securities, Inc., an affiliate of AFD, in connection with the
sale of shares of the Funds. Such additional amounts may be utilized, in whole
or in part, in some cases together with other revenues of such dealers or
agents, to provide additional compensation to registered representatives who
sell shares of the Funds. On some occasions, such cash or other incentives will
be conditioned upon the sale of a specified minimum dollar amount of the shares
of a Fund and/or other Alliance Mutual Funds during a specific period of time.
Such incentives may take the form of payment for attendance at seminars, meals,
sporting events or theater performances, or payment for travel, lodging and
entertainment incurred in connection with travel by persons associated with a
dealer or agent and their immediate family members to urban or resort locations
within or outside the United States. Such dealer or agent may elect to receive
cash incentives of equivalent amount in lieu of such payments.
HOW TO SELL SHARES
You may "redeem", i.e., sell your shares in a Fund to the Fund on any day the
Exchange is open, either directly or through your financial intermediary. The
price you will receive is the net asset value (less any applicable CDSC for
Class A and Class B shares) next calculated after the Fund receives your request
in proper form. Proceeds generally will be sent to you within seven days.
However, for shares recently purchased by check or electronic funds transfer, a
Fund will not send proceeds until it is reasonably satisfied that the check or
electronic funds transfer has been collected (which may take up to 15 days).
Selling Shares Through Your Broker
A Fund must receive your broker's request before 4:00 p.m. Eastern time for you
to receive that day's net asset value (less any applicable CDSC for Class A and
Class B shares). Your broker is responsible for furnishing all necessary
documentation to a Fund and may charge you for this service.
Selling Shares Directly To A Fund
Send a signed letter of instruction or stock power form to Alliance Fund
Services, Inc. ("AFS"), each Fund's registrar, transfer agent and dividend-
disbursing agent, along with certificates, if any, that represent the shares you
want to sell. For your protection, signatures must be guaranteed by a bank,
41
<PAGE>
a member firm of a national stock exchange or other eligible guarantor
institution. Stock power forms are available from your financial intermediary,
AFS, and many commercial banks. Additional documentation is required for the
sale of shares by corporations, intermediaries, fiduciaries and surviving joint
owners. For details contact:
Alliance Fund Services
P.O. Box 1520
Secaucus, NJ 07096-1520
1-800-221-5672
Alternatively, a request for redemption of shares for which no stock
certificates have been issued can also be made by telephone to 800-221-5672 by a
shareholder who has completed the Subscription Application or an "Autosell"
application obtained from AFS. Telephone redemption requests must be for at
least $500 and may not exceed $100,000, and must be made between 9 a.m. and 4
p.m. Eastern time on a Fund business day. Proceeds of telephone redemptions will
be sent by electronic funds transfer. Proceeds of telephone redemptions also may
be sent by check to a shareholder's address of record, but only once in any 30-
day period and in an amount not exceeding $50,000. Telephone redemption by check
is not available for shares purchased within 15 calendar days prior to the
redemption request, shares held in nominee or "street name" accounts or
retirement plan accounts or shares held by a shareholder who has changed his or
her address of record within the previous 30 calendar days.
General
The sale of shares is a taxable transaction for federal tax purposes. Under
unusual circumstances, a Fund may suspend redemptions or postpone payment for up
to seven days or longer, as permitted by federal securities law. The Funds
reserve the right to close an account that through redemption has remained below
$200 for 90 days. Shareholders will receive 60 days' written notice to increase
the account value before the account is closed.
During drastic economic or market developments, you might have difficulty
reaching AFS by telephone, in which event you should issue written instructions
to AFS. AFS is not responsible for the authenticity of telephonic requests to
purchase, sell or exchange shares. AFS will employ reasonable procedures to
verify that telephone requests are genuine, and could be liable for losses
resulting from unauthorized transactions if it failed to do so. Dealers and
agents may charge a commission for handling telephonic requests. The telephone
service may be suspended or terminated at any time without notice.
SHAREHOLDER SERVICES
AFS offers a variety of shareholder services. For more information about these
services or your account, call AFS's toll-free number, 800-221-5672. Some
services are described in the attached Application. A shareholder's manual
explaining all available services will be provided upon request. To request a
shareholder manual, call 800-227-4618.
HOW TO EXCHANGE SHARES
You may exchange your shares of any Fund for shares of the same class of other
Alliance Mutual Funds (which include AFD Exchange Reserves, a money market fund
managed by Alliance). Exchanges of shares are made at the net asset values next
determined without sales or service charges. Exchanges may be made by telephone
or written request.
Class A and Class B shares will continue to age without regard to exchanges for
purposes of determining the CDSC, if any, upon redemption and, in the case of
Class B shares, for the purposes of conversion to Class A shares. After an
exchange, your Class B shares will automatically convert to Class A shares in
accordance with the conversion schedule applicable to the Class B shares of the
Alliance Mutual Fund you originally purchased for cash ("original shares"). When
redemption occurs, the CDSC applicable to the original shares is applied.
Please read carefully the Prospectus of the mutual fund into which you are
exchanging before submitting the request. Call AFS at 800-221-5672 to exchange
uncertificated shares. An exchange is a taxable capital transaction for federal
tax purposes. The exchange service may be changed, suspended, or terminated on
60 days' written notice.
- --------------------------------------------------------------------------------
Management Of The Funds
- --------------------------------------------------------------------------------
ADVISER
Alliance, which is a Delaware limited partnership with principal offices at 1345
Avenue of the Americas, New York, New York 10105, has been retained under an
advisory agreement (the "Advisory Agreement") to provide investment advice and,
in general, to conduct the management and investment program of each Fund,
subject to the general supervision and control of the Directors of the Fund.
The following table lists the person or persons who are primarily responsible
for the day-to-day management of each Fund's portfolio, the length of time that
each person has been primarily responsible, and each person's principal
occupation during the past five years.
42
<PAGE>
<TABLE>
<CAPTION>
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
<S> <C> <C>
The Alliance Fund Alfred Harrison since 1989-- Associated with
Vice Chairman of Alliance Capital Alliance
Management Corporation
("ACMC")*
Paul H. Jenkel since 1985-- Associated with
Senior Vice President of ACMC Alliance
Growth Fund Tyler Smith since inception-- Associated with
Senior Vice President of ACMC Alliance since
July 1993; prior
thereto,
associated with
Equitable Capital
Management
Corporation
("Equitable
Capital")**
Premier Growth Fund Alfred Harrison since inception-- (see above)
(see above)
Counterpoint Fund David P. Handke, Jr. since Associated with
inception--Vice President of ACMC Alliance
Jon H. Outcalt since inception-- Associated with
Senior Vice President of ACMC Alliance
Technology Fund Peter Anastos since 1992-- Associated with
Senior Vice President of ACMC Alliance
Gerald T. Malone since 1992-- Associated with
Senior Vice President of ACMC Alliance since
1992; prior
thereto
associated with
College
Retirement
Equities Fund
Quasar Fund Alden M. Stewart since 1994-- Associated with
Executive Vice President of ACMC Alliance since
1993; prior
thereto,
associated with
Equitable Capital
Randall E. Haase since 1994-- Associated with
Senior Vice President of ACMC Alliance since July
1993; prior
thereto,
associated with
Equitable Capital
Timothy Rice since 1993-- Associated with
Vice President of ACMC Alliance
International Fund A. Rama Krishna since 1993-- Associated with
Senior Vice President of ACMC Alliance since
and director of Asian Equity 1993, prior
research thereto,
Chief Investment
Strategist and
Director--Equity
Research for CS
First Boston
Worldwide Mark H. Breedon since inception--- Associated with
Privatization Senior Vice President of ACMC Alliance
and Director and Vice President
of Alliance Capital Limited***
New Europe Fund Eric N. Perkins since 1992-- Associated with
Senior Vice President of ACMC Alliance
and director of European equity
research
Principal occupation
during the past
Fund Employee; year; title five years
- --------------------------------------------------------------------------------
<S> <C> <C>
All-Asia Investment A. Rama Krishna--since inception (see above)
Fund (see above)
Global Small Cap Ronald L. Simcoe since 1993-- Associated with
Fund Vice President of ACMC Alliance since
1993; prior
thereto,
associated with
Equitable Capital
Alden Stewart since 1994-- (see above)
(see above)
Randall E. Haase since 1994-- (see above)
(see above)
Timothy Rice since 1993-- (see above)
(see above)
Strategic Balanced Bruce W. Calvert since 1990-- Associated with
Fund Vice Chairman and the Chief Alliance
Investment Officer of ACMC
Balanced Shares Bruce W. Calvert since 1990-- Associated with
(see above) Alliance
Income Builder Fund Andrew M. Aran since 1994-- Associated with
Senior Vice President of ACMC Alliance since
March 1991; prior
thereto, a Vice
President of
PaineWebber, Inc.
Thomas M. Perkins since 1991-- Associated with
Senior Vice President of ACMC Alliance
Utility Income Fund Alan Levi since 1994-- Associated with
Senior Vice President and Alliance
Director of Research of ACMC
Gregory Allison since 1995-- Associated with
Portfolio Manager of Utility Alliance since
Income Fund 1994; prior
thereto associated
with
Gabelli & Co.
Growth & Income Paul Rissman since 1994-- Associated with
Fund Vice President of ACMC Alliance
</TABLE>
- --------------------------------------------------------------------------------
* The sole general partner of Alliance.
** Equitable Capital was, prior to Alliance's acquisition of it, a management
firm under common control with Alliance.
*** An indirect wholly-owned subsidiary of Alliance.
Alliance is a leading international investment manager supervising client
accounts with assets as of September 30, 1995 totaling more than $140 billion
(of which approximately $47 billion represented the assets of investment
companies). Alliance's clients are primarily major corporate employee benefit
funds, public employee retirement systems, investment companies, foundations and
endowment funds. The 50 registered investment companies managed by Alliance
comprising 104 separate investment portfolios currently have over two million
shareholders. As of September 30, 1995, Alliance was retained as an investment
manager for 29 of the Fortune 100 companies.
ACMC, the sole general partner of, and the owner of a 1% general partnership
interest in, Alliance, is an indirect wholly-owned subsidiary of The Equitable
Life Assurance Society of the United States ("Equitable"), one of the largest
life insurance companies in the United States, which is a wholly-owned
subsidiary of The Equitable Companies Incorporated, a holding company controlled
by AXA, a French insurance holding company. Certain information concerning the
ownership and control of
43
<PAGE>
Equitable by AXA is set forth in each Fund's Statement of Additional Information
under "Management of the Fund."
ADMINISTRATOR AND CONSULTANT TO ALL-ASIA INVESTMENT FUND
Alliance has been retained by All-Asia Investment Fund under an administration
agreement (the "Administration Agreement") to perform administrative services
necessary for the operation of the Fund. For a description of such services, see
the Statement of Additional Information of the Fund.
In connection with its provision of advisory services to All-Asia Investment
Fund, Alliance has retained at its expense OCBC Asset Management Limited ("OAM")
as a consultant to provide to Alliance such statistical and other factual
information, research and assistance with respect to economic, financial,
political, technological and social conditions and trends in Asian countries,
including information on markets and industries, as Alliance shall from time to
time request. OAM will not furnish investment advice or make recommendations
regarding the purchase or sale of securities by the Fund nor will it be
responsible for making investment decisions involving Fund assets.
OAM is one of the largest Singapore-based investment management companies
specializing in investment in Asia-Pacific markets. OAM provides consulting and
advisory services to institutions and individuals, including mutual funds. As of
June 30, 1995, OAM had approximately $1.5 billion in assets under management.
OAM is a wholly-owned subsidiary of Oversea-Chinese Banking Corporation Limited
("OCBC Bank"), which is based in Singapore. The OCBC Bank Group has an extensive
network of banking offices in the Asian Pacific region. The OCBC Bank Group
engages in a wide variety of activities including commercial banking, investment
banking, and property and hotel investment and management. OCBC Bank is the
third largest company listed on the Stock Exchange of Singapore with a market
capitalization as of June 30, 1995 of approximately $6.6 billion.
EXPENSES OF ALL-ASIA INVESTMENT FUND
In addition to the payments to Alliance under the Advisory Agreement and
Administration Agreement with All-Asia Investment Fund, all as described above,
the Fund pays certain other costs, including (i) custody, transfer and dividend
disbursing expenses, (ii) fees of the Directors who are not affiliated with
Alliance, (iii) legal and auditing expenses (iv) clerical, accounting and other
office costs, (v) costs of printing each Fund's prospectuses and shareholder
reports, (vi) costs of maintaining each Fund's existence, (vii) interest
charges, taxes, brokerage fees and commissions, (viii) costs of stationery and
supplies, (ix) expenses and fees related to registration and filings with the
Commission and with state regulatory authorities, (x) upon the approval of the
Board of Directors, costs of personnel of Alliance or its affiliates rendering
clerical, accounting and other office services, and (xi) such promotional
expenses as may be contemplated by the Distribution Services Agreement,
described below.
DISTRIBUTION SERVICES AGREEMENTS
Rule 12b-1 adopted by the Commission under the 1940 Act permits an investment
company to pay expenses associated with the distribution of its shares in
accordance with a duly adopted plan. Each Fund has adopted one or more "Rule
12b-1 plans" (for each Fund, a "Plan") and has entered into a Distribution
Services Agreement (the "Agreement") with AFD. Pursuant to its Plan, a Fund pays
to AFD a Rule 12b-1 distribution services fee, which may not exceed an annual
rate of .30% (.50% with respect to Growth Fund, Premier Growth Fund and
Strategic Balanced Fund) of the Fund's aggregate average daily net assets
attributable to the Class A shares, 1.00% of the Fund's aggregate average daily
net assets attributable to the Class B shares and 1.00% of the Fund's aggregate
average daily net assets attributable to the Class C shares, for distribution
expenses. The Directors of Growth Fund and Strategic Balanced Fund currently
limit payments with respect to Class A shares under the Plan to .30% of each
Fund's aggregate average daily net assets attributable to Class A shares. The
Directors of Premier Growth Fund currently limit payments under the Plan with
respect to sales of Class A shares made after November 1993 to, .30% of the
Fund's aggregate average daily net assets. The Plans provide that a portion of
the distribution services fee in an amount not to exceed .25% of the aggregate
average daily net assets of each Fund attributable to each class of shares
constitutes a service fee used for personal service and/or the maintenance of
shareholder accounts.
The Plans provide that AFD will use the distribution services fee received from
a Fund in its entirety for payments (i) to compensate broker-dealers or other
persons for providing distribution assistance, (ii) to otherwise promote the
sale of shares of the Fund, and (iii) to compensate broker-dealers, depository
institutions and other financial intermediaries for providing administrative,
accounting and other services with respect to the Fund's shareholders. In this
regard, some payments under the Plans are used to compensate financial
intermediaries with trail or maintenance commissions in an amount equal to .25%,
annualized, with respect to Class A shares and Class B shares, and 1.00%,
annualized, with respect to Class C shares, of the assets maintained in a Fund
by their customers. Distribution services fees received from the Funds, except
Growth Fund and Strategic Balanced Fund, with respect to Class A shares will not
be used to pay any interest expenses, carrying charges or other financing costs
or allocation of overhead of AFD. Distribution services fees received from the
Funds, with respect to Class B and Class C shares, may be used for these
purposes. The Plans also provide that Alliance may use its own resources to
finance the distribution of each Fund's shares.
The Funds are not obligated under the Plans to pay any distribution services fee
in excess of the amounts set forth above. Except as noted below for Growth Fund
and Strategic Balanced Fund, with respect to Class A shares of each Fund,
distribution expenses accrued by AFD in one fiscal year may not be paid from
distribution services fees received from the Fund in subsequent fiscal years.
Except as noted below for Growth Fund and Strategic Balanced Fund, AFD's
compensation with
44
<PAGE>
respect to Class B and Class C shares under the Plans of the other Funds is
directly tied to its expenses incurred. Actual distribution expenses for such
Class B and Class C shares for any given year, however, will probably exceed the
distribution services fees payable under the applicable Plan with respect to the
class involved and, in the case of Class B shares, payments received from CDSCs.
The excess will be carried forward by AFD and reimbursed from distribution
services fees payable under the Plan with respect to the class involved and, in
the case of Class B shares, payments subsequently received through CDSCs, so
long as the Plan and the Agreement are in effect. Since AFD's compensation under
the Plans of Growth Fund and Strategic Balanced Fund is not directly tied to the
expenses incurred by AFD, the amount of compensation received by it under the
applicable Plan during any year may be more or less than its actual expenses.
Unreimbursed distribution expenses incurred as of the end of each Fund's most
recently completed fiscal period, and carried over for reimbursement in future
years in respect of the Class B and Class C shares for all Funds (except Growth
Fund and Strategic Balanced Fund) were, as of that time, as follows:
<TABLE>
<CAPTION>
Amount of Unreimbursed Distribution Expenses
(as % of Net Assets of Class)
-----------------------------------------------------
Class B Class C
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Alliance Fund.................. $ 1,442,425 (7.95%) $ 399,204 (6.41%)
Growth Fund.................... $24,134,216 (3.21%) $ 529,804 (0.46%)
Premier Growth Fund............ $ 3,230,541 (2.31%) $ 165,741 (2.26%)
Counterpoint Fund.............. $ 119,047 (22.58%) $ 125,891 (30.08%)
Technology Fund................ $ 698,886 (3.80%) $ 221,888 (2.97%)
Quasar Fund.................... $ 557,782 (4.01%) $ 87,823 (7.20%)
International Fund............. $ 1,672,131 (3.41%) $ 455,492 (2.35%)
Worldwide Privatization Fund... $ 138,862 (.17%) $ 569 (.17%)
New Europe Fund................ $ 1,630,288 (4.72%) $ 298,375 (3.82%)
All-Asia Fund.................. $ 349,468 (11.58%) $ 3,881 (2.09%)
Global Small Cap Fund.......... $ 922,746 (17.87%) $ 327,084 (23.25%)
Income Builder Fund............ $ 224,734 (11.25%) $1,507,457 (2.35%)
Strategic Balanced Fund........ $ 759,314 (2.04%) $ 219,442 (5.34%)
Balanced Shares................ $ 965,505 (6.40%) $ 262,338 (5.14%)
Utility Income Fund............ $ 248,868 (10.58%) $ 236,172 (8.91%)
Growth and Income Fund......... $ 2,607,181 (2.54%) $ 355,256 (1.83%)
- ------------------------------------------------------------------------------------------------
</TABLE>
The Plans are in compliance with rules of the National Association of Securities
Dealers, Inc. which effectively limit the annual asset-based sales charges and
service fees that a mutual fund may pay on a class of shares to .75% and .25%,
respectively, of the average annual net assets attributable to that class. The
rules also limit the aggregate of all front-end, deferred and asset-based sales
charges imposed with respect to a class of shares by a mutual fund that also
charges a service fee to 6.25% of cumulative gross sales of shares of that
class, plus interest at the prime rate plus 1% per annum.
The Glass-Steagall Act and other applicable laws may limit the ability of a bank
or other depository institution to become an underwriter or distributor of
securities. However, in the opinion of the Funds' management, based on the
advice of counsel, these laws do not prohibit such depository institutions from
providing services for investment companies such as the administrative,
accounting and other services referred to in the Agreements. In the event that a
change in these laws prevented a bank from providing such services, it is
expected that other services arrangements would be made and that shareholders
would not be adversely affected. The State of Texas requires that shares of a
Fund may be sold in that state only by dealers or other financial institutions
that are registered there as broker-dealers.
- --------------------------------------------------------------------------------
Dividends, Distributions
- --------------------------------------------------------------------------------
And Taxes
- --------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
If you receive an income dividend or capital gains distribution in cash you may,
within 30 days following the date of its payment, reinvest the dividend or
distribution in additional shares of that Fund without charge by returning to
Alliance, with appropriate instructions, the check representing such dividend or
distribution. Thereafter, unless you otherwise specify, you will be deemed to
have elected to reinvest all subsequent dividends and distributions in shares of
that Fund.
Each income dividend and capital gains distribution, if any, declared by a Fund
on its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund having an
aggregate net asset value as of the payment date of such dividend or
distribution equal to the cash amount of such income dividend or distribution.
Election to receive dividends and distributions in cash or shares is made at the
time shares are initially purchased and may be changed at any time prior to the
record date for a particular dividend or distribution. Cash dividends can be
paid by check or, if the shareholder so elects, electronically via the ACH
network. There is no sales or other charge in connection with the reinvestment
of dividends and capital gains distributions. Dividends paid by a Fund, if any,
with respect to Class A, Class B and Class C shares will be calculated in the
same manner at the same time on the same day and will be in the same amount,
except that the higher distribution services fees applicable to Class B and C
shares, and any incremental transfer agency costs relating to Class B shares,
will be borne exclusively by the class to which they relate.
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and time of any such dividend or distribution must
necessarily depend upon the realization by such Fund of income and capital gains
from investments. There is no fixed dividend rate, and there can be no assurance
that a Fund will pay any dividends or realize any capital gains.
If you buy shares just before a Fund deducts a distribution from its net asset
value, you will pay the full price for the shares and then receive a portion of
the price back as a taxable distribution.
45
<PAGE>
FOREIGN INCOME TAXES
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, each Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid,
but there can be no assurance that any Fund will be able to do so.
U.S. FEDERAL INCOME TAXES
Each Fund intends to qualify to be taxed as a "regulated investment company"
under the Code. To the extent that a Fund distributes its taxable income and net
capital gain to its shareholders, qualification as a regulated investment
company relieves that Fund of federal income and excise taxes on that part of
its taxable income including net capital gains which it pays out to its
shareholders. Dividends out of net ordinary income and distributions of net
short-term capital gains are taxable to the recipient shareholders as ordinary
income. In the case of corporate shareholders, such dividends may be eligible
for the dividends-received deduction, except that the amount eligible for the
deduction is limited to the amount of qualifying dividends received by the Fund.
A corporation's dividends-received deduction will be disallowed unless the
corporation holds shares in the Fund at least 46 days. Furthermore, the
dividends-received deduction will be disallowed to the extent a corporation's
investment in shares of a Fund is financed with indebtedness.
The excess of net long-term capital gains over the net short-term capital losses
realized and distributed by each Fund to its shareholders as capital gains
distributions is taxable to the shareholders as long-term capital gains,
irrespective of the length of time a shareholder may have held his or her stock.
Long-term capital gains distributions are not eligible for the dividends-
received deduction referred to above.
Under the current federal tax law the amount of an income dividend or capital
gains distribution declared by a Fund during October, November or December of a
year to shareholders of record as of a specified date in such a month that is
paid during January of the following year is includable in the prior year's
taxable income of shareholders that are calendar year taxpayers.
Any dividend or distribution received by a shareholder on shares of a Fund will
have the effect of reducing the net asset value of such shares by the amount of
such dividend or distribution. Furthermore, a dividend or distribution made
shortly after the purchase of such shares by a shareholder, although in effect a
return of capital to that particular shareholder, would be taxable to him or her
as described above. If a shareholder held shares six months or less and during
that period received a distribution taxable to such shareholder as long-term
capital gain, any loss realized on the sale of such shares during such six-month
period would be a long-term capital loss to the extent of such distribution.
A dividend or capital gains distribution with respect to shares of a Fund held
by a tax-deferred or qualified plan, such as an individual retirement account,
403(b)(7) retirement plan or corporate pension or profit-sharing plan, will not
be taxable to the plan. Distributions from such plans will be taxable to
individual participants under applicable tax rules without regard to the
character of the income earned by the qualified plan.
Distributions by a Fund may be subject to state and local taxes. Alliance Fund,
Premier Growth Fund, Technology Fund, Income Builder Fund, Quasar Fund, New
Europe Fund, Balanced Shares and Growth and Income Fund are qualified to do
business in the Commonwealth of Pennsylvania and, therefore, are subject to the
Pennsylvania foreign franchise and corporate net income tax in respect of their
business activities in Pennsylvania. Accordingly, shares of such Funds are
exempt from Pennsylvania personal property taxes. These Funds anticipate
continuing such business activities but reserve the right to suspend them at any
time, resulting in the termination of the exemptions.
A Fund will be required to withhold 31% of any payments made to a shareholder if
the shareholder has not provided a certified taxpayer identification number to
the Fund, or the Secretary of the Treasury notifies a Fund that a shareholder
has not reported all interest and dividend income required to be shown on the
shareholder's Federal income tax return.
Shareholders will be advised annually as to the federal tax status of dividends
and capital gains distributions made by a Fund for the preceding year.
Shareholders are urged to consult their tax advisers regarding their own tax
situation.
- --------------------------------------------------------------------------------
General Information
- --------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, a
Fund may consider sales of its shares as a factor in the selection of dealers to
enter into portfolio transactions with the Fund.
ORGANIZATION
Each of the following Funds is a Maryland corporation organized in the year
indicated: The Alliance Fund, Inc. (1938), Alliance Balanced Shares, Inc.
(1932), Alliance Premier Growth Fund, Inc. (1992), Alliance Technology Fund,
Inc. (1980), Alliance Quasar Fund, Inc. (1968), Alliance Worldwide Privatization
Fund, Inc. (1994), Alliance New Europe Fund, Inc. (1990), Alliance All-Asia
Investment Fund, Inc. (1994), Alliance Global Small Cap Fund, Inc. (1966),
Alliance Income Builder Fund, Inc. (1991), Alliance Utility Income Fund, Inc.
(1993), and Alliance Growth and Income Fund, Inc. (1932). Each of the following
Funds is either a Massachusetts business trust or a series of a Massachusetts
business trust
46
<PAGE>
organized in the year indicated: Alliance Growth Fund and Alliance Strategic
Balanced Fund (each a series of The Alliance Portfolios) (1987), Alliance
Counterpoint Fund (1984) and Alliance International Fund (1980). Prior to August
2, 1993, The Alliance Portfolios was known as The Equitable Funds, Growth Fund
was known as The Equitable Growth Fund and Strategic Balanced Fund was known as
The Equitable Balanced Fund. Prior to March 22, 1994, Income Builder Fund was
known as Alliance Multi-Market Income and Growth Trust, Inc.
It is anticipated that annual shareholder meetings will not be held; shareholder
meetings will be held only when required by federal, or in the case of the Funds
organized as Maryland corporations, state law. Shareholders have available
certain procedures for the removal of Directors.
A shareholder in a Fund will be entitled to his or her pro rata share of all
dividends and distributions arising from the Fund's assets and, upon redeeming
shares, will receive the then current net asset value of the Fund represented by
the redeemed shares less any applicable CDSC. The Funds are empowered to
establish, without shareholder approval, additional portfolios, which may have
different investment objectives, and additional classes of shares. If an
additional portfolio or class were established in a Fund, each share of the
portfolio or class would normally be entitled to one vote for all purposes.
Generally, shares of each portfolio and class would vote together as a single
class on matters, such as the election of Directors, that affect each portfolio
and class in substantially the same manner. Class A, B and C shares have
identical voting, dividend, liquidation and other rights, except that each class
bears its own distribution and transfer agency expenses. Each class of shares
votes separately with respect to a Fund's Rule 12b-1 distribution plan and other
matters for which separate class voting is appropriate under applicable law.
Shares are freely transferable, are entitled to dividends as determined by the
Directors and, in liquidation of a Fund, are entitled to receive the net assets
of the Fund. Since this Prospectus sets forth information about all the Funds,
it is theoretically possible that a Fund might be liable for any materially
inaccurate or incomplete disclosure in this Prospectus concerning another Fund.
Based on the advice of counsel, however, the Funds believe that the potential
liability of each Fund with respect to the disclosure in this Prospectus extends
only to the disclosure relating to that Fund. Certain additional matters
relating to a Fund's organization are discussed in its Statement of Additional
Information.
REGISTRAR, TRANSFER AGENT AND DIVIDEND-DISBURSING AGENT
AFS, an indirect wholly-owned subsidiary of Alliance, located at 500 Plaza
Drive, Secaucus, New Jersey 07094, acts as each Fund's registrar, transfer agent
and dividend-disbursing agent for a fee based upon the number of shareholder
accounts maintained for the Funds. The transfer agency fee with respect to the
Class B shares will be higher than the transfer agency fee with respect to the
Class A shares or Class C shares.
PRINCIPAL UNDERWRITER
AFD, an indirect wholly-owned subsidiary of Alliance, located at 1345 Avenue of
the Americas, New York, New York 10105, is the principal underwriter of shares
of the Funds.
PERFORMANCE INFORMATION
From time to time, the Funds advertise their "total return," which is computed
separately for Class A, Class B and Class C shares. Such advertisements disclose
a Fund's average annual compounded total return for the periods prescribed by
the Commission. A Fund's total return for each such period is computed by
finding, through the use of a formula prescribed by the Commission, the average
annual compounded rate of return over the period that would equate an assumed
initial amount invested to the value of the investment at the end of the period.
For purposes of computing total return, income dividends and capital gains
distributions paid on shares of a Fund are assumed to have been reinvested when
paid and the maximum sales charges applicable to purchases and redemptions of a
Fund's shares are assumed to have been paid.
Balanced Shares, Growth and Income Fund, Income Builder Fund, Strategic Balanced
Fund and Utility Income Fund may also advertise their "yield," which is also
computed separately for Class A, Class B and Class C shares. A Fund's yield for
any 30-day (or one-month) period is computed by dividing the net investment
income per share earned during such period by the maximum public offering price
per share on the last day of the period, and then annualizing such 30-day (or
one-month) yield in accordance with a formula prescribed by the Commission which
provides for compounding on a semi-annual basis.
Strategic Balanced Fund, Balanced Shares, Income Builder Fund, Utility Income
Fund and Growth and Income Fund may also state in sales literature an "actual
distribution rate" for each class which is computed in the same manner as yield
except that actual income dividends declared per share during the period in
question are substituted for net investment income per share. The actual
distribution rate is computed separately for Class A, Class B and Class C
shares.
A Fund will include performance data for each class of shares in any
advertisement or sales literature using performance data of that Fund. These
advertisements may quote performance rankings or ratings of a Fund by financial
publications or independent organizations such as Lipper Analytical Services,
Inc. and Morningstar, Inc. or compare a Fund's performance to various indices.
ADDITIONAL INFORMATION
This Prospectus and the Statements of Additional Information, which have been
incorporated by reference herein, do not contain all the information set forth
in the Registration Statements filed by the Funds with the Commission under the
Securities Act. Copies of the Registration Statements may be obtained at a
reasonable charge from the Commission or may be examined, without charge, at the
offices of the Commission in Washington, D.C.
47
<PAGE>
This prospectus does not constitute an offering in any state in which such
offering may not lawfully be made.
This prospectus is intended to constitute an offer by each Fund only of the
securities of which it is the issuer and is not intended to constitute an offer
by any Fund of the securities of any other Fund whose securities are also
offered by this prospectus. No Fund intends to make any representation as to the
accuracy or completeness of the disclosure in this prospectus relating to any
other Fund. See "General Information--Organization."
48
<PAGE>
- --------------------------------------------------------------------------------
Alliance Subscription Application
- --------------------------------------------------------------------------------
The Alliance Stock Funds
Alliance Fund
Growth Fund
Premier Growth Fund
Counterpoint Fund
Technology Fund
Quasar Fund
International Fund
Worldwide Privatization Fund
New Europe Fund
All-Asia Fund
Global Small Cap Fund
Strategic Balanced Fund
Balanced Shares
Income Builder Fund
Utility Income Fund
Growth & Income Fund
- --------------------------------------------------------------------------------
Information And Instructions
- --------------------------------------------------------------------------------
To Open Your New Alliance Account
Please complete the application and mail it to:
Alliance Fund Services, Inc., P.O. Box 1520, Secaucus, New Jersey 07096-1520
Signatures - Please Be Sure To Sign the Application (Section 7)
If shares are registered in the name of:
. an individual, the individual should sign.
. joint tenants, both should sign.
. a custodian for a minor, the custodian should sign.
. a corporation or other organization, an authorized officer should sign
(please indicate corporate office or title).
. a trustee or other fiduciary, the fiduciary or fiduciaries should sign
(please indicate capacity).
Registration
To ensure proper tax reporting to the IRS:
. Individuals, Joint Tenants and Gift/Transfer to a Minor:
- Indicate your name exactly as it appears on your social security card.
. Trust/Other:
- Indicate the name of the entity exactly as it appeared on the notice you
received from the IRS when your Employer Identification number was
assigned.
Please Note:
. Certain legal documents will be required from corporations or other
organizations, executors and trustees, or if a redemption is requested by
anyone other than the shareholder of record. If you have any questions
concerning a redemption, contact the Fund at the number below.
. In the case of redemptions or repurchases of shares recently purchased by
check, redemption proceeds will not be made available until the Fund is
reasonably assured that the check has cleared, normally up to 15 calendar
days following the purchase date.
If We Can Assist You In Any Way, Please Do Not Hesitate To Call Us At:
1-(800) 221-5672.
<PAGE>
- --------------------------------------------------------------------------------
Subscription Application
- --------------------------------------------------------------------------------
Alliance Stock Funds
(see instructions at the front of the application)
- --------------------------------------------------------------------------------
1. Your Account Registration (Please Print)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[_] INDIVIDUAL OR JOINT ACCOUNT
---------------------------------------------------------------------------------------------------
Owner's Name (First Name) (MI) (Last Name)
- -
-------------------------------------------
Social Security Number (Required to open account)
---------------------------------------------------------------------------------------------------
Joint Owner's Name* (First Name) (MI) (Last Name)
*Joint Tenants with right of survivorship unless otherwise indicated
[_] GIFT/TRANSFER TO A MINOR
---------------------------------------------------------------------------------------------------
Custodian - One Name Only (First Name) (MI) (Last Name)
---------------------------------------------------------------------------------------------------
Minor (First Name) (MI) (Last Name)
- -
-------------------------------------------
Minor's Social Security Number (Required to open account)
Under the State of __________ (Minor's Residence) Uniform Gifts/Transfer to Minor's Act
[_] TRUST ACCOUNT
---------------------------------------------------------------------------------------------------
Name of Trustee
---------------------------------------------------------------------------------------------------
Name of Trust
---------------------------------------------------------------------------------------------------
Name of Trust (cont'd)
---------------------------------------------------------------------------------------------------
Trust Dated Tax ID or Social Security Number (Required to open account)
[_] OTHER
---------------------------------------------------------------------------------------------------
Name of Corporation, Partnership or other Entity
-------------------------------
Tax ID Number
</TABLE>
- --------------------------------------------------------------------------------
2. Address
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
---------------------------------------------------------------------------------------------------
Street
---------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------------------------------------------------------------------------
If Non-U.S., Specify Country
- - - -
--------------------------------- ---------------------------------
Daytime Phone Evening Phone
I am a: [_]U.S. Citizen [_]Non-Resident Alien [_]Resident Alien [_]Other
</TABLE>
+++ +++
+ +
For Alliance Use Only
+ +
+++ +++
<PAGE>
- --------------------------------------------------------------------------------
3. Initial Investment
- --------------------------------------------------------------------------------
Minimum: $250; Maximum: Class B only - $250,000; Class C only - $5,000,000.
Make all checks payable to The Alliance Stock Fund in which you are
investing.
I hereby subscribe for shares of the following Alliance Stock Fund(s):
<TABLE>
<CAPTION>
Class A Class B Class C
(Initial Sales Dollar (Contingent Deferred Dollar (Asset-based Dollar
Charge) Amount Sales Charge) Amount Sales Charge) Amount
---------------- --------------- -------------------- ------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
[_]Alliance Fund [_](44) ___________ [_](43) ___________ [_](344) ___________
[_]Growth Fund [_](31) ___________ [_](01) ___________ [_](331) ___________
[_]Premier Growth Fund [_](78) ___________ [_](79) ___________ [_](378) ___________
[_]Counterpoint Fund [_](19) ___________ [_](219) ___________ [_](319) ___________
[_]Technology Fund [_](82) ___________ [_](282) ___________ [_](382) ___________
[_]Quasar Fund [_](26) ___________ [_](29) ___________ [_](326) ___________
[_]International Fund [_](40) ___________ [_](41) ___________ [_](340) ___________
[_]Worldwide Privatization Fund [_](112) ___________ [_](212) ___________ [_](312) ___________
[_]New Europe Fund [_](62) ___________ [_](58) ___________ [_](362) ___________
[_]All-Asia Fund [_](118) ___________ [_](218) ___________ [_](318) ___________
[_]Global Small Cap Fund [_](45) ___________ [_](48) ___________ [_](345) ___________
[_]Strategic Balanced Fund [_](32) ___________ [_](02) ___________ [_](332) ___________
[_]Balanced Shares [_](96) ___________ [_](75) ___________ [_](396) ___________
[_]Income Builder Fund [_](111) ___________ [_](211) ___________ [_](311) ___________
[_]Utility Income Fund [_](9) ___________ [_](209) ___________ [_](309) ___________
[_]Growth & Income Fund [_](94) [_](74) [_](394)
------------------------------------------------------
DEALER USE ONLY
to be purchased with the enclosed check or draft for $ __________ Wire Confirm No.:
-----------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
4. Reduced Charges (Class A Only)
- --------------------------------------------------------------------------------
If you, your spouse or minor children own shares in other Alliance funds, you
may be eligible for a reduced sales charge. Please list below any existing
accounts to be considered and complete the Right of Accumulation section or
the Statement of Intent section.
- ------------------------------------------ -----------------------------------
Fund Account Number
- ------------------------------------------ -----------------------------------
Fund Account Number
A. Right of Accumulation
[_]Please link the accounts listed above for Right of Accumulation privileges,
so that this and future purchases will receive any discount for which they
are eligible.
B. Statement of Intent
[_]I want to reduce my sales charge by agreeing to invest the following amount
over a 13-month period:
[_] $100,000 [_] $250,000 [_] $500,000 [_] $1,000,000
If the full amount indicated is not purchased within 13 months, I understand
an additional sales charge must be paid from my account.
- ------------------------------------------ ------------------------------------
Name on Account Account Number
- ------------------------------------------ ------------------------------------
Name on Account Account Number
- --------------------------------------------------------------------------------
5. Distribution Options
- --------------------------------------------------------------------------------
If no box is checked, all distributions will be reinvested in additional
shares of the Fund
Income Dividends: (elect one) [_] Reinvest dividends
[_] Pay dividends in cash
[_] Use Dividend Direction Plan
Capital Gains Distribution: (elect one) [_] Reinvest capital gains
[_] Pay capital gains in cash
[_] Use Dividend Direction Plan
If you elect to receive your income dividends or capital gains distributions
in cash, please enclose a preprinted voided check from the bank account you
wish to have your dividends deposited into.**
If you wish to utilize the Dividend Direction Plan, please designate the
Alliance account you wish to have your dividends reinvested in:
- --------------------------------------------------------------------------------
Fund Name Existing Account No.
Special Distribution Instructions: [_] Please pay my distributions via check
and send to the address indicated in
Section 2.
[_] Please mail my distributions to the
person and/or address designated below:
- -------------------------------------- ----------------------------------------
Name Address
- -------------------------------------- -------------------------- ------------
City State Zip
- --------------------------------------------------------------------------------
6. Shareholder Options
- --------------------------------------------------------------------------------
A. AUTOMATIC INVESTMENT PROGRAM (AIP) **
I hereby authorize Alliance Fund Services, Inc. to draw on my bank account, on
or about the ______ day of each month for a monthly investment in my Fund
account in the amount of $____________ (minimum $25 per month). Please attach
a preprinted voided check from the bank account you wish to use. NOTE: If your
bank is not a member of the NACHA, your Alliance account will be credited on
or about the 20th of each month.
The Fund requires signatures of bank account owners exactly as they appear
on bank records.
--------------------------------------------- -------------------------------
Individual Account Date
--------------------------------------------- -------------------------------
Joint Account Date
**Your bank must be a member of the National Automated Clearing House
Association (NACHA).
<PAGE>
B. TELEPHONE TRANSACTIONS
You can call our toll-free number 1-800-221-5672 and instruct Alliance
Fund Services, Inc. in a recorded conversation to purchase, redeem or
exchange shares for your account. Purchase and redemption requests will be
processed via electronic funds transfer (EFT) to and from your bank account.
Instructions: . Review the information in the Prospectus about telephone
transaction services.
. Check the box next to the telephone transaction service(s)
you desire.
. If you select the telephone purchase or redemption privilege,
you must write "VOID" across the face of a check from the
bank account you wish to use and attach it to this
application.
Purchases and Redemptions via EFT**
[_] I hereby authorize Alliance Fund Services, Inc. to effect the purchase
and/or redemption of Fund shares for my account according to my
telephone instructions or telephone instructions from my Broker/Agent,
and to withdraw money or credit money for such shares via EFT from the
bank account I have selected.
The fund requires signatures of bank account owners exactly as they
appear on bank records.
--------------------------------------------- -----------------------------
Individual Account Owner Date
--------------------------------------------- -----------------------------
Joint Account Owner Date
Telephone Exchanges and Redemptions by Check
Unless I have checked one or both boxes below, these privileges will
automatically apply, and by signing this application, I hereby authorize
Alliance Fund Services, Inc. to act on my telephone instructions, or on
telephone instructions from any person representing himself to be an
authorized employee of an investment dealer or agent requesting a redemption
or exchange on my behalf. (NOTE: Telephone exchanges may only be processed
between accounts that have identical registrations.) Telephone redemption
checks will only be mailed to the name and address of record; and the
address must have no change within the last 30 days. The maximum telephone
redemption amount is $50,000 per check. This service can be enacted once
every 30 days.
[_] I do not elect the telephone exchange service.
---
[_] I do not elect the telephone redemption by check service.
---
C. SYSTEMATIC WITHDRAWAL PLAN (SWP) **
In order to establish a SWP, an investor must own or purchase shares of the
Fund having a current net asset value of at least:
. $10,000 for monthly payments; . $5,000 for bi-monthly payments;
. $4,000 for quarterly or less frequent payments
[_] I authorize this service to begin in _________, 19__, for the amount
Month
of $_______________($50.00 minimum)
Frequency: (Please select one) [_] Monthly [_] Bi-Monthly [_] Quarterly
[_] Annually [_] In the months circled: J F M A M J J A S O N D
Please send payments to: (please select one)
[_] My checking account. Select the date of the month on or about which you
wish the EFT payments to be made: _______________. Please enclose a
preprinted voided check to ensure accuracy. EFT not available to Class B
shareowners other than retirement plans.
[_] My address of record designated in Section 2.
[_] The payee and address specified below:
-----------------------------------------------------------------------------
Name of Payee Address
-----------------------------------------------------------------------------
City State Zip
D. AUTO EXCHANGE
[_] I authorize Alliance Fund Services, Inc. to initiate a monthly exchange
for $____________ ($25.00 minimum) on the _________ day of the month,
into the Alliance Fund noted below:
Fund Name: ____________________________________
[_] Existing account number:___________________ [_] New account
Shares exchanged will be redeemed at net asset value computed on the date
of the month selected. (If the date selected is not a fund business day
the transaction will be processed on the next fund business day.)
Certificates must remain unissued.
- --------------------------------------------------------------------------------
7. Shareholder Authorization This section MUST be completed
- --------------------------------------------------------------------------------
I certify under penalty of perjury that the number shown in Section 1 of this
form is my correct tax identification number or social security number and
that I have not been notified that this account is subject to backup
withholding.
By selecting any of the above telephone privileges, I agree that neither the
Fund nor Alliance, Alliance Fund Distributors, Inc., Alliance Fund Services,
Inc. or other Fund Agent will be liable for any loss, injury, damage or expense
as a result of acting upon telephone instructions purporting to be on my behalf,
that the Fund reasonably believes to be genuine, and that neither the Fund nor
any such party will be responsible for the authenticity of such telephone
instructions. I understand that any or all of these privileges may be
discontinued by me or the Fund at any time. I understand and agree that the Fund
reserves the right to refuse any telephone instructions and that my investment
dealer or agent reserves the right to refuse to issue any telephone instructions
I may request.
For non-residents only: Under penalties of perjury, I certify that to the
best of my knowledge and belief, I qualify as a foreign person as indicated
in Section 2.
I am of legal age and capacity and have received and read the Prospectus and
agree to its terms.
- ---------------------------------------- ----------------
Signature Date
- ---------------------------------------- -------------- ----------------------
Signature Date Acceptance Date:
- --------------------------------------------------------------------------------
Dealer/Agent Authorization For selected Dealers or Agents ONLY.
- --------------------------------------------------------------------------------
We hereby authorize Alliance Fund Services, Inc. to act as our agent in
connection with transactions under this authorization form; and we guarantee
the signature(s) set forth in Section 7, as well as the legal capacity of the
shareholder.
Dealer/Agent Firm
-------------------------------------------------------------
Authorized Signature
----------------------------------------------------------
Representative First Name MI Last Name
---------------- ----- -----------------
Representative Number
---------------------------------------------------------
Branch Office Address
---------------------------------------------------------
City State Zip Code
---------------------- ---------------------- -------------
Branch Number Branch Phone ( )
--------------------- -------------------------------
** Your bank must be a member of the National
Automated Clearing House Association (NACHA). 50074GEN-EQTYApp
2
<PAGE>
This is filed pursuant to Rule 497(c).
File Nos. 33-37848 and 811-06028.
3
<PAGE>
(LOGO)(R) ALLIANCE NEW EUROPE 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
November 1, 1995
________________________________________________________________
This Statement of Additional Information is not a prospectus
and should be read in conjunction with the Fund's current
Prospectus. A copy of the Prospectus may be obtained by
contacting Alliance Fund Services, Inc. at the address or
telephone numbers shown above.
Table Of Contents
Page
Description of the Fund...................................2
Management of the Fund....................................20
Expenses of the Fund......................................29
Purchase of Shares........................................32
Redemption and Repurchase of Shares.......................48
Shareholder Services......................................52
Net Asset Value...........................................58
Dividends, Distributions and Taxes........................60
Portfolio Transactions....................................64
General Information.......................................66
Financial Statements and Report of Independent
Auditors................................................72
Appendix A Special Risk Considerations....................A-1
<PAGE>
Appendix B Currency Hedging Techniques....................B-1
Appendix C Additional Information About
The United Kingdom......................................C-1
____________________________________________________________
(R): This registered service mark used under license from the
owner, Alliance Capital Management L.P.
<PAGE>
____________________________________________________________
DESCRIPTION OF THE FUND
____________________________________________________________
Introduction to the Fund
Alliance New Europe Fund, Inc. (the "Fund") is a non-
diversified, open-end management investment company commonly
known as a "mutual fund". Until February 8, 1991, the Fund
operated as a closed-end investment company, and its shares
(which then comprised a single class) were listed and traded on
the New York Stock Exchange until February 1, 1991. The
investment objective and policies of the Fund are set forth
below. The Fund's investment objective is a "fundamental policy"
within the meaning of the Investment Company Act of 1940, as (the
"1940 Act"), and, therefore, may not be changed by the Directors
without a shareholder vote. Except as provided below, the Fund's
investment policies are not fundamental and, therefore, may be
changed by the Board of Directors without shareholder approval;
however, the Fund will not change its investment policies without
contemporaneous written notice to shareholders. There can be, of
course, no assurance that the Fund will achieve its investment
objective.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is long-term capital
appreciation through investment primarily in the equity
securities of companies based in Europe. As a matter of
fundamental policy, the Fund will, under normal circumstances,
invest at least 65% of its total assets in the equity securities
of European companies. The Fund defines European companies to be
companies (a) that are organized under the laws of a European
country and have a principal office in a European country or
(b) that derive 50% or more of their total revenues from business
in Europe or (c) the equity securities of which are traded
principally on a stock exchange in Europe. Under normal market
conditions the Fund expects to invest substantially all of its
assets in the equity securities of companies based in Europe.
When Alliance Capital Management L.P., the Fund's Adviser (the
"Adviser") believes that such investments provide the opportunity
for capital appreciation, however, up to 35% of the Fund's total
assets may be invested in U.S. dollar- or foreign currency-
denominated fixed-income securities issued or guaranteed by
European governmental entities, or by European or multinational
companies or supranational organizations which are rated AA or
better by Standard & Poor's Corporation or Aa or better by
Moody's Investors Service, Inc. or, if not so rated, of
equivalent investment quality as determined by the Fund's
Adviser.
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Unless otherwise indicated, Europe consists of the Republic
of Austria, the Kingdom of Belgium, the Kingdom of Denmark,
Germany, the Republic of Finland, the Republic of France, the
Hellenic Republic ("Greece"), the Republic of Iceland, the
Republic of Ireland, the Italian Republic, the Grand Duchy of
Luxembourg, the Kingdom of the Netherlands, the Kingdom of
Norway, the Republic of Portugal, the Kingdom of Spain, the
Kingdom of Sweden, the Swiss Confederation ("Switzerland"), the
Republic of Turkey and the United Kingdom of Great Britain and
Northern Ireland (together, "Western Europe"), plus the People's
Republic of Bulgaria, the Czech Republic and Slovakia, the
Republic of Hungary, the Republic of Poland, Romania and the
states formed from the break-up of the former Socialist Federal
Republic of Yugoslavia (together, "Eastern Europe"). Additional
countries on the continent of Europe may be considered part of
the Fund's definition of Europe and appropriate spheres of
investment by the Fund as the securities markets of those
countries develop. The Fund's definition of European companies
may include companies that have characteristics and business
relationships common to companies in other regions. As a result,
the value of the securities of such companies may reflect
economic and market forces applicable to other regions, as well
as to Europe. The Fund believes, however, that investment in
such companies will be appropriate in light of the Fund's
investment objective, because the Adviser, (the "Adviser"), will
select among such companies only those which in its view, have
sufficiently strong exposure to economic and market forces in
Europe such that their value will reflect European developments
to a greater extent than developments in other regions. For
example, the Adviser may invest in companies organized and
located in the United States or other countries outside of
Europe, including companies having their entire production
facilities outside of Europe, when such companies meet one or
more elements of the Fund's definition of European companies so
long as the Adviser believes at the time of investment that the
value of the company's securities will reflect principally
conditions in Europe.
Over the last ten years, European markets dominated the top
five stock markets in the world (source: Morgan Stanley Capital
International). The Adviser believes that the quickening pace of
economic integration and political change in Europe, reflected in
such developments as the reduction of barriers to free trade
within the European Community, creates the potential for many
European companies to experience rapid growth. The emergence of
market economies in certain European countries as well as the
broadening and strengthening of such economies in other European
countries may significantly contribute to the potential for
accelerated economic development. Companies engaged in business
in European countries with relatively mature capital markets may
also benefit from local or international trends encouraging the
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development of capital markets and diminishing governmental
intervention in economic affairs. Furthermore, new technologies,
innovative products and favorable regulatory developments may
support earnings growth. The Fund will invest in companies
which, in the opinion of the Adviser, possess such rapid growth
potential. Thus, the Fund will emphasize investments in smaller,
emerging companies, but will also seek investment opportunities
among larger, established companies in such growing economic
sectors as capital goods, telecommunications, pollution control
and consumer services. The Adviser's subsidiaries maintain
offices in London, Luxembourg and Istanbul, and investment
professionals from those offices conduct frequent visits and
interviews with management of European companies. The Adviser's
local expertise in Europe facilitates its investment approach of
buying stocks based on its on-site research of European companies
as contrasted to a strategy of selecting countries with favorable
outlooks and then selecting stocks of companies located in those
countries. As of June 30, 1995, the ten largest investments of
the Fund were Fortis Amev, Nokia Corp., Royal Bank of Scotland,
Unilever PLC, Bayer AG, BAT Industries PLC, Vodafone Group PLC,
Deutsche Bank AG, Den Danske Bank and Veba AG.
The Fund will emphasize investment in European companies
believed by the Adviser to be the likely beneficiaries of the
efforts of the European Union (the "EU") to remove substantially
all barriers to the free movement of goods, persons, services and
capital within the European Community. The EU is a European
economic cooperative organization consisting of Belgium, Denmark,
France, Germany, Greece, Ireland, Italy, Luxembourg, the
Netherlands, Portugal, Spain and the United Kingdom. In this
regard, the Adviser will give consideration to the existence and
extent of economic barriers in various industrial and corporate
sectors and the likelihood and potential timing of the
elimination of such barriers pursuant to the EU's Program. The
Adviser believes that the beneficial effects of the EU's Program
upon economies, sectors and companies may be most pronounced in
the coming decade.
The Fund's investment objective and policies reflect the
Adviser's opinion that attractive investment opportunities will
result from an evolving long-term European trend favoring the
development and emergence of U.S./U.K.-style capital markets. The
Adviser believes that such opportunities are available in a
number of European countries, including Austria, Belgium,
Denmark, Finland, Greece, Ireland, Luxembourg, the Netherlands,
Norway, Portugal, Spain, Sweden and Turkey, which appear to be in
the process of broadening and strengthening their capital
markets, and which may as a result experience relatively high
rates of economic growth during the next decade.
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Other European countries, although having relatively mature
capital markets, may also be in a position to benefit from local
or international trends encouraging the development of capital
markets and diminishing governmental intervention in economic
affairs. Several European governments have deregulated
significant sectors of their national economies to enable them to
compete more effectively both within and outside Europe. Specific
examples include, to differing degrees and in particular
countries, the lifting of price controls, exchange controls and
restrictions on foreign investment, and the deregulation of
financial services. In addition, a number of European countries
have in recent years employed tax policy, in the form of both
reduced tax burdens on corporations and investors and tax
incentives for business, to stimulate private investment and
economic growth.
Certain European governments including, among others, the
governments of Austria, Germany, Greece, Portugal and Spain,
have, to varying degrees, embarked on "privatization" programs
contemplating the sale of all or part of their interests in
state-owned enterprises. The Adviser believes that
privitizations may offer investors opportunities for significant
capital appreciation and intends to invest assets of the Fund in
them in appropriate circumstances. In certain jurisdictions, the
ability of foreign entities, such as the Fund, to participate in
privitizations may be limited by local law, or the price or terms
on which the Fund may be able to participate may be less
advantageous than for local investors. Moreover, there can be no
assurance that governments will continue to divest currently
government- owned or -controlled companies or that privatization
proposals will be successful.
In recent years, there has been a trend toward the
strengthening of economic ties between the former "east bloc"
countries of Eastern Europe and certain other European countries,
notably Germany and, on a smaller scale, Austria. The Adviser
believes that as such trend continues, developing market
economies within former "east bloc" countries will provide some
Western European financial institutions and other companies with
special opportunities in facilitating East-West transactions. The
Fund will seek investment opportunities among such companies.
The Fund will actively seek investment opportunities within
the former "east bloc" countries of Eastern Europe. However, the
Fund will not invest more than 20% of its total assets in the
equity and fixed income securities of issuers based in the former
"east bloc" countries, nor more than 10% of its total assets in
the securities of issuers based in any one such country. The
Adviser believes that, at the present time, there are very few
investments suitable for the Fund's portfolio available in the
former "east bloc" countries. While the Adviser expects that
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additional such investments will become available in the future,
there can be no assurance that this will be the case. Most
Eastern European countries are currently implementing reforms
directed at political and economic liberalization, including
efforts to move toward more market-oriented economies and to
foster multi-party political systems. For example, Hungary,
Poland and, more recently, Czechoslovakia have adopted reforms to
stimulate their economies and encourage foreign investment.
Specifically, laws have been enacted in Hungary and Poland and
Czechoslovakia to allow private individuals to own and operate
businesses and to protect the property rights of investors. Such
laws seek to assure foreign investors of the right to own
interests in and, under certain circumstances, control local
companies and to repatriate capital and profits and, in certain
cases, grant favorable tax treatment to companies with foreign
participation.
As a result of these and other measures, the Adviser expects
that foreign direct investment in Eastern Europe may increase.
In addition, the World Bank, the International Monetary Fund and
various national governments are providing financing to
governments of Eastern European countries. Financing for certain
companies and private sector projects based in Eastern Europe is
being provided by the International Finance Corporation, a
subsidiary of the World Bank. The European Community has entered
into association agreements with Hungary, Poland and
Czechoslovakia providing for enhanced trade and cooperation
between the European Community and those countries and the
European Community has provided technical and financial
assistance to Hungary, Poland and Czechoslovakia. Further, the
United States has granted Hungary, Poland and Czechoslovakia
"most favored nation" status with respect to trade matters.
There can be no assurance that the reforms initiated by the
former "east bloc" countries of Eastern Europe will continue or,
if continued, will achieve their goals. As influence of the
former Union of Soviet Socialist Republics over those countries
has subsided, several of them have experienced political and
economic instability due to conflicts among regional and ethnic
factions. To the extent such instability continues, it may
reduce the range of suitable investment opportunities for the
Fund in these countries.
In addition to the trends and developments described above,
the Adviser has also identified certain other factors that it
believes may generate attractive investment opportunities in
Europe. These factors include increased direct investment in
Europe by U.S. and Japanese companies, the development of new
stock markets in certain European countries, increased merger and
acquisition activity, an increase in capital spending on
transportation and communications and a trend toward the transfer
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of production facilities from countries having higher production
costs to European countries having lower production costs.
Furthermore, the Adviser believes that many European countries
are emerging from recession and that, historically, equities have
performed well during post-recessionary periods due to low
interest rates, rising consumer consumption, rising currency
exchange rates and local investment in infrastructure.
As of July 31, 1995, the top five countries in which the Fund
was invested were the United Kingdom (30%), France (19%), Germany
(13%), The Netherlands (7%) and Spain (6%). The remaining 25%
was invested in eight other countries.
The Fund's portfolio manager believes that the current
economic recovery in Europe is stronger than originally expected,
with economic and profit growth forecasts upgraded for almost all
European countries this year. The Adviser believes that Europe's
gross domestic product ("GDP") will grow about 2% in 1995, driven
primarily by exports. The Adviser believes European GDP will
grow to over 2.5% in 1996, driven by domestic consumption.
The Adviser will adjust the Fund's exposure to each European
economy based on its perception of the most favorable markets and
issuers. The Fund intends to spread investment risk among the
capital markets of a number of European countries and, under
normal circumstances, will invest in the equity securities of
companies based in at least three such countries. The percentage
of the Fund's assets invested in securities of a particular
country or denominated in a particular currency will vary in
accordance with the Adviser's assessment of the appreciation
potential of such securities and the strength of that currency.
Subject to the foregoing, and apart from the 10% limitation on
investment in any one Eastern European country, there is no limit
on the amount of the Fund's assets that may be invested in
securities of issuers located in a single European country. While
the Fund has no present intention of concentrating its
investments in a single European country, at times a substantial
amount (i.e., 25% or more) of the Fund's assets may be invested
in issuers located in a single country. In such event, the
Fund's portfolio would be subject to a correspondingly greater
risk of loss due to adverse political or regulatory developments,
or an economic downturn, within that country. At July 31, 1995,
30% of the Fund's assets were invested in issues located in the
United Kingdom. Because of the relative illiquidity of the
capital markets in some countries, the Fund may invest in a small
number of leading or actively traded companies in a country's
capital markets in the expectation that the investment
performance of such securities will substantially represent the
investment performance of the country's capital markets as a
whole.
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Investors should understand and consider carefully the
substantial risks involved in investing in the equity securities
of companies based in Europe, some of which are referred to in
Appendix A hereto, and which are in addition to the usual risks
inherent in domestic investments. See Appendix A, "Special Risk
Considerations" and Appendix C, "United Kingdom."
The Fund may invest up to 10% of its total assets in
securities for which there is no ready market. The Fund may
therefore not be able to readily sell such securities. There is
no law in many of the countries in which the Fund may invest
similar to the U.S. Securities Act of 1933, as amended, requiring
an issuer to register the sale of securities with a governmental
agency or imposing legal restrictions on resales of securities,
either as to length of time the securities may be held or manner
of resale. However, there may be contractual restrictions on
resale of securities.
The Fund has the ability to invest up to 20% of its total
assets in warrants to purchase equity securities issued by
European companies to the extent consistent with the Fund's
investment objective; however, the Fund does not presently intend
to invest more than 10% of its total assets in such warrants. The
warrants in which the Fund may invest are a type of security,
usually issued together with another equity or debt security of
an issuer, that entitles the holder to buy a fixed amount of
common or preferred stock of such issuer at a specified price for
a fixed period of time (which may be in perpetuity). Warrants
are commonly issued attached to other securities of the issuer as
a method of making such securities more attractive and are
usually detachable and, thus, may be bought or sold separately
from the issued security. Warrants are a speculative instrument.
The value of a warrant may decline because of a decrease in the
value of the underlying stock, the passage of time or a change in
perception as to the potential of the underlying stock, or any
combination thereof. If the market price of the underlying stock
is below the exercise price set forth in the warrant on the
expiration date, the warrant will expire worthless. Warrants
issued by European companies generally are freely transferable
and are generally traded on one or more of the major European
stock exchanges. The Fund anticipates that the warrants in which
it will invest will have exercise periods of approximately 2 to
10 years. The Fund may also invest in rights which are similar
to warrants except that they have a substantially shorter
duration.
In addition to purchasing corporate securities of European
issuers in European markets, the Fund may invest in American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs)
or other securities convertible into securities of companies
based in European countries. Transactions in these securities
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may not necessarily be settled in the same currency as
transactions in the securities into which they may be converted.
Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets and EDRs, in bearer form, are designed
for use in European securities markets.
The Fund will also be authorized to invest in debt securities
of supranational entities denominated in the currency of any
European country. A supranational entity is an entity designated
or supported by the national government of one or more countries
to promote economic reconstruction or development. Examples of
supranational entities include, among others, the World Bank
(International Bank for Reconstruction and Development) and the
European Investment Bank. The governmental members, or
"stockholders," usually make initial capital contributions to the
supranational entity and in many cases are committed to make
additional contributions if the supranational entity is unable to
repay its borrowings. Each supranational entity's lending
activities are limited to a percentage of its total capital
(including "callable capital" contributed by members at the
entity's call), reserves and net income. The Fund may, in
addition, invest in debt securities denominated in European
Currency Units of an issuer in a European country (including
supranational issuers). A European Currency Unit is a basket of
specified amounts of the currencies of the twelve member states
of the European Economic Union. The Fund is further authorized
to invest in "semi-governmental securities," which are debt
securities issued by entities owned by either a national, state
or equivalent government or are obligations of one of such
government jurisdictions which are not backed by its full faith
and credit and general taxing powers. An example of a semi-
governmental issuer is the City of Stockholm.
For temporary defensive purposes, the Fund may vary from its
investment policy during periods in which conditions in European
securities markets or other economic or political conditions in
Europe warrant. The Fund may reduce its position in equity
securities and increase its position in debt securities, which
may include U.S. Government securities, rated AA or better by
Standard & Poor's Corporation or Aa or better by Moody's
Investors Service, Inc. or if not so rated, of equivalent
investment quality as determined by the Adviser, short-term
indebtedness or cash equivalents denominated in either foreign
currencies or U.S. dollars. The Fund may also at any time
temporarily invest funds awaiting reinvestment or held as
reserves for dividends and other distributions to shareholders in
U.S. dollar-denominated money market instruments including:
(i) U.S. Government securities, (ii) certificates of deposit,
bankers' acceptances and interest-bearing savings deposits of
banks having total assets of more than $1 billion and which are
members of the Federal Deposit Insurance Corporation and
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(iii) commercial paper of prime quality rated A-1 or better by
Standard & Poor's Ratings Services ("S&P") or Prime 1 or better
by Moody's Investors Service, Inc. (Moody's") or, if not rated,
issued by companies which have an outstanding debt issue rated AA
or better by S&P or Aa or better by Moody's.
The Fund is a "non-diversified" investment company, which
means the Fund is not limited in the proportion of its assets
that may be invested in the securities of a single issuer.
However, the Fund intends to conduct its operations so as to
qualify as a "regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the "Code"), which
will relieve the Fund of any liability for Federal income tax to
the extent its earnings are distributed to shareholders. See
"Dividends, Distributions and Taxes--U.S. Federal Income Taxes."
To so qualify, among other requirements, the Fund will limit its
investments so that, at the close of each quarter of the taxable
year, (i) not more than 25% of the market value of the Fund's
total assets will be invested in the securities of a single
issuer and (ii) with respect to 50% of the market value of its
total assets, not more than five percent of the market value of
its total assets will be invested in the securities of a single
issuer and the Fund will not own more than 10% of the outstanding
voting securities of a single issuer. The Fund's investments in
U.S. Government securities are not subject to these limitations.
Because the Fund, as a non-diversified investment company, may
invest in a smaller number of individual issuers than a
diversified investment company, an investment in the Fund may,
under certain circumstances, present greater risk to an investor
than an investment in a diversified company.
Derivative Investment Products
The Fund may use various derivative investment products to
reduce certain risks to the Fund of exposure to local market and
currency movements. These products include forward foreign
currency exchange contracts, futures contracts, including stock
index futures, and options thereon, put and call options and
combinations thereof. The Adviser will use such products as
market conditions warrant. The Fund's ability to use these
products may be limited by market conditions, regulatory limits
and tax considerations and there can be no assurance that any of
these products would succeed in reducing the risk to the Fund of
exposure to local market and currency movements. New financial
products and risk management techniques continue to be developed
and the Fund may use these new investments and techniques to the
extent consistent with its investment objective and policies.
Currency Hedging Techniques. The Fund may engage in various
portfolio strategies to hedge its portfolio against currency
risks. These strategies include use of currency options and
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futures, options on such futures and forward foreign currency
transactions. The Fund may enter into such transactions only in
connection with its hedging strategies. While the Fund's use of
hedging strategies is intended to reduce the volatility of the
net asset value of Fund shares, the Fund's net asset will
fluctuate. There can be no assurance that the Fund's hedging
transactions will be effective. Furthermore, the Fund will only
engage in hedging activities from time to time and may not
necessarily be engaging in hedging activities when movements in
the currency exchange rates occur.
Although certain risks are involved in options and futures
transactions, the Adviser believes that, because the Fund will
only engage in these transactions for hedging purposes, the
options and futures portfolio strategies of the Fund will not
subject the Fund to the risks frequently associated with the
speculative use of futures transactions. Tax requirements may
limit the Fund's ability to engage in hedging transactions. See
Appendix B hereto for a further discussion of the use, risks and
costs of the hedging instruments the Fund may utilize.
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 other currencies. A forward contract is an obligation to
purchase or sell a specific currency for an agreed price at a
future date which is individually negotiated and privately traded
by currency traders and their customers. The Fund's dealings in
forward contracts will be limited to hedging involving either
specific transactions or portfolio positions. Transaction
hedging is the purchase or sale of forward contracts with respect
to specific receivables or payables of the Fund accruing in
connection with the purchase and sale of its portfolio securities
or the payment of dividends and distributions by the Fund.
Position hedging is the sale of forward contracts with respect to
portfolio security positions denominated or quoted in such
foreign currency. The Fund will not speculate in forward
contracts and, therefore, the Adviser believes that the Fund will
not be subject to the risks frequently associated with the
speculative use of such transactions. The Fund may not position
hedge with respect to the currency of a particular country to an
extent greater than the aggregate market value (at the time of
making such sale) of the securities held in its portfolio
denominated or quoted in that particular foreign currency. To
the extent required by applicable law, if the Fund enters into a
position hedging transaction, its custodian bank will place cash
or liquid securities in a separate account of the Fund in an
amount equal to the value of the Fund's total assets committed to
the consummation of such forward contract. If the value of the
securities placed in the separate account declines, additional
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cash or securities will be placed in the account so that the
value of the account will equal the amount of the Fund's
commitment with respect to such contracts. In addition, the Fund
may use such other methods of "cover" as are permitted by
applicable law. Hedging against a decline in the value of a
currency does not eliminate fluctuations in the prices of
portfolio securities or prevent losses if the prices of such
securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedge currency should
rise. Moreover, it may not be possible for the Fund to hedge
against a devaluation that is so generally anticipated that the
Fund is not able to contract to sell the currency at a price
above the devaluation level it anticipates. The Fund will not
enter into a forward contract with a term of more than one year
or if, as a result thereof, more than 50% of the Fund's total
assets would be committed to such contracts.
Options On Foreign Currencies. The Fund may write, sell and
purchase put and call options on foreign currencies traded on
securities exchanges or boards of trade (foreign and domestic) or
over-the-counter. As in the case of other kinds of options, the
writing of an option on a foreign currency constitutes only a
partial hedge, up to the amount of the premium received, and the
Fund could be required to purchase or sell foreign currencies at
disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on a foreign currency may constitute an
effective hedge against fluctuations in exchange rates although,
in the event of rate movements adverse to the Fund's position, it
may forfeit the entire amount of the premium plus related
transaction costs. There is no specific percentage limitation on
the Fund's investments in options on foreign currencies.
Options. The Fund may write, sell and purchase put and call
options listed on one or more U.S. or foreign securities
exchanges, including options on market indices. A call option
gives the purchaser of the option, for paying the writer a
premium, the right to call upon the writer to deliver a specified
number of shares of a specified stock on or before a fixed date,
at a predetermined price. A put option gives the buyer of the
option, for paying the writer a premium, the right to deliver a
specified number of shares of a stock to the writer of the option
on or before a fixed date, at a predetermined price.
Writing, purchasing and selling put and call options are
highly specialized activities and entail greater than ordinary
investment risks. When puts written by the Fund are exercised,
the Fund will be obligated to purchase stocks above their then
current market price. The Fund will not write a put option
unless at all times during the option period the Fund has
(a) sold short the optioned securities, or securities convertible
into or carrying rights to acquire the optioned securities, or
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(b) purchased an offsetting put on the same securities. When
calls written by the Fund are exercised, the Fund will be
obligated to sell stocks below their then current market price.
The Fund will not write a call option unless the Fund at all
times during the option period owns either (a) the optioned
securities, or securities convertible into or carrying rights to
acquire the optioned securities, or (b) an offsetting call option
on the same securities.
Options on Market Indices. An option on a securities index
is similar to an option on a security except that, rather than
the right to take or make delivery of a security at a specified
price, an option on a securities index gives the holder the right
to receive, upon exercise of the option, an amount of cash if the
closing level of the chosen index is greater than (in the case of
a call) or less than (in the case of a put) the exercise price of
the option.
Financial Futures Contracts, Including Stock Index Futures,
and Options on Futures Contracts. The Fund may enter into
financial futures contracts, including contracts for the purchase
or sale for future delivery of foreign currencies and futures
contracts based on stock indices and may purchase and write put
and call options to buy or sell futures contracts ("options on
futures contracts"). A sale of a futures contract entails the
acquisition of a contractual obligation to deliver the foreign
currency or other commodity called for by the contract at a
specified price on a specified date. A purchase of a futures
contract entails the incurring of a contractual obligation to
acquire the commodity called for by the contract at a specified
price on a specified date. The purchaser of a futures contract
on an index agrees to take or make delivery of an amount of cash
equal to the difference between a specified dollar multiple of
the value of the index on the expiration date of the contract and
the price at which the contract was originally struck. No
physical delivery of the securities underlying the index is made.
In connection with its purchase of stock index futures contracts
the Fund will deposit in a segregated account with the Fund's
custodian an amount of cash or U.S. Government Securities (as
defined below) or other liquid high-quality debt securities equal
to the market value of the futures contracts less any amounts
maintained in a margin account with the Fund's broker. Options
on futures contracts to be written or purchased by the Fund will
be traded on U.S. or foreign exchanges or over-the-counter. See
the Fund's Statement of Additional Information for further
discussion of the use, risks and costs of futures contracts and
options on futures contracts.
With respect to futures contracts and options on futures
contracts that are purchased for purposes other than for "bona
fide hedging purposes" (as defined in Commodity Futures Trading
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Commission regulations promulgated under the Commodity Exchange
Act), the aggregate initial margin and premiums required to be
paid by the Fund to establish such positions will not exceed on
all the outstanding futures contracts of the Fund and premiums
paid on outstanding options on futures contracts would exceed 5%
of the liquidation value of the total assets of the Fund, after
taking into account unrealized profits and unrealized losses on
any such contracts the Fund has entered into.
General. The successful use of the foregoing derivative
investment products draws upon the Adviser's special skills and
substantial experience with respect to such products and depends
on the Adviser's ability to forecast currency exchange rate
movements correctly. Should exchange rates move in an unexpected
manner, the Fund may not necessarily achieve the anticipated
benefits of futures contracts,options or forward contracts or may
realize losses and thus be in a worse position than if such
products had not been used. Unlike many exchange-traded futures
contracts and options on futures contracts, there are no daily
price fluctuation limits with respect to options on currencies
and forward contracts, and adverse market movements could
therefore continue to an unlimited extent over a period of time.
In addition, the correlation between movements in the prices of
such instruments and movements in the prices of the securities
and currencies hedged or used for cover will not be perfect and
could produce unanticipated losses.
The Fund's ability to dispose of its positions in futures
contracts, options and forward contracts will depend on the
availability of liquid markets in such instruments. Markets in
options and futures with respect to a number of securities and
currencies are relatively new and still developing. It is
impossible to predict the amount of trading interest that may
exist in various types of futures contracts, options and forward
contracts. If a secondary market did not exist with respect to
an over-the-counter option purchased or written by the Fund, it
might not be possible to effect a closing transaction in the
option (i.e., dispose of the option), with the result that (i) an
option purchased by the Fund would have to be exercised in order
for the Fund to realize any profit and (ii) the Fund may not be
able to sell currencies or portfolio securities covering an
option written by the Fund until the option expires or it
delivers the underlying futures contract or currency upon
exercise. 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 and futures transactions may be limited by tax
considerations. See "Dividends, Distributions and Taxes--U.S.
Federal Income Taxes."
14
<PAGE>
Other Investment Practices
Lending Of Portfolio Securities. In order to increase
income, the Fund may from time to time lend portfolio securities
to brokers, dealers and financial institutions and receive
collateral in the form of cash or U.S. Government securities.
Under the Fund's procedures, collateral for such loans must be
maintained at all times in an amount equal to at least 100% of
the current market value of the loaned securities (including
interest accrued on the loaned securities). The interest
accruing on the loaned securities will be paid to the Fund and
the Fund will have the right, on demand, to call back the loaned,
or equivalent, securities. The Fund may pay fees to arrange the
loans. The Fund will neither lend portfolio securities in excess
of 30% of the value of its total assets nor lend its portfolio
securities to any officer, director, employee or affiliate of the
Fund or the Adviser.
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 or dividends accrue 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
cancelled in the event that the required conditions did not occur
and the trade was cancelled. No forward commitments will be made
by the Fund if, as a result, the Fund's aggregate commitments
under such transactions would be more than 30% of the then
current value of the Fund's total assets.
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
15
<PAGE>
the case may be. To facilitate such transactions, the Fund's
Custodian will maintain, in the segregated account of the Fund,
cash, cash equivalents, U.S. Government securities or other
liquid high-grade debt securities denominated in U.S. dollars or
non-U.S. currencies 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 might 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.
The use of forward commitments for the purchase or sale of
fixed income securities 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 then current market values.
Standby Commitment Agreements. The Fund may from time to
time enter into standby commitment agreements. Such agreements
commit the Fund, for a stated period of time, to purchase a
stated amount of a fixed income security which may be issued and
sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment.
At the time of entering into the agreement the Fund is paid a
commitment fee, regardless of whether or not the security is
ultimately issued, which is typically approximately 0.5% of the
aggregate purchase price of the security which the Fund has
committed to purchase. The fee is payable whether or not the
security is ultimately issued. The Fund will enter into such
agreements only for the purpose of investing in the security
underlying the commitment at a yield and price which are
considered advantageous to the Fund and which are unavailable on
a firm commitment basis. The Fund will not enter into a standby
commitment with a remaining term in excess of 45 days and will
limit its investment in such commitments so that the aggregate
purchase price of the securities subject to such commitments,
together with the value of portfolio securities that are not
16
<PAGE>
readily marketable, will not exceed 25% of its assets taken at
the time of acquisition of such commitment of security. The Fund
will at all times maintain a segregated account with its
custodian of cash, cash equivalents, U.S. Government securities
or other high-grade liquid debt securities denominated in U.S.
dollars or non-U.S. currencies in an aggregate amount equal to
the purchase price of the securities underlying the commitment.
There can be no assurance that the securities subject to a
standby commitment will be issued and the value of the security,
if issued, on the delivery date may be more or less than its
purchase price. Since the issuance of the security underlying
the commitment is at the option of the issuer, the Fund will bear
the risk of capital loss in the event the value of the security
declines and may not benefit from an appreciation in the value of
the security during the commitment period if the issuer decides
not to issue and sell the security to the Fund.
The purchase of a security subject to a standby commitment
agreement and the related commitment fee will be recorded on the
date on which the security can reasonably be expected to be
issued and the value of the security will thereafter be reflected
in the calculation of the Fund's net asset value. The cost basis
of the security will be adjusted by the amount of the commitment
fee. In the event the security is not issued, the commitment fee
will be recorded as income on the expiration date of the standby
commitment.
Future Developments. The Fund may, following written notice
thereof to its shareholders, take advantage of opportunities in
the area of futures contracts and options on futures contracts
which are not presently contemplated for use by the Fund or which
are not currently available but which may be developed, to the
extent such opportunities are both consistent with the Fund's
investment objective and legally permissible for the Fund. Such
opportunities, if they arise, may involve risks which exceed
those involved in the options and futures activities described
above.
Portfolio Turnover. Generally, the Fund's policy with
respect to portfolio turnover is to purchase securities with a
view to holding them for periods of time sufficient to assure
that the Fund will realize less than 30% of its gross income from
the sale or other disposition of securities held for less than
three months and generally will hold its securities for six
months or longer. However, it is also the Fund's policy to sell
any security whenever, in the judgment of the Adviser, its
appreciation possibilities have been substantially realized or
the business or market prospects for such security have
deteriorated, irrespective of the length of time that such
security has been held. The Adviser anticipates that the Fund's
17
<PAGE>
annual rate of portfolio turnover will not exceed 200%. A 200%
annual turnover rate would occur if all the securities of the
Fund's portfolio were replaced twice within a period of one year.
The turnover rate has a direct effect on the transaction costs to
be borne by the Fund. For the fiscal period ended July 31, 1994
and the fiscal year ended 1995, the Fund's portfolio turnover was
35% and 74% respectively.
Fundamental Investment Policies
In addition to the investment objective and policies
described above, the Fund has adopted certain fundamental
investment policies which may not be changed without shareholder
approval. Briefly, these policies provide that the Fund may not:
(i) purchase more than 10% of the outstanding voting securities
of any one issuer; (ii) invest more than 15% of the value of its
total assets in the securities of any one issuer or 25% or more
of the value of its total assets in the same industry, provided,
however, that the foregoing restriction shall not be deemed to
prohibit the Fund from purchasing the securities of any issuer
pursuant to the exercise of rights distributed to the Fund by the
issuer, except that no such purchase may be made if as a result
the Fund will fail to meet the diversification requirements of
the Internal Revenue Code of 1986, as amended (the "Code"), and
any such acquisition in excess of the foregoing 15% or 25% limits
will be sold by the Fund as soon as reasonably practicable (this
restriction does not apply to securities issued or guaranteed by
the U.S. government, its agencies and instrumentalities, but will
apply to foreign government obligations unless the Securities and
Exchange Commission (the "Commission") permits their exclusion);
(iii) borrow money except from banks for temporary or emergency
purposes, including the meeting of redemption requests which
might require the untimely disposition of securities; borrowing
in the aggregate may not exceed 15%, and borrowing for purposes
other than meeting redemptions may not exceed 5%, of the value of
the Fund's total assets (including the amount borrowed) less
liabilities (not including the amount borrowed) at the time the
borrowing is made; outstanding borrowings in excess of 5% of the
value of the Fund's total assets will be repaid before any
subsequent investments are made; (iv) purchase a security (unless
the security is acquired pursuant to a plan of reorganization or
an offer of exchange) if, as a result, the Fund would own any
securities of an open-end investment company or more than 3% of
the total outstanding voting stock of any closed-end investment
company, or more than 5% of the value of the Fund's total assets
would be invested in securities of any closed-end investment
company, or more than 10% of such value in closed-end investment
companies in general; (v) make loans except through (a) the
purchase of debt obligations in accordance with its investment
objective and policies and (b) the lending of portfolio
securities; (vi) pledge, hypothecate, mortgage or otherwise
18
<PAGE>
encumber its assets, except (a) to secure permitted borrowings
and (b) in connection with initial and variation margin deposits
relating to futures contracts; (vii) invest in companies for the
purpose of exercising control; (viii) make short sales of
securities or maintain a short position, unless at all times when
a short position is open it owns an equal amount of such
securities or securities convertible into or exchangeable for,
without payment of any further consideration, securities of the
same issue as, and equal in amount to, the securities sold short
("short sales against the box"), and unless not more than 10% of
the Fund's net assets (taken at market value) is held as
collateral for such sales at any one time (it is the Fund's
present intention to make such sales only for the purpose of
deferring realization of gain or loss for federal income tax
purposes); (ix) buy or write (i.e., sell) put or call options,
except (i) the Fund may buy foreign currency options or write
covered foreign currency options and options on foreign currency
futures and (ii) the Fund may purchase warrants; or (x) purchase
or sell real estate, except that it may (i) purchase and sell
securities of companies which deal in real estate or interests
therein, (ii) purchase or sell commodities or commodity contracts
(except foreign currencies, foreign currency options and futures
and forward contracts or contracts for the future acquisition or
delivery of foreign currencies and related options on futures
contracts and other similar contracts), (iii) invest in interests
in oil, gas, or other mineral exploration or development
programs, except that it may purchase and sell securities of
companies that deal in oil, gas or other mineral exploration or
development programs, (iv) purchase securities on margin, except
for such short-term credits as may be necessary for the clearance
of transactions or (v) act as an underwriter of securities,
except that the Fund may acquire securities in private placements
under circumstances in which, if such securities were sold, the
Fund might be deemed to be an underwriter within the meaning of
the U.S. Securities Act of 1933.
State Undertakings
In connection with the qualification or registration of the
Fund's shares for sale under the securities laws of certain
states, the Fund has agreed, in addition to the investment
restrictions described in the Prospectus, that it will not
(i) purchase the securities of any company that has a record of
less than three years of continuous operation (including that of
predecessors) if such purchase at the time thereof would cause
more than 5% of its total assets, taken at current value, to be
invested in the securities of such companies; (ii) invest in oil,
gas or other mineral leases; (iii) purchase or sell real property
(including limited partnership interests, but excluding readily
marketable interests in real estate investment trusts or readily
marketable securities of companies which invest in real estate);
19
<PAGE>
(iv) invest in warrants (other than warrants acquired by the Fund
as a part of a unit or attached to securities at the time of
purchase) if as a result of such warrants valued at the lower of
such cost or market would exceed 10% of the value of the Fund's
assets at the time of purchase; (v) invest in the securities of
any open-end investment company; (vi) it will prohibit the
purchase or retention by the Fund of the securities of any issuer
if the officers, directors or trustees of the Fund, its advisers
or managers scoping beneficially more than one-half of one
percent of the securities of each issuer together own
beneficially more than five percent of such securities; (vii) it
will prohibit the investment of any assets of the Fund in the
securities of other investment companies except by purchase in
the open-market where no commission or profit to a sponsor or
dealer results from such purchase other than the customary
broker's commissions, or except when such purchase is part of a
plan of merger, consolidation, reorganization or acquisition;
(viii) it will limit its investments in illiquid securities
together with restricted securities (excluding Rule 144A
securities) to no more than 15% of the Fund's average net assets;
and (ix) meetings of stockholders for any purpose may be called
by 10% of its outstanding shareholders;
____________________________________________________________
MANAGEMENT OF THE FUND
____________________________________________________________
Adviser
Alliance Capital Management L.P. (the "Adviser"), a Delaware
limited partnership with principal offices at 1345 Avenue of the
Americas, New York, New York 10105, has been retained under an
investment advisory agreement (the "Advisory Agreement") as the
Fund's Adviser (see "Management of the Fund" in the Prospectus).
The Adviser is a leading international investment manager
supervising client accounts with assets as of September 30, 1995
of more than $144 billion (of which more than $47 billion
represented the assets of investment companies). The Adviser's
clients are primarily major corporate employee benefit funds,
public employee retirement systems, investment companies,
foundations and endowment funds and included, as of September 30,
1995, 29 of the FORTUNE 100 Companies. As of that date, the
Adviser and its subsidiaries employed approximately 1,350
employees who operated out of domestic offices and the overseas
offices of subsidiaries in Bombay, Istanbul, London, Sydney,
Tokyo, Toronto, Bahrain, Luxembourg and Singapore. The 50
registered investment companies comprising 104 separate
investment portfolios managed by the Adviser currently have more
than two million shareholders.
20
<PAGE>
Alliance Capital Management Corporation, the sole general
partner of, and the owner of a 1% general partnership interest
in, the Adviser, is an indirect wholly-owned subsidiary of The
Equitable Life Assurance Society of the United States
("Equitable"), one of the largest life insurance companies in the
United States and a wholly-owned subsidiary of The Equitable
Companies Incorporated ("ECI"), a holding company controlled by
AXA, a French insurance holding company. As of June 30, 1995,
ACMC, Inc. and Equitable Capital Management Corporation, each a
wholly-owned direct or indirect subsidiary of Equitable, together
with Equitable, owned in the aggregate approximately 59% of the
issued and outstanding units representing assignments of
beneficial ownership of limited partnership interests in the
Adviser ("Units"). As of June 30, 1995, approximately 33% and 8%
of the Units were owned by the public and employees of the
Adviser and its subsidiaries, respectively, including employees
of the Adviser who serve as Directors of the Fund.
AXA owns approximately 60% of the outstanding voting shares
of common stock of ECI. AXA is the holding company for an
international group of insurance and related financial services
companies. AXA's insurance operations are comprised of
activities in life insurance, property and casualty insurance and
reinsurance. The insurance operations are diverse geographically
with activities in France, the United States, the United Kingdom,
Canada and other countries, principally in Europe. AXA is also
engaged in asset management, investment banking and brokerage,
real estate and other financial services activities in the United
States and Europe. Based on information provided by AXA, as of
January 1, 1995, 42.3% of the issued shares (representing 54.7%
of the voting power) of AXA were owned by Midi Participations, a
French corporation that is a holding company. The voting shares
of Midi Participations are in turn owned 60% by Finaxa, a French
corporation that is a holding company, and 40% by subsidiaries of
Assicurazioni Generali S.p.A., an Italian corporation
("Generali") (one of which, Belgica Insurance Holding S.A., a
Belgian corporation, owned 34.1%). As of January 1, 1995, 62.1%
of the issued shares (representing 75.7% of the voting power) of
Finaxa were owned by five French mutual insurance companies (the
"Mutuelles AXA") (one of which, AXA Assurances I.A.R.D. Mutuelle,
owned 31.8% of the issued shares) (representing 39.0% of the
voting power), and 26.5% of the issued shares (representing 16.6%
of the voting power) of Finaxa were owned by Banque Paribas, a
French bank ("Paribas"). Including the shares owned by Midi
Participations, as of January 1, 1995, the Mutuelles AXA directly
or indirectly owned 51.3% of the issued shares (representing
65.8% of the voting power) of AXA. In addition, certain
subsidiaries of AXA own 0.4% of the shares of AXA which are not
entitled to be voted. Acting as a group, the Mutuelles AXA
control AXA, Midi Participations and Finaxa.
21
<PAGE>
The Advisory Agreement became effective on July 22, 1992.
The Advisory Agreement replaced an earlier, substantially
identical agreement (the "First Advisory Agreement") that
terminated because of its technical assignment as a result of
AXA's acquisition of control over Equitable. In anticipation of
the assignment of the First Advisory Agreement, the Advisory
Agreement was approved by the unanimous vote, cast in person, of
the Fund's Directors (including the Directors who are not parties
to the Advisory Agreement or interested persons as defined in the
Act of any such party) at a meeting called for the purpose and
held on September 12, 1991. At a meeting held on June 8, 1992, a
majority of the outstanding voting securities of the Fund
approved the Advisory Agreement.
The Advisory Agreement continues in effect for successive
twelve-month periods (computed from each January 1) if approved
annually (a) by the Directors of the Fund or by vote of a
majority of the outstanding voting securities of the Fund and
(b) by vote of the majority of the Directors who are not
"interested persons" of the Fund within the meaning of the 1940
Act, cast in person at a meeting called for the purpose of voting
on such approval. Most recently, continuance of the Advisory
Agreement was approved for the period ending December 31, 1995 by
the Directors, including a majority of the Directors who are not
"interested persons", as defined in the Act, at their Regular
Meeting held on December 8, 1994.
Under the Advisory Agreement, the Adviser furnishes
investment advice and recommendations to the Fund and provides
office space in New York, order placement facilities and persons
satisfactory to the Fund's Board of Directors to act as officers
of the Fund. Such officers, as well as certain Directors of the
Fund, may be employees of the Adviser or directors, officers or
employees of its affiliates. For the Adviser's services under
the Advisory Agreement, the Fund pays the Adviser a monthly
management fee at an annualized rate of 1.10% of the Fund's
average daily net assets up to $100 million, .95% of the next
$100 million of the Fund's average daily net assets, and .80% of
the Fund's average daily net assets over $200 million. The fee
paid by the fund to the Adviser is in excess of the management
fees paid by most registered investment companies, but the
Adviser believes it is justified by the special care that must be
given to the selection and supervision of the particular types of
securities in which the Fund invests. For the fiscal years ended
February 28, 1994, July 31, 1994 and July 31, 1995, the Adviser
received an advisory fee in the amount of $1,021,310, $566,486
and $1,315,618, respectively.
The Advisory Agreement provides that the Adviser will
reimburse the Fund to the extent, if any, that its ordinary
operating expenses for the preceding year (exclusive of interest,
22
<PAGE>
taxes, brokerage and other expenditures that are capitalized in
accordance with generally accepted accounting principles and
extraordinary expenses) 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 sale in every state. The Fund
believes that at present the most restrictive state 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
mutual 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. For the fiscal years ended February 28,
1994, July 31, 1994 and July 31, 1995, no reimbursements were
required to be made pursuant to the most restrictive expense
limitation.
The Advisory Agreement is terminable at any time, without
penalty, on 60 days' written notice to the Adviser by vote of a
majority of the Fund's outstanding voting securities, or by vote
of a majority of the Fund's Board of Directors, or by the Adviser
with respect to the Fund, on 60 days' written notice to the Fund,
and will automatically terminate in the event of its assignment.
The Advisory Agreement may not be amended except upon approval by
the Directors and stockholders of the Fund as described in the
preceding sentence. 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 and duties thereunder, the Adviser shall not be
liable for any action or failure to act in accordance with its
duties thereunder.
The Adviser is, under the Advisory Agreement, responsible for
any expenses incurred by the Fund in promoting the sale of Fund
shares (other than the portion of the promotional expenses borne
by the Fund in accordance with an effective plan pursuant to Rule
12b-1 under the 1940 Act, and the costs of printing and mailing
Fund prospectuses and other reports to shareholders and all
expenses and fees related to proxy solicitations and
registrations and filings with the Commission and with state
regulatory authorities).
The Fund has, under the Advisory Agreement, assumed the
obligation for payment of all of its other expenses. As to the
obtaining of services other than those specifically provided to
the Fund by the Adviser, the Fund may employ its own personnel.
For such services, it also may utilize personnel employed by the
Adviser or its affiliates and, in such event, the services will
be provided to the Fund at cost and the payments therefore must
be specifically approved by the Fund's Directors. The Fund paid
to the Adviser a total of $118,039 in respect of such services
during the fiscal year ended July 31, 1995.
23
<PAGE>
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. It is the
policy of the Adviser to allocate advisory recommendations and
the placing of orders in a manner which is deemed equitable by
the Adviser to the accounts involved, including the Fund. When
two or more of the clients of the Adviser (including the Fund)
are purchasing the same security on a given day from the same
broker-dealer, such transactions may be averaged as to price.
The Adviser may act as an investment adviser to other
persons, firms or corporations, including investment companies,
and is investment adviser to the following: ACM Institutional
Reserves, Inc., AFD Exchange Reserves, Alliance All-Asia
Investment Fund, Inc., The Alliance Fund, Inc., Alliance Balanced
Shares, Inc., Alliance Bond Fund, Inc., Alliance Capital
Reserves, Alliance Counterpoint Fund, Alliance Developing Markets
Fund, Inc., Alliance Global Dollar Government Fund, Inc.,
Alliance Global Small Cap Fund, Inc., Alliance Government
Reserves, Alliance Growth and Income Fund, Inc., Alliance Income
Builder Fund, Inc., Alliance International Fund, Alliance Money
Market Fund, Alliance Mortgage Securities Income Fund, Inc.,
Alliance Mortgage Strategy Trust, 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 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 registered
open-end investment companies; and to ACM Government Income Fund,
Inc., ACM Government Securities Fund, Inc., ACM Government
Spectrum Fund, Inc., ACM Government Opportunity Fund, Inc., ACM
Managed Dollar Income Fund, Inc., ACM Managed Multi-Market Trust,
Inc., ACM Municipal Securities Income Fund, Inc., Alliance All-
Market Advantage 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 Southern Africa Fund, Inc. and
The Spain Fund, Inc., all registered closed-end investment
companies.
24
<PAGE>
The Adviser may from time to time retain particular European
banks or other financial institutions for research and consulting
services with respect to general economic and monetary conditions
in Europe and, in particular, with respect to a number of the
smaller, developing securities markets in which the Fund will
seek investment opportunities. For such services, the Adviser
will from its own funds pay each consultant a fee to be arranged
by the Adviser and each consultant. The consultants will have no
responsibility for the Fund's investments.
Under the terms of the Advisory Agreement, the Fund will
discontinue the use of the term "Alliance" in the Fund's name or
the use of any marks or symbols owned by the Adviser if the
Adviser ceases to act as the Fund's investment adviser or if the
Adviser so requests.
Directors and Officers
The Directors and principal officers of the Fund, their ages
and their primary occupations during the past five years are set
forth below. Each such Director and officer is also a trustee,
director or officer of other investment companies sponsored by
the Adviser. Unless otherwise specified the address of each of
the following persons is 1345 Avenue of the Americas, New York,
New York 10105.
Directors
John D. Carifa*, 50, Chairman of the Directors, is the
President, the Chief Operating Officer and a Director of ACMC**,
with which he has been associated since prior to 1990.
David H. Dievler, 66, was formerly a Senior Vice President of
ACMC, with which he had been associated since prior to 1990
through 1994. He is currently an independent consultant. His
address is P.O. Box 167, Spring Lake, New Jersey 07762.
John H. Dobkin, 53, has been the President of Historic Hudson
Valley (historic preservation) since 1990. His address is 105
West 55th Street, New York, New York 10019.
___________________________
* An "interested person" of the Fund as defined in the
Investment Company Act of 1940.
** For purposes of this Statement of Additional Information,
ACMC refers to Alliance Capital Management Corporation, the
sole general partner of the Adviser, and to the predecessor
general partner of the Adviser of the same name.
25
<PAGE>
W.H. Henderson, 68, has been an oil and gas consultant since
prior to 1990. He is also a Director of Nippon Peroxide Co.
Limited; a consultant to LaPorte Industries PLC and Reckitt and
Colman PLC. His address is Quarrey House, Charlton Horethorne,
Sherborne, Dorset DT9 4NY, England.
Stig Host, 69, is Chairman and Chief Executive Officer of
International Energy Corp. (oil and gas exploration), with which
he has been associated with since prior to 1990. He is also
Chairman and Director of Kriti Exploration Corporation (oil and
gas exploration and production); Managing Director of Kriti Oil
and Minerals, N.V.; Chairman of Kriti Properties and Development
Corporation (real estate); Chairman of International Marine
Sales, Inc. (marine fuels); a Director of Florida Fuels, Inc.
(marine fuels); and President of Alexander Host Foundation. He
is a Trustee of the Winthrop Focus Funds. His address is 36
Keofferam Road, Old Greenwich, Connecticut 06870.
Richard M. Lilly, 65, was formerly the President and Chief
Executive Officer of Esso Italiana, S.p.A, with which he had been
associated with since 1990. His address is 70 Palace Gardens
Terrace, London, W8 4RR England.
Alan Stoga, 44, has been a Managing Director and a member of
the Board of Directors of Kissinger Associates, Inc. since prior
to 1990. His address is Kissinger Associates, Inc., 350 Park
Avenue, New York, New York 10022.
Hon. John C. West, 73, has been an attorney in private
practice since prior to 1990. Previously he was Governor of
South Carolina and United States Ambassador to Saudi Arabia and a
Distinguished Professor of Middle East Studies at the University
of South Carolina. He is also a Director of Whittaker Corp.
(technology) and Circle S. Industries Corp. (light
manufacturing). His address is P.O. Drawer 13, Hilton Head,
South Carolina 29938.
Robert C. White, 75, formerly a Vice President and Chief
Financial Officer of the Howard Hughes Medical Institute. Retired
Director of the MEDSTAT Group (healthcare information systems)
and the Ambassador Funds and a retired Trustee of the St. Clair
Fund (registered investment companies). He was formerly
Assistant Treasurer of Ford Motor Company. His address is 30835
River Crossing, Bingham Farms, Michigan 48025.
Officers
John D. Carifa, Chairman of the Board and President, see
biography above.
26
<PAGE>
Eric N. Perkins, 40, Vice President, Senior Vice President of
ACMC, with which he has been associated since prior to 1990.
Thomas J. Bardong, 50, Vice President, is a Senior Vice
President of ACMC, with which he has been associated since prior
to 1990.
Nicholas E. Crossland, 24, Vice President, is an Assistant
Vice President with ACL, with which he has been associated since
1991. Prior thereto, he was a trading assistant at Brewin,
Dolphin since prior to 1990.
Mark D. Gersten, 44, Treasurer and Chief Financial Officer,
is a Senior Vice President of AFS, with which he has been
associated since prior to 1990.
Edmund P. Bergan, Jr., 45, Secretary, is a Senior Vice
President and the General Counsel of AFD and Alliance Fund
Services, Inc. and Vice President and Assistant General Council
of ACMC with which he has been associated since prior to 1990.
Domenick Pugliese, 34, Assistant Secretary, is Vice President
and Associate General Counsel of Alliance Fund Distributors, Inc.
with which he has been associated since May 1995. Previously, he
was Vice President and Counsel of Concord Financial Holding
Corporation since 1994, Vice President and Associate General
Counsel of Prudential Securities since 1991 and an associate with
Battle Fowler since prior to 1990.
Patrick J. Farrell, 35, Controller, is a Vice President of
AFS, with which he has been associated since prior to 1990.
Joseph J. Mantineo, 36, Assistant Controller, is a Vice
President of AFS, with which he has been associated since prior
to 1990.
Carla LaRose, 32, Assistant Controller, is a manager of AFS,
with which she has been associated since prior to 1990.
The address of Messrs. Gersten, Farrell, Mantineo and Ms.
LaRose is 500 Plaza Drive, Secaucus, New Jersey 07094. The
address of Messrs. Crossland and Perkins is 155 Bishopsgate,
London, England EC2M 3XS.
While the Fund is a Maryland corporation, certain of its
Directors and officers are residents of the United Kingdom and
substantially all of the assets of such persons may be located
outside of the United States. As a result, it may be difficult
for U.S. investors to effect service of process on such Directors
or officers within the United States or to realize judgments of
courts of the United States predicated upon civil liabilities of
27
<PAGE>
such Directors or officers under the federal securities laws of
the United States. The Fund has been advised that there is
substantial doubt as to the enforceability in the United Kingdom
of such civil remedies and criminal penalties as are afforded by
the federal securities laws of the United States. Also, it is
unclear if extradition treaties now in effect between the United
States and the United Kingdom would subject such Directors and
officers to effective enforcement of the criminal penalties of
the federal securities laws.
The aggregate compensation paid by the Fund to each of the
Directors during its fiscal year ended July 31, 1995, the
aggregate compensation paid to each of the Directors during
calendar year 1994 by all of the funds to which the Adviser
provides investment advisory services (collectively, the
"Alliance Fund Complex") and the total number of registered
investment companies in the Alliance Fund Complex with respect to
which each of the 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
pension or retirement benefits to any of its directors or
trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the Alliance
Fund Complex.
Total Number
of Funds in
the Alliance
Total Fund Complex,
Compensation Including the
From the Fund, as to
Alliance Fund which the
Aggregate Complex, Director is a
Name of Director Compensation Including the Director or
of the Fund From the Fund Fund Trustee
________________ _____________ _____________ ______________
John D. Carifa $0 $0 42
David H. Dievler $2,350 $0 49
John H. Dobkin $5,433 $110,750 29
W.H. Henderson $4,750 $22,250 5
Stig Host $4,750 $22,250 5
Richard M. Lilly $4,750 $22,250 5
Alan Stoga $4,000 $21,500 5
Hon. John C. West $4,750 $22,250 5
Robert C. White $5,433 $133,500 36
As of October 13, 1995, the Directors and officers of the Fund as
a group owned less than 1% of the shares of the Fund.
28
<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 Fund directly or indirectly to pay expenses associated
with distribution of its 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 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, in the case of Class C shares, without
the assessment of a contingent deferred sales charge, and at the
same time to permit the Principal Underwriter to compensate
broker-dealers in connection with the sale of such shares. In
this regard the purpose and function of the combined contingent
deferred sales charge and distribution services fee on the
Class B shares, and the distribution services fee on the Class C
shares, are the same as those of the initial sales charge (or
contingent deferred sales charge, when applicable) 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 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 on
a quarterly basis. Also, the Agreement provides that the
selection and nomination of Directors who are not "interested
persons" of the Fund, as defined in the 1940 Act, are committed
to the discretion of such disinterested Directors then in office.
The Agreement became effective on July 22, 1992 and was
amended as of April 30, 1993 to permit the distribution of an
additional class of shares, Class C shares. The amendment to the
Agreement was approved by the unanimous vote, cast in person, of
the disinterested Directors at a meeting called for that purpose
held on February 23, 1993, and by the initial holder of Class C
shares of the Fund on April 30, 1993.
29
<PAGE>
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.
During the Fund's fiscal year ended July 31, 1995, with
respect to Class A shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $245,353 which constituted approximately .30% of the
Fund's average daily net assets attributable to the Class A
shares during the period, and the Adviser made payments from its
own resources as described above, aggregating $129,932. Of the
$375,285 paid by the Fund and the Adviser under the Plan, with
respect to the Class A shares, $24,874 were spent on advertising,
$3,819 on the printing and mailing of prospectuses for persons
other than current shareholders, $241,193 for compensation to
broker-dealers and other financial intermediaries (including,
$58,082 to the Fund's Principal Underwriter), $4,145 for
compensation to sales personnel and, $101,254 were spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
During the Fund's fiscal year ended July 31, 1995, with
respect to Class B shares, the Fund paid distribution services
fees for expenditures under the Agreement in the aggregate amount
of $315,895, which constituted 1.00% of the Fund's average daily
net assets attributable to Class B shares during the period, and
the Adviser made payments from its own resources, as described
above, aggregating $257,084. Of the $732,358 paid by the Fund
and the Adviser under the Plan, with respect to Class B shares,
$43,755 was spent on advertising, $12,621 on the printing and
mailing of prospectuses for persons other than current
shareholders, $425,295 for compensation to broker-dealers and
other financial intermediaries (including, $102,403 to the Fund's
Principal Underwriter), $8,218 for compensation to sales
personnel, $150,696 was spent on printing of sales
literature,travel, entertainment, due diligence and other
promotional expenses and $91,773 on interest on Class B shares
financing.
During the Fund's fiscal year ended July 31, 1995, with
respect to Class C shares, the Fund paid distribution services
fees for expenditures under the Agreement, in the aggregate
amount of $93,234 which constituted approximately 1.00%,
annualized, of the Fund's average daily net assets attributable
to Class C shares during the period, and the Adviser made
payments from its own resources, as described above, aggregating
$72,454. Of the $165,688 paid by the Fund and the Adviser under
the Plan, with respect to Class C shares, $10,450 was spent on
30
<PAGE>
advertising, $2,236 on the printing and mailing of prospectuses
for persons other than current shareholders, $116,286 for
compensation to broker-dealers and other financial intermediaries
(including, $23,889 to the Fund's Principal Underwriter), $1,915
for compensation to sales personnel, and $34,801 were spent on
printing of sales literature, travel, entertainment, due
diligence and other promotional expenses.
The Agreement will continue in effect for successive twelve-
month periods (computed from each January 1), provided, however,
that such continuance is specifically approved at least annually
by the Directors of the Fund or by vote of the holders of a
majority of the outstanding voting securities (as defined in the
1940 Act) of that class, and, in either case, by a majority of
the Directors of the Fund who are not parties to the Agreement or
interested persons, as defined in the 1940 Act, of any such party
(other than as directors of the Fund) and who have no direct or
indirect financial interest in the operation of the Rule 12b-1
Plan or any agreement related thereto. Most recently the
continuance of the Agreement until December 31, 1995 was approved
by a vote, cast in person, of the Directors, including a majority
of the Directors who are not "interested persons", as defined in
the 1940 Act, at their meeting held on December 8, 1994.
In the event that the Agreement is terminated or not
continued with respect to the Class A shares, Class B shares or
Class C shares, (i) no distribution services fees (other than
current amounts accrued but not yet paid) would be owed by the
Fund to the Principal Underwriter with respect to that class, and
(ii) the Fund would not be obligated to pay the Principal
Underwriter for any amounts expended under the Agreement not
previously recovered by the Principal Underwriter from
distribution services fees in respect of shares of such class or
through deferred sales charges.
All material amendments to the Agreement must be approved by
a vote of the Directors or the holders of the Fund's outstanding
voting securities, voting separately by class, and in either
case, by a majority of the disinterested Directors, cast in
person at a meeting called for the purpose of voting on such
approval; and the Agreement may not be amended in order to
increase materially the costs that a particular class may bear
pursuant to the Agreement without the approval of a majority of
the holders of the outstanding voting shares of the class
affected. The Agreement may be terminated (a) by the Fund
without penalty at any time by a majority vote of the holders of
the outstanding voting securities of the Fund, voting separately
by class or by a majority vote of the Directors who are not
"interested persons" as defined in the 1940 Act, or (b) by the
Principal Underwriter. To terminate the Agreement, any party
must give the other parties 60 days' written notice; to terminate
31
<PAGE>
the Rule 12b-1 Plan only, the Fund need give no 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 each of the Class A shares, Class B shares and
Class C shares of the Fund, plus reimbursement for out-of-pocket
expenses. The transfer agency fee with respect to the Class B
shares is higher than the transfer agency fee with respect to the
Class A shares or the Class C shares reflecting the additional
costs associated with the Class B contingent deferred sales
charge. For the fiscal year ended July 31, 1995, the Fund paid
Alliance Fund Services, Inc. $148,950 for transfer agency
services.
____________________________________________________________
PURCHASE OF SHARES
____________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares
- --How To Buy Shares."
General
Shares of the Fund are offered on a continuous basis at a
price equal to their net asset value plus an initial sales charge
at the time of purchase (the "initial sales charge alternative"),
with a contingent deferred sales charge (the "deferred sales
charge alternative"), or without any initial or contingent
deferred sales charge (the "asset-based sales charge
alternative"), as described below. Shares of the Fund are offered
on a continuous basis through (i) investment dealers that are
members of the National Association of Securities Dealers, Inc.
and have entered into selected dealer agreements with the
Principal Underwriter ("selected dealers"), (ii) depository
institutions and other financial intermediaries or their
affiliates, that have entered into selected agent agreements with
the Principal Underwriter ("selected agents"), or (iii) the
Principal Underwriter. The minimum for initial investments is
$250; subsequent investments (other than reinvestments of
dividends and capital gains distributions in shares) must be in
the minimum amount of $50. As described under "Shareholder
Services," the Fund offers an automatic investment program and a
403(b)(7) retirement plan which permit investments of $25 or
more. The subscriber may use the Subscription Application found
in the Prospectus for his or her initial investment. Sales
32
<PAGE>
personnel of selected dealers and agents distributing the Fund's
shares may receive differing compensation for selling Class A,
Class B or Class C shares.
Investors may purchase shares of the Fund in the United
States either through selected dealers or agents or directly
through the Principal Underwriter. Shares may also be sold in
foreign countries where permissible. The Fund may refuse any
order for the purchase of shares. The Fund reserves the right to
suspend the sale of its shares to the public in response to
conditions in the securities markets or for other reasons.
The public offering price of shares of the Fund is their net
asset value, plus, in the case of most purchases of Class A
shares, a sales charge which will vary depending on the purchase
alternative chosen by the investor and the amount of the
purchase, as shown in the table below. 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. New York time) by dividing the value of the
Fund's total assets, less its liabilities, by the total number of
its shares then outstanding. The respective per share net asset
values of the Class A, Class B and Class C shares are expected to
be substantially the same. Under certain circumstances, however,
the per share net asset values of the Class B and Class C shares
may be lower than the per share net asset value of the Class A
shares as a result of the daily expense accruals of the
distribution and transfer agency fees applicable with respect to
the Class B and Class C shares. Even under those circumstances,
the per share net asset values of the three classes eventually
will tend to converge immediately after the payment of dividends,
which will differ by approximately the amount of the expense
accrual differential among the classes. A Fund business day is
any weekday, exclusive of national holidays on which the Exchange
is closed and Good Friday. For purposes of this computation,
Exchange-listed securities and over-the-counter securities
admitted to trading on the NASDAQ National List are valued at the
last quoted sale or, if no sale, at the mean of closing bid and
asked prices and portfolio bonds are presently valued by a
recognized pricing service. If accurate quotations are not
available, securities will be valued at fair value determined in
good faith by the Board of Directors.
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
33
<PAGE>
prior to the close of regular trading on the Exchange on each day
the Exchange is open for trading are priced at the net asset
value computed as of the close of regular trading on the Exchange
on that day (plus applicable Class A sales charges). In the case
of orders for purchase of shares placed through selected dealers
or agents, the applicable public offering price will be the net
asset value as so determined, but only if the selected dealer or
agent receives the order prior to the close of regular trading on
the Exchange and transmits it to the Principal Underwriter prior
to its close of business that same day (normally 5:00 p.m. New
York time). The selected dealer or agent is responsible for
transmitting such orders by 5:00 p.m. If the selected dealer or
agent fails to do so, the investor's right to that day's closing
price must be settled between the investor and the selected
dealer or agent. If the selected dealer or agent receives the
order after the close of regular trading on the Exchange, the
price will be based on the net asset value determined as of the
close of regular trading on the Exchange on the next day it is
open for trading.
Following the initial purchase of Fund shares, a shareholder
may place orders to purchase additional shares by telephone if
the shareholder has completed the appropriate portion of the
Subscription Application or an "Autobuy" application obtained by
calling the "Literature" telephone number shown on the cover of
this Statement of Additional Information. Payment for shares
purchased by telephone can be made only by Electronic Funds
Transfer from a bank account maintained by the shareholder at a
bank that is a member of the National Automated Clearing House
Association ("NACHA"). If a shareholder's telephone purchase
request is received before 3:00 p.m. New York time on a Fund
business day, the order to purchase shares is automatically
placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of
the close of business on such following business day. Full and
fractional shares are credited to a subscriber's account in the
amount of his or her subscription. As a convenience to the
subscriber, and to avoid unnecessary expense to the Fund, 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 bonuses or other incentives to dealers or
agents, including Equico Securities, Inc., an affiliate of the
34
<PAGE>
Principal Underwriter, in connection with the sale of shares of
the Fund. Such additional amounts may be utilized, in whole or
in part, to provide additional compensation to registered
representatives who sell shares of the Fund. On some occasions,
such cash or other incentives will be conditioned upon the sale
of a specified minimum dollar amount of the shares of the Fund
and/or other Alliance Mutual Funds, as defined below, during a
specific period of time. On some occasions, such cash or other
incentives may take the form of payment for attendance at
seminars, meals, sporting events or theater performances, or
payment for travel, lodging and entertainment incurred in
connection with travel by persons associated with a dealer or
agent and their immediate family members to urban or resort
locations within or outside the United States. Such dealer or
agent may elect to receive cash incentives of equivalent amount
in lieu of such payments.
Alternative Purchases Arrangements
The Fund issues three classes of shares: Class A shares are
sold to investors choosing the initial sales charge alternative,
Class B shares are sold to investors choosing the deferred sales
charge alternative, and Class C shares are sold to investors
choosing the asset-based sales charge alternative. The three
classes of shares each represent an interest in the same
portfolio of investments of the Fund, have the same rights and
are identical in all respects, except that (i) Class A shares
bear the expense of the initial sales charge (or contingent
deferred sales charge, when applicable) and Class B shares bear
the expense of the contingent deferred sales charge, (ii) Class B
shares and Class C shares each bear the expense of a higher
distribution services fee and, in the case of Class B shares
higher transfer agency costs, (iii) each class has exclusive
voting rights with respect to provisions of the Rule 12b-1 Plan
pursuant to which its distribution services fee is paid which
relates to a specific class and other matters for which separate
class voting is appropriate under applicable law, provided that,
if the Fund submits to a vote of both the Class A shareholders
and the Class B 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, the Class A shareholders and
the Class B shareholders will vote separately by Class, and
(iv) only the Class B shares are subject to a conversion feature.
Each class has different exchange privileges and certain
different shareholder service options available.
The alternative purchase arrangements permit an investor to
choose the method of purchasing shares that is most beneficial
given the amount of the purchase, the length of time the investor
expects to hold the shares, and other circumstances. Investors
should consider whether, during the anticipated life of their
35
<PAGE>
investment in the Fund, the accumulated distribution services fee
and contingent deferred sales charges on Class B shares prior to
conversion, or the accumulated distribution services fee on
Class C shares, would be less than the initial sales charge and
accumulated distribution services fee on Class A shares purchased
at the same time, and to what extent such differential would be
offset by the higher return of Class A shares. Class A shares
will normally be more beneficial than Class B shares to the
investor who qualifies for reduced initial sales charges on
Class A shares, as described below. In this regard, the
Principal Underwriter will reject any order (except orders from
certain retirement plans) for more than $250,000 for Class B
shares. Class C shares will normally not be suitable for the
investor who qualifies to purchase Class A shares at net asset
value. For this reason, the Principal Underwriter will reject
any order for more than $5,000,000 for Class C shares.
Class A shares are subject to a lower distribution services
fee and, accordingly, pay correspondingly higher dividends per
share than Class B shares or Class C shares. However, because
initial sales charges are deducted at the time of purchase, most
investors purchasing Class A shares would not have all their
funds invested initially and, therefore, would initially own
fewer shares. Investors not qualifying for reduced initial sales
charges who expect to maintain their investment for an extended
period of time might consider purchasing Class A shares because
the accumulated continuing distribution charges on Class B shares
or Class C shares may exceed the initial sales charge on Class A
shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that,
because of such initial sales charges, not all their funds will
be invested initially.
Other investors might determine, however, that it would be
more advantageous to purchase Class B shares or Class C shares in
order to have all their funds invested initially, although
remaining subject to higher continuing distribution charges and,
in the case of Class B shares, being subject to a contingent
deferred sales charge for a four-year period. 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.
36
<PAGE>
Those investors who prefer to have all of their funds
invested initially but may not wish to retain Fund shares for the
four-year period during which Class B shares are subject to a
contingent deferred sales charge may find it more advantageous to
purchase Class C shares.
The Directors of the Fund have determined that currently no
conflict of interest exists between or among the Class A, Class B
and Class C shares. On an ongoing basis, the Directors of the
Fund, pursuant to their fiduciary duties under the 1940 Act and
state laws, will seek to ensure that no such conflict arises.
Initial Sales Charge Alternative--Class A Shares
The public offering price of Class A shares for purchasers
choosing the initial sales charge alternative is the net asset
value plus a sales charge, as set forth below.
Initial Sales Charge
Sales Discount or
Sales Charge Commission
Charge As % of to Dealers
As % of the or Agents
Net Public As % of
Amount of Amount Offering Offering
Purchase Invested Price Price
________ _________ __________ ________
Less than
$100,000 4.44% 4.25% 4.00%
$100,000 but
less than
250,000 3.36 3.25 3.00
250,000 but
less than
500,000 2.30 2.25 2.00
500,000 but
less than
1,000,000* 1.78 1.75 1.50
____________________
*There is no 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 offering price.
37
<PAGE>
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gain distributions. The
contingent deferred sales charge on Class A shares will be waived
on certain redemptions, and such charge will be applied to
redemptions of shares by shareholders who hold both Class A and
Class B shares, as described below under "Deferred Sales Charge
Alternative--Class B Shares." Proceeds from the contingent
deferred sales charge on Class A shares are paid to the Principal
Underwriter and are used by the Principal Underwriter to defray
the expenses of the Principal Underwriter related to providing
distribution-related services to the Fund in connection with the
sales of Class A shares, such as the payment of compensation to
selected dealers and agents for selling Class A Shares. With
respect to purchases of $1,000,000 or more made through selected
dealers or agents, the Adviser may, pursuant to the 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, or (ii) in exchange for Class A
shares of other "Alliance Mutual Funds" (as that term is defined
under "Combined Purchase Privilege" below), except that an
initial sales charge will be imposed on Class A shares issued in
exchange for Class A shares of AFD Exchange Reserves ("AFDER")
that were purchased for cash without the payment of an initial
sales charge and without being subject to a contingent deferred
sales charge. The Fund receives the entire net asset value of
its Class A shares sold to investors. The Principal
Underwriter's commission is the sales charge shown 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 of 1933, as
amended.
Set forth below is an example of the method of computing the
offering price of the Class A shares. The example assumes a
purchase of Class A shares of the Fund aggregating less than
$50,000 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 at July 31, 1995.
38
<PAGE>
Net Asset Value per Class A Share $15.11
at July 31, 1995
Class A Per Share Sales Charge -
4.25% of offering price (4.43% of
net asset value per share) .67
______
Class A Per Share Offering Price
to the public $15.78
======
During the Fund's fiscal year ended July 31, 1995, the
Fund's fiscal period ended July 31, 1994, the Fund's fiscal years
ended February 28, 1994 and 1993, the aggregate amount of
underwriting commission payable with respect to shares of the
Fund were $97,846, $148,296, $254,522 and $82,749 respectively.
Of that amount, the Principal Underwriter, Alliance Fund
Distributors, Inc. ("AFD"), received the amounts of $4,412,
$2,796, $9,283 and $10,072 respectively, representing that
portion of the sales charges paid on shares of the Fund sold
during the year which was not reallowed to selected dealers (and
was, accordingly, retained by the Principal Underwriter). During
the Fund's fiscal year ended July 31, 1995, the Principal
Underwriter received $159,380 in contingent deferred sales
charges.
An Investor choosing the initial sales charge alternative
may under certain circumstances be entitled to pay a reduced
initial sales charge or no initial sales charge but subject in
most cases to a contingent deferred sales charge. The
circumstances under which an investor may pay a reduced initial
sales charge or no initial sales charge are described below.
Combined Purchase Privilege. Certain persons may qualify
for the sales charge reductions indicated in the schedule 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
39
<PAGE>
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:
The Alliance Fund, Inc.
AFD Exchange Reserves
Alliance All-Asia Investment Fund, Inc.
Alliance Balanced Shares, Inc.
Alliance Bond Fund, Inc.
-Corporate Bond Portfolio
-U.S. Government Portfolio
Alliance Counterpoint Fund
Alliance Developing Markets Fund, Inc.
Alliance Global Dollar Government Fund, Inc.
Alliance Global Small Cap Fund, Inc.
Alliance Growth and Income Fund, Inc.
Alliance Income Builder Fund, Inc.
Alliance International Fund
Alliance Mortgage Securities Income Fund, Inc.
Alliance Mortgage Strategy Trust, Inc.
Alliance Multi-Market Income Trust, Inc.
Alliance Multi-Market Strategy Trust, Inc.
Alliance Municipal Income Fund, Inc.
-California Portfolio
-Insured California Portfolio
-Insured National Portfolio
-National Portfolio
-New York Portfolio
Alliance Municipal Income Fund II
-Arizona Portfolio
-Florida Portfolio
-Massachusetts Portfolio
-Michigan Portfolio
-Minnesota Portfolio
-New Jersey Portfolio
-Ohio Portfolio
-Pennsylvania Portfolio
-Virginia Portfolio
Alliance New Europe Fund, Inc.
Alliance North American Government Income Trust, Inc.
Alliance Premier Growth Fund, Inc.
Alliance Quasar Fund, Inc.
Alliance Short-Term Multi-Market Trust, Inc.
Alliance Technology Fund, Inc.
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<PAGE>
Alliance Utility Income Fund, Inc.
Alliance World Income Trust, Inc.
Alliance Worldwide Privatization Fund, Inc.
The Alliance Portfolios
-The Alliance Growth Fund
-The Alliance Conservative Investors Fund
-The Alliance Growth Investors Fund
-The Alliance Strategic Balanced Fund
-The Alliance Short-Term U.S. Government Fund
Prospectuses for the Alliance Mutual Funds may be obtained
without charge by contacting Alliance Fund Services, Inc. at the
address or the "Literature" telephone number shown on the front
cover of this Statement of Additional Information.
Cumulative Quantity Discount (Right Of Accumulation). An
investor's purchase of additional Class A shares of the Fund may
qualify for a Cumulative Quantity Discount. The applicable sales
charge will be based on the total of:
(i) the investor's current purchase;
(ii) the net asset value (at the close of business
on the previous day) of (a) all Class A,
Class B and Class C shares of the Fund held by
the investor and (b) all shares of any other
Alliance Mutual Fund held by the investor; and
(iii) the net asset value of all shares described in
paragraph (ii) owned by another shareholder
eligible to combine his or her purchase with
that of the investor into a single "purchase"
(see above).
For example, if an investor owned shares of an Alliance
Mutual Fund worth $200,000 at their then current net asset value
and, subsequently, purchased Class A shares of the Fund worth an
additional $100,000, the initial sales charge for the $100,000
purchase would be at the 2.25% rate applicable to a single
$300,000 purchase of shares of the Fund, rather than the 3.25%
rate.
To qualify for the Combined Purchase Privilege or to obtain
the Cumulative Quantity Discount on a purchase through a selected
dealer or agent, the investor or selected dealer or agent must
provide the Principal Underwriter with sufficient information to
verify that each purchase qualifies for the privilege or
discount.
Statement of Intention. Class A investors may also obtain
the reduced initial sales charges shown in the table above by
41
<PAGE>
means of a written Statement of Intention, which expresses the
investor's intention to invest not less than $100,000 within a
period of 13 months in Class A shares (or Class A, Class B and/or
Class C shares) of the Fund or any other Alliance Mutual Fund.
Each purchase of shares under a Statement of Intention will be
made at the public offering price or prices applicable at the
time of such purchase to a single transaction of the dollar
amount indicated in the Statement of Intention. At the
investor's option, a Statement of Intention may include purchases
of shares of the Fund or any other Alliance Mutual Fund made not
more than 90 days prior to the date that the investor signs the
Statement of Intention; however, the 13-month period during which
the Statement of Intention is in effect will begin on the date of
the earliest purchase to be included.
Investors qualifying for the Combined Purchase Privilege
described above may purchase shares of the Alliance Mutual Funds
under a single Statement of Intention. For example, if at the
time an investor signs a Statement of Intention to invest at
least $100,000 in Class A shares of the Fund, the investor and
the investor's spouse each purchase shares of the Fund worth
$20,000 (for a total of $40,000), it will be necessary to invest
only a total of $60,000 during the following 13 months in shares
of the Fund or any other Alliance Mutual Fund, to qualify for the
3.25% initial sales charge on the total amount being invested
(the initial sales charge applicable to an investment of
$100,000).
The Statement of Intention is not a binding obligation upon
the investor to purchase the full amount indicated. The minimum
initial investment under a Statement of Intention is 5% of such
amount. Shares purchased with the first 5% of such amount will
be held in escrow (while remaining registered in the name of the
investor) to secure payment of the higher initial sales charge
applicable to the shares actually purchased if the full amount
indicated is not purchased, and such escrowed shares will be
involuntarily redeemed to pay the additional sales charge, if
necessary. Dividends on escrowed shares, whether paid 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 initial sales charge, the
sales charge will be adjusted for the entire amount purchased at
the end of the 13-month period. The difference in initial sales
charge will be used to purchase additional shares of the Fund
subject to the rate of the initial sales charge applicable to the
actual amount of the aggregate purchases.
Investors wishing to enter into a Statement of Intention in
conjunction with their initial investment in Class A shares of
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<PAGE>
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 initial sales
charge on a monthly basis during the 13-month period following
such a plan's initial purchase. The initial sales charge
applicable to such initial purchase of the initial shares of the
Fund will be that normally applicable, under the schedule of the
initial 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 current month's
purchase multiplied by the number of months (including the
current month) remaining in the 13-month period and (ii) the
total purchase previously made during the 13-month period. Sales
charges previously paid during such period will not be
retroactively adjusted on the basis of later purchases.
Reinstatement Privilege. A shareholder who has caused any or
all of his or her Class A shares of the Fund to be redeemed or
repurchased may reinvest all or any portion of the redemption or
repurchase proceeds in Class A shares of the Fund at net asset
value without any sales charge, provided that such reinvestment
is made within 30 calendar days after the redemption or
repurchase date. Shares are sold to a reinvesting shareholder at
the net asset value next determined as described above. A
reinstatement pursuant to this privilege will not cancel the
redemption or repurchase transaction; therefore, any gain or loss
so realized will be recognized for Federal tax purposes except
that no loss will be recognized to the extent that the proceeds
are reinvested in shares of the Fund. The reinstatement
privilege may be used by the shareholder only once, irrespective
of the number of shares redeemed or repurchased, except that the
privilege may be used without limit in connection with
transactions whose sole purpose is to transfer a shareholder's
interest in the Fund to his or her individual retirement account
or other qualified retirement plan account. Investors may
exercise the reinstatement privilege by written request sent to
the Fund at the address shown on the cover of this Statement of
Additional Information.
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<PAGE>
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 any
contingent deferred sales charge to certain categories of
investors including:
(i) investment management clients of the Adviser
or its affiliates;
(ii) officers and present or former 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 descendent
(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
sales are made for investment purposes (such
shares may not be resold except to the Fund);
(iii) certain employee benefit plans for employees
of the Adviser, the Principal Underwriter,
Alliance Fund Services, Inc. and their
affiliates;
(iv) persons participating in a fee-based program,
sponsored and maintained by a registered
broker-dealer and approved by the Principal
Underwriter, pursuant to which such persons
pay an asset-based fee to such broker-dealer,
or its affiliate or agent, for service in the
nature of investment advisory or
administrative services;
(v) persons who establish to the Principal
Underwriter's satisfaction that they are
investing, within such time period as may be
designated by the Principal Underwriter,
proceeds of redemption of shares of such other
registered investment companies as may be
44
<PAGE>
designated from time to time by the Principal
Underwriter; and
(vi) employer-sponsored qualified pensions 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.
Deferred Sales Charge Alternative--Class B Shares
Investors choosing the deferred sales charge alternative
purchase Class B shares at the public offering price equal to the
net asset value per share of the Class B shares on the date of
purchase without the imposition of a sales charge at the time of
purchase. The Class B shares are sold without an initial sales
charge so that the Fund will receive the full amount of the
investor's purchase payment.
Proceeds from the contingent deferred sales charge on the
Class B shares are paid to the Principal Underwriter and are used
by the Principal Underwriter to defray the expenses of the
Principal Underwriter related to providing distribution-related
services to the Fund in connection with the sale of the Class B
shares, such as the payment of compensation to selected dealers
and agents for selling Class B shares. The combination of the
contingent deferred sales charge and the distribution services
fee enables the Fund to sell 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 four years of purchase will be subject to a
contingent deferred sales charge at the rates set forth below
charged as a percentage of the dollar amount subject thereto. The
charge will be assessed on an amount equal to the lesser of the
cost of the shares being redeemed or their net asset value at the
time of redemption. Accordingly, no sales charge will be imposed
on increases in net asset value above the initial purchase price.
In addition, no charge will be assessed on shares derived from
reinvestment of dividends or capital gains distributions.
45
<PAGE>
To illustrate, assume that on or after November 19, 1993 an
investor purchased 100 Class B shares at $10 per share (at a cost
of $1,000) and in the second year after purchase, the net asset
value per share is $12 and, during such time, the investor has
acquired 10 additional Class B shares upon dividend reinvestment.
If at such time the investor makes his or her first redemption of
50 Class B shares (proceeds of $600), 10 Class B shares will not
be subject to charge because of dividend reinvestment. With
respect to the remaining 40 Class B shares, the charge is applied
only to the original cost of $10 per share and not to the
increase in net asset value of $2 per share. Therefore, $400 of
the $600 redemption proceeds will be charged at a rate of 3.0%
(the applicable rate in the second year after purchase).
The amount of the contingent deferred sales charge, if any,
will vary depending on the number of years from the time of
payment for the purchase of Class B shares until the time of
redemption of such shares.
Contingent Deferred Sales Charge as a %
of Dollar Amount Subject to Charge
Shares purchased Shares purchased
before on or after
Year Since Purchase November 19, 1993 November 19, 1993
First 5.50% 4.00%
Second 4.50% 3.00%
Third 3.50% 2.00%
Fourth 2.50% 1.00%
Fifth 1.50% None
Sixth 0.50% None
In determining the contingent deferred sales charge
applicable to a redemption, it will be assumed, in the case of
Class B shares purchased on or after November 19, 1993, that the
redemption is first of any shares in the shareholder's Fund
account that are not subject to a contingent deferred sales
charge, second of Class B shares held for over three years and
third of Class A shares that are subject to a contingent deferred
sales charge held longest during the one-year period during which
such shares are subject to the sales charge. When Class B shares
acquired in an exchange are redeemed, the applicable contingent
deferred sales charge and conversion schedules will be the
schedules that applied to Class B shares of the Alliance Mutual
Fund originally purchased by the shareholder at the time of their
purchase.
The contingent deferred sales charges on Class A and Class B
shares are waived on redemptions of shares (i) following the
death or disability, as defined in the Internal Revenue Code of
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<PAGE>
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 or (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. At the end of the period ending eight
years after the end of the calendar month in which the
shareholder's purchase order was accepted, Class B shares will
automatically convert to Class A shares and will no longer be
subject to a higher distribution services fee. Such conversion
will be on the basis of the relative net asset values of the two
classes, without the imposition of any sales load, fee or other
charge. The purpose of the conversion feature is to reduce the
distribution services fee paid by holders of Class B shares that
have been outstanding long enough for the Principal Underwriter
to have been compensated for distribution expenses incurred in
the sale of such shares.
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 (i) the assessment of the higher distribution
services fee and transfer agency costs with respect to Class B
shares does not result in the Fund's dividends or distributions
constituting "preferential dividends" under the Code, and
(ii) the conversion of Class B shares to Class A shares does not
constitute a taxable event under federal income tax law. The
conversion of Class B shares to Class A shares may be suspended
if such an opinion is no longer available at the time such
conversion is to occur. In that event, no further conversions of
Class B shares would occur, and shares might continue to be
subject to the higher distribution services fee for an indefinite
period which may extend beyond the period ending eight years
after the end of the calendar month in which the shareholder's
purchase order was accepted.
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<PAGE>
Asset-Based Sales Charge Alternative--Class C Shares
Investors choosing the asset-based sales charge alternative
purchase Class C shares at the public offering price equal to the
net asset value per share of the Class C shares on the date of
purchase without the imposition of a sales charge either at the
time of purchase or upon redemption. Class C shares are sold
without an initial sales charge so that the Fund will receive the
full amount of the investor's purchase payment and without a
contingent deferred sales charge so that the investor will
receive as proceeds upon redemption the entire net asset value of
his or her Class C shares. The Class C distribution services fee
enables the Fund to sell Class C shares without either an initial
or contingent deferred sales charge. Class C shares do not
convert to any other class of shares of the Fund and incur higher
distribution services fees than Class A shares, and will thus
have a higher expense ratio and pay correspondingly lower
dividends than Class A shares.
____________________________________________________________
REDEMPTION AND REPURCHASE OF SHARES
____________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of Shares
- --How to Sell Shares."
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 shares and Class B shares, there is no redemption
charge. Payment of the redemption price will be made within
seven days after the Fund's receipt of such tender for
redemption.
The right of redemption may not be suspended or the date of
payment upon redemption postponed for more than seven days after
shares are tendered for redemption, except for any period during
which the New York Stock Exchange ("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
48
<PAGE>
practicable for the Fund fairly to determine the value of its net
assets, or for such other periods as the Commission may by order
permits for the protection of security holders of the Fund.
Payment of the redemption price may be made either in cash or
in portfolio securities (selected in the discretion of the
Directors of the Fund and taken at their value used in
determining the redemption price), or partly in cash and partly
in portfolio securities. However, payments will be made wholly
in cash unless the Directors believe that economic conditions
exist which would make such a practice detrimental to the best
interests of the Fund. The Fund has filed a formal election with
the Commission pursuant to which the Fund will only effect a
redemption in portfolio securities where the particular
shareholder of record is redeeming more than $250,000 or 1% of
the Fund's total net assets, whichever is less, during any 90-day
period. In the opinion of the Fund's management, however, the
amount of a redemption request would have to be significantly
greater than $250,000 or 1% of total net assets before a
redemption wholly or partly in portfolio securities would be
made. If payment for shares redeemed is made wholly or partly in
portfolio securities, brokerage costs may be incurred by the
investor in converting the securities to 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 B shares will reflect
the deduction of the contingent deferred sales charge, if any.
Payment (either in cash or in portfolio securities) received by a
shareholder upon redemption or repurchase of his or her shares,
assuming the shares constitute capital assets in his, 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 stock certificates
have been issued, the registered owner or owners should forward a
letter to the Fund containing a request for redemption. The
signature or signatures on the letter must be guaranteed by an
institution that is an "eligible guarantor" as defined in Rule
17Ad-15 under the Securities Exchange Act of 1934, as amended.
Telephone Redemption By Electronic Funds Transfer. Requests
for redemption of shares for which no stock certificates have
been issued can also be made by telephone at (800) 221-5672 by a
shareholder who has completed the appropriate portion of the
Subscription Application or, in the case of an existing
shareholder, an "Autosell" application obtained from Alliance
Fund Services, Inc. A telephone redemption request must be for
49
<PAGE>
at least $500 and may not exceed $100,000, and must be made
between 9:00 a.m. and 4:00 p.m. New York time on a Fund business
day as defined above. Proceeds of telephone redemptions will be
sent by Electronic Funds Transfer to a shareholder's designated
bank account at a bank selected by the shareholder that is a
member of the NACHA.
Telephone Redemption By Check. Except as noted below, each
Fund shareholder is eligible to request redemption, once in any
30-day period, of Fund shares by telephone at (800) 221-5672
before 4:00 p.m. New York time on a Fund business day in an
amount not exceeding $50,000. Proceeds of such redemptions are
remitted by check to the shareholder's address of record.
Telephone redemption by check is not available with respect to
shares (i) for which certificates have been issued, (ii) held in
nominee or "street name" accounts, (iii) purchased within 15
calendar days prior to the redemption request, (iv) held by a
shareholder who has changed his or her address of record within
the preceding 30 calendar days or (v) held in any retirement plan
account. A shareholder otherwise eligible for telephone
redemption by check may cancel the privilege by written
instruction to Alliance Fund Services, Inc., or by checking the
appropriate box on the Subscription Application found in the
Prospectus.
General. During periods of drastic economic or market
developments, such as the market break of October 1987, it is
possible that shareholders would have difficulty in reaching
Alliance Fund Services, Inc. by telephone (although no such
difficulty was apparent at any time in connection with the 1987
market break). If a shareholder were to experience such
difficulty, the shareholder should issue written instructions to
Alliance Fund Services, Inc. at the address shown on the cover of
this Statement of Additional Information. The Fund reserves the
right to suspend or terminate 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 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.
To redeem shares of the Fund represented by stock
certificates, the investor should forward the appropriate stock
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<PAGE>
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
stock 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 stock certificate or certificates or, where
tender is made by mail, separately mailed to the Fund. The
signature or signatures on the assignment form must be guaranteed
in the manner described above.
Repurchase
The Fund may repurchase shares through the Principal
Underwriter or selected dealers or agents. The repurchase price
will be the net asset value next determined after the Principal
Underwriter receives the request (less the contingent deferred
sales charge, if any, with respect to the Class A shares and
Class B shares), except that requests placed through selected
dealers or agents before the close of regular trading on the
Exchange on any day will be executed at the net asset value
determined as of such close of regular trading on that day if
received by the Principal Underwriter prior to its close of
business on that day (normally 5:00 p.m. New York time). The
selected dealer or agent is responsible for transmitting the
request to the Principal Underwriter by 5:00 p.m. If the
selected dealer or agent fails to do so, the shareholder's right
to receive that day's closing price must be settled between the
shareholder and the dealer or agent. A shareholder may offer
shares of the Fund to the Principal Underwriter either directly
or through a selected dealer or agent. Neither the Fund nor the
Principal Underwriter charges a fee or commission in connection
with the repurchase of shares (except for the contingent deferred
sales charge, if any, with respect to Class A shares and Class B
shares). Normally, if shares of the Fund are offered through a
selected dealer or agent, the repurchase is settled by the
shareholder as an ordinary transaction with or through the
selected dealer or agent, who may charge the shareholder for this
service. The repurchase of shares of the Fund as described above
is a voluntary service of the Fund and the Fund may suspend or
terminate this practice at any time.
General
The Fund reserves the right to close out an account that
through redemption has remained below $200 for at least 60 days
after at least 30 days' written notice to the shareholder
subsequent to such period. No contingent deferred sales charge
will be deducted from the proceeds of this redemption. In the
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<PAGE>
case of a redemption or repurchase of shares of the Fund recently
purchased by check, redemption proceeds will not be made
available until the Fund is reasonably assured that the check has
cleared, normally up to 15 calendar days following the purchase
date.
________________________________________________________________
SHAREHOLDER SERVICES
________________________________________________________________
The following information supplements that set forth in the
Fund's Prospectus under the heading "Purchase and Sale of
Shares--Shareholder Services." The shareholder services set
forth below are applicable to all three classes of shares of the
Fund.
Automatic Investment Program
Investors may purchase shares of the Fund through an
automatic investment program utilizing "pre-authorized check"
drafts drawn on the investor's own bank account. Under such a
program, pre-authorized monthly drafts for a fixed amount (at
least $25) are used to purchase shares through the selected
dealer or selected agent designated by the investor at the public
offering price next determined after the Principal Underwriter
receives the proceeds from the investor's bank. Drafts may be
made in paper form or, if the investor's bank is a member of the
NACHA, in electronic form. If made in paper form, the draft is
normally made on the 20th day of each month, or the next business
day thereafter. If made in electronic form, drafts can be made
on or about a date each month selected by the shareholder.
Investors wishing to establish an automatic investment program in
connection with their initial investment should complete the
appropriate portion of the Subscription Application found in the
Prospectus. Current shareholders should contact Alliance Fund
Services, Inc. at the address or telephone numbers shown on the
cover of this Statement of Additional Information to establish an
automatic investment program.
Exchange Privilege
Class A shareholders of the Fund can exchange their Class A
shares for Class A shares of any other Alliance Mutual Fund that
offers Class A shares and for shares of Alliance World Income
Trust, Inc. without the payment of any sales or service charges.
For purposes of applying any applicable contingent deferred sales
charge upon the newly acquired Class A shares, the period of time
the Class A shares surrendered in the exchange have been held is
added to the period of time the newly acquired shares have been
held. Prospectuses for each Alliance Mutual Fund and Alliance
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Cash Management Fund (each an "Alliance Fund"), may be obtained
by contacting Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information or by
telephone at (800) 227-4618 or, in Illinois, (800) 227-4170.
Class B shareholders of the Fund can exchange their Class B
shares ("original Class B shares") for Class B shares of any
other Alliance Mutual Fund that offers Class B shares ("new
Class B shares") without the payment of any contingent deferred
sales or service charges. For purposes of computing both the
time remaining before the new Class B shares convert to Class A
shares of that fund and the contingent deferred sales charge
payable upon disposition of the new Class B shares, the period of
time for which the original Class B shares have been held is
added to the period of time for which the new Class B shares have
been held, and the original fund's contingent deferred sales
charge schedule is applied.
Class C shareholders of the Fund can exchange their Class C
shares for Class C shares of any other Alliance Mutual Fund that
offers Class C shares.
All exchanges are subject to the minimum investment
requirements and any other applicable terms set forth in the
Prospectus for the Alliance Mutual Fund whose shares are being
acquired. An exchange is effected through the redemption of the
shares tendered for exchange and the purchase of shares being
acquired at their respective net asset values as next determined
following receipt by the Alliance Mutual Fund whose shares are
being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's Prospectus, or
(ii) a telephone request for such exchange in accordance with the
procedures set forth in the following paragraph. Exchanges
involving the redemption of shares recently purchased by check
will be permitted only after the Alliance Mutual Fund whose
shares have been tendered for exchange is reasonably assured that
the check has cleared, normally up to 15 calendar days following
the purchase date. Exchanges of shares of Alliance Mutual Funds
will generally result in the realization of a capital gain or
loss for Federal income tax purposes.
Each Fund shareholder, and the shareholder's selected dealer
or agent, are authorized to make telephone requests for exchanges
unless Alliance Fund Services, Inc., receives written instruction
to the contrary from the shareholder, or the shareholder declines
the privilege by checking the appropriate box on the Subscription
Application found in the Prospectus. Such telephone requests
cannot be accepted with respect to shares then represented by
stock certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account
registration as the shares redeemed through such exchange.
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Eligible shareholders desiring to make an exchange should
telephone Alliance Fund Services, Inc. with their account number
and other details of the exchange, at (800) 221-5672 between
9:00 a.m. and 4:00 p.m., New York time, on a Fund business day as
defined above. Telephone requests for exchange received before
4:00 p.m. New York time on a Fund business day will be processed
as of the close of business on that day. During periods of
drastic economic or market developments, such as the market break
of October 1987, it is possible that shareholders would have
difficulty in reaching Alliance Fund Services, Inc. by telephone
(although no such difficulty was apparent at any time in
connection with the 1987 market break). If a shareholder were to
experience such difficulty, the shareholder should issue written
instructions to Alliance Fund Services, Inc. at the address shown
on the cover of this Statement of Additional Information.
A shareholder may elect to initiate a monthly "Auto Exchange"
whereby a specified dollar amount's worth of his or her Fund
shares (minimum $25) is automatically exchanged for shares of
another Alliance Mutual Fund. Auto Exchange transactions
normally occur on the 12th day of each month, or the following
Fund business day.
Neither the Alliance Funds nor 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 or agents may charge a commission
for handling telephone requests for exchanges.
The exchange privilege is available only in states where
shares of the Alliance Mutual Funds being acquired may be legally
sold. Each Alliance Mutual Fund reserves the right, at any time
on 60 days' notice to its shareholders, to reject any order to
acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Retirement Plans
The Fund may be a suitable investment vehicle for part or all
of the assets held in various types of retirement plans, such as
those listed below. The Fund has available forms of such plans
pursuant to which investments can be made in the Fund and other
Alliance Mutual Funds. Persons desiring information concerning
these plans should contact Alliance Fund Services, Inc. at the
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"Literature" telephone number on the cover of this Statement of
Additional Information, or write to:
Alliance Fund Services, Inc.
Retirement Plans
P.O. Box 1520
Secaucus, New Jersey 07096-1520
Individual Retirement Account ("IRA"). Individuals who
receive compensation, including earnings from self-employment,
are entitled to establish and make contributions to an IRA.
Taxation of the income and gains paid to an IRA by the Fund is
deferred until distribution from the IRA. An individual's
eligible contribution to an IRA will be deductible if neither the
individual nor his or her spouse is an active participant in an
employer-sponsored retirement plan. If the individual or his or
her spouse is an active participant in an employer-sponsored
retirement plan, the individual's contributions to an IRA may be
deductible, in whole or in part, depending on the amount of the
adjusted gross income of the individual and his or her spouse.
Employer-sponsored Qualified Retirement Plans. Sole
proprietors, partnerships and corporations may sponsor qualified
money purchase pension and profit-sharing plans, including
Section 401(k) plans ("qualified plans"), under which annual tax-
deductible contributions are made within prescribed limits based
on compensation paid to participating individuals.
If the aggregate net asset value of shares of the Alliance
Mutual Funds held by the qualified plan reaches $5 million on or
before December 15 in any year, all Class B shares and C shares
of the Fund held by such plan can be exchanged, at the Plan's
request, without any sales charge, for Class A shares of such
Fund.
Simplified Employee Pension Plan ("SEP"). Sole proprietors,
partnerships and corporations may sponsor a SEP under which they
make annual tax-deductible contributions to an IRA established by
each eligible employee within prescribed limits based on employee
compensation.
403(b)(7) Retirement Plan. Certain tax-exempt organizations
and public educational institutions may sponsor retirements plans
under which an employee may agree that monies deducted from his
or her compensation (minimum $25 per pay period) may be
contributed by the employer to a custodial account established
for the employee under the plan.
The Alliance Plans Division of Frontier Trust Company, a
subsidiary of The Equitable Life Assurance Society of the United
States, which serves as custodian or trustee under the retirement
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plan prototype forms available from the Fund, charges certain
nominal fees for establishing an account and for annual
maintenance. A portion of these fees is remitted to Alliance
Fund Services, Inc. as compensation for its services to the
retirement plan accounts maintained with the Fund.
Distributions from retirement plans are subject to certain
Code requirements in addition to normal redemption procedures.
For additional information please contact Alliance Fund Services,
Inc.
Dividend Direction Plan
A shareholder who already maintains, in addition to his or
her Class A, Class B or Class C Fund account, a Class A, Class B
or Class C account with one or more other Alliance Mutual Funds
may direct that income dividends and/or capital gains paid on his
or her Class A, Class B or Class C 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
"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
participants must elect to have their dividends and distributions
from the Fund automatically reinvested in additional shares of
the Fund.
Shares of the Fund owned by a participant in the Fund's
systematic withdrawal plan will be redeemed as necessary to meet
withdrawal payments and such withdrawal payments will be subject
to any taxes applicable to redemptions and, except as discussed
below, any applicable contingent deferred sales charge. Shares
acquired with reinvested dividends and distributions will be
liquidated first to provide such withdrawal payments and
thereafter other shares will be liquidated to the extent
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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 "Literature" telephone number shown on the cover of this
Statement of Additional Information.
Class B CDSC Waiver for Shares Acquired After July 1, 1995.
Under a systematic withdrawal plan, up to 1% monthly, 2%
bi-monthly or 3% quarterly of the value at the time of redemption
of the Class B shares in a shareholder's account acquired after
July 1, 1995 may be redeemed free of any contingent deferred
sales charge. Class B shares acquired after July 1, 1995 that
are not subject to a contingent deferred sales charge (such as
shares acquired with reinvested dividends or distributions) will
be redeemed first and will count toward these limitations.
Remaining Class B shares acquired after July 1, 1995 that are
held the longest will be redeemed next. Redemptions of Class B
shares acquired after July 1, 1995 in excess of the foregoing
limitations and redemptions of Class B shares acquired before
July 1, 1995 will be subject to any otherwise applicable
contingent deferred sales charge.
Statements And Reports
Each shareholder of the Fund receives semi-annual and annual
reports which include a portfolio of investments, financial
statements and, in the case of the annual report, the report of
the Fund's independent auditors, Ernst & Young LLP, as well as a
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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.
________________________________________________________________
NET ASSET VALUE
________________________________________________________________
The net asset value per share is computed in accordance with
the Fund's Articles of Incorporation and By-Laws as of the next
close of trading on the New York Stock Exchange (currently
4:00 p.m.) following receipt of a purchase or redemption order
(and on such other day as the Directors of the Fund deem
necessary in order to comply with Rule 22c-1 under the Investment
Company Act of 1940), by dividing the value of the Fund's total
assets less its liabilities, by the total number of the Fund's
shares then outstanding. For this purpose, a Fund's business day
is any weekday exclusive of New Year's Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
The Fund intends to calculate and make available for daily
publication the net asset value of its shares. Net asset value
per share will be determined by adding the market value of all
securities in the Fund's portfolio and other assets, subtracting
liabilities accrued, and dividing by the total number of the
Fund's shares then outstanding.
All securities listed on a European stock exchange for which
market quotations are readily available are valued at the closing
price on the exchange on the day of valuation or, if no such
closing price is available, at the last bid price on such day.
Other securities, including securities of issuers within Eastern
European countries, for which market quotations are readily
available will be valued in a like manner. Options will be
valued at such market value or fair value if no market exists.
Futures contracts will be valued in a like manner, except that
open futures contracts sales will be valued using the closing
settlement price or, in the absence of such a price, the most
recent quoted asked price. If there are no quotations available
for the day of valuations, the last available closing price will
be used. However, readily marketable fixed income securities may
be valued on the basis of prices provided by a pricing service
when such prices are believed by the Adviser to reflect the fair
market value of such securities. The prices provided by a
pricing service take into account institutional size trading in
similar groups of securities and any developments related to
specific securities. Securities, including securities of issuers
within Eastern European countries, and assets for which market
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quotations are not readily available (including investments that
are subject to limitations as to their sale) are valued at fair
value as determined in good faith by the Fund's Board of
Directors. In making this determination, the Board of Directors
will consider, among other things, publicly available information
regarding an issue, recent transactions in the issuer's
securities, market conditions, and values ascribed to comparable
investments in companies in the country where the particular
issuer is located.
Short-term debt securities that mature in less than 60 days
are valued at amortized cost if their term to maturity from date
of purchase was less than 60 days, or by amortizing their value
on the 61st day prior to maturity if their term to maturity from
date of purchase when acquired by the Fund was more than 60 days,
unless such amortized cost is determined by the Board of
Directors not to represent fair value.
For purposes of determining the Fund's net asset value per
share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the mean of the
current bid and asked prices of such currency against the U.S.
dollar last quoted by a major bank that is a regular participant
in the foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number
of such major banks.
The Directors may suspend the determination of the Fund's net
asset value (and the offering and sales of shares), subject to
the rules of the Commission and other governmental rules and
regulations at time when: (1) the New York Stock Exchange is
closed, other than customary weekend and holiday closing, (2) an
emergency exists as a result of which it is not reasonably
practical for the Fund to dispose of securities owned by it or to
determine fairly the value of its net assets, or (3) for the
protection of shareholders, the Commission by order permits a
suspension of the right of redemption or a postponement of the
date of payment on redemption.
The assets belonging to the Class A shares, the Class B
shares and the Class C shares will be invested together in a
single portfolio. 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
pursuant to an order issued by the Commission.
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____________________________________________________________
DIVIDENDS, DISTRIBUTIONS AND TAXES
____________________________________________________________
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. 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.
U.S. Federal Income Taxes. The Fund intends for each year to
qualify for tax treatment 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 and the
satisfaction of certain distribution requirements contained in
the Code relieves the Fund of Federal income and excise taxes.
Investors should consult their own counsel for a complete
understanding of the requirements the Fund must meet to qualify
for such treatment. The following discussion relates solely to
U.S. Federal income taxes on dividends and distributions by the
Fund and assumes that the Fund qualifies as a regulated
investment company. Investors should consult their own counsel
for further details, including their entitlement to foreign tax
credits that might be "passed through" to them under the rules
described below, and the application of state and local tax laws
to his or her particular situation.
Income dividends and distributions of any realized short-
term capital gains are included in the income of U.S.
shareholders as ordinary income and distributions of net long-
term capital gains are included in the income of U.S.
shareholders as long-term capital gains irrespective of the
length of time the U.S. shareholder has held its shares in the
Fund. The dividends-received deduction for corporations will not
be applicable to any portion of the Fund's dividends of net
ordinary income and distributions of net realized short-term
capital gains.
Under 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.
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Income received by the Fund from sources within various
foreign countries may be subject to foreign income tax. If more
than 50% of the value of the Fund's total assets at the close of
its taxable year consists of the stock or securities of foreign
corporations, the Fund may elect to "pass through" to the Fund's
shareholders the amount of foreign income taxes paid by the Fund.
Pursuant to such election, shareholders would be required:
(i) to include in gross income, even though not actually
received, their respective pro-rata shares of the Fund's gross
income from foreign sources; (ii) treat their pro rata share of
such foreign taxes as having been paid by them; and (iii) either
to deduct their pro-rata share of foreign taxes in computing
their taxable income, or to use it as a foreign tax credit
against Federal income (but not both). No deduction for foreign
taxes could be claimed by a shareholder who does not itemize
deductions.
The Fund intends to meet for each fiscal year, the
requirements of the Code to "pass through" to its shareholder
foreign income taxes paid, but there can be no assurance that the
Fund will be able to do so. Each shareholder will be notified
within 60 days after the close of each taxable year of the Fund
whether the foreign taxes paid by the Fund will "pass through"
for that year, and, if so, the amount of each shareholder's pro-
rata share (by country) of (i) the foreign taxes paid, and
(ii) the Fund's gross income from foreign sources. 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 foreign tax credits.
Backup Withholding. The Fund may be required to withhold
United States federal income tax at the rate of 31% of all
taxable distributions payable to shareholders who fail to provide
the Fund with their correct taxpayer identification numbers or to
make required certifications, or who have been notified by the
Internal Revenue Service that they are subject to backup
withholding. Corporate shareholders and certain other
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.
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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Currency Fluctuations--"Section 988" Gains or Losses. Under
the Code, gains or losses attributable to fluctuations in
exchange rates which occur between the time the Fund accrues
interest or other receivables or accrues expenses or other
liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities
are treated as ordinary income or ordinary loss. Similarly,
gains or losses from the disposition of foreign currencies, from
the disposition of debt securities denominated in a foreign
currency, or from the disposition of a forward contract
denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the
date of acquisition of the asset and the date of disposition also
are treated as ordinary gain or loss. These gains or losses,
referred to under the Code as "section 988" gains or losses,
increase or decrease the amount of the Fund's investment company
taxable income available to be distributed to its shareholders as
ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses
reduce the amount of ordinary dividends the Fund will be allowed
to distribute for a taxable year, such section 988 losses may
result in all or a portion of prior dividend distributions for
such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend,
reducing each shareholder's basis in his Fund shares. To the
extent that such distributions exceed such shareholder's basis,
each will be treated as a gain from the sale of shares.
Options, Futures Contracts, and Forward Foreign Currency
Contracts. Certain listed options, regulated futures contracts,
and forward foreign currency contracts are considered "section
1256 contracts" for Federal income tax purposes. Section 1256
contracts held by the Fund at the end of each taxable year will
be "marked to market" and treated for Federal income tax purposes
as though sold for fair market value on the last business day of
such taxable year. Gain or loss realized by the Fund on section
1256 contracts other than forward foreign currency contracts will
be considered 60% long-term and 40% short-term capital gain or
loss. Gain or loss realized by the Fund on forward foreign
currency contracts will be treated as section 988 gain or loss
and will therefore be characterized as ordinary income or loss
and will increase or decrease the amount of the Fund's net
investment income available to be distributed to shareholders as
ordinary income, as described above. 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.
The Treasury Department has the authority to issue
regulations that would permit or require the Fund either to
integrate a foreign currency hedging transaction with the
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investment that is hedged and treat the two as a single
transaction, or otherwise to treat the hedging transaction in a
manner that is consistent with the hedged investment. The
regulations under this authority generally should not apply to
the type of hedging transactions in which the Fund intends to
engage.
Gain or loss realized by the Fund on the lapse or sale of put
and call options on foreign currencies which are traded over-
the-counter or on certain foreign exchanges will be treated as
section 988 gain or loss and will therefore be characterized as
ordinary income or loss and will increase or decrease the amount
of the Fund's net investment income available to be distributed
to shareholders as ordinary income, as described above. The
amount of such gain or loss shall be determined by subtracting
the amount paid, if any, for or with respect to the option
(including any amount paid by the Fund upon termination of an
option written by the Fund) from the amount received, if any, for
or with respect to the option (including any amount received by
the Fund upon termination of an option held by the Fund. In
general, if the Fund exercises such an option on a foreign
currency, or if such an option that the Fund has written is
exercised, gain or loss on the option will be recognized in the
same manner as if the Fund had sold the option (or paid another
person to assume the Fund's obligation to make delivery under the
option) on the date on which the option is exercised, for the
fair market value of the option. The foregoing rules will also
apply to other put and call options which have as their
underlying property foreign currency and which are traded over-
the-counter or on certain foreign exchanges to the extent gain or
loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Tax Straddles. Any option, futures contract, or forward
foreign currency contract, or other position entered into or held
by the Fund in conjunction with any other position held by the
Fund may constitute a "straddle"for Federal income tax purposes.
A straddle of which at least one, but not all, the positions are
section 1256 contracts may constitute a "mixed straddle". In
general, straddles are subject to certain rules that may affect
the character and timing of the Fund's gains and losses with
respect to straddle positions by requiring, among other things,
that (i) loss realized on disposition of one position of a
straddle not be recognized to the extent that the Fund has
unrealized gains with respect to the other position in such
straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain
being treated as short- term capital gain rather than long-term
capital gain); (iii) losses recognized with respect to certain
straddle positions which are part of a mixed straddle and which
are non-section 1256 positions be treated as 60% long-term and
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40% short-term capital loss; (iv) losses recognized with respect
to certain straddle positions which would otherwise constitute
short-term capital losses be treated as long- term capital
losses; and (v) the deduction of interest and carrying charges
attributable to certain straddle positions may be deferred. The
Treasury Department is authorized to issue regulations providing
for the proper treatment of a mixed straddle where at least one
position consists of an ordinary asset and at least one position
consists of a capital asset. No such regulations have yet been
issued. Various elections are available to the Fund which may
mitigate the effects of the straddle rules, particularly with
respect to mixed straddles. In general, the straddle rules
described above do not apply to any straddles held by the Fund
all of the offsetting positions of which consist of section 1256
contracts.
Taxation of Foreign Stockholders. The foregoing discussion
relates only to U.S. Federal income tax law as it affects
shareholders who are U.S. residents or U.S. corporations. The
effects of Federal income tax law on shareholders who are non-
resident aliens or foreign corporations may be substantially
different. Foreign investors should consult their counsel for
further information as to the U.S. tax consequences of receipt of
income from the Fund.
________________________________________________________________
PORTFOLIO TRANSACTIONS
________________________________________________________________
Subject to the general supervision of the Fund's Board of
Directors, the Adviser is responsible for the investment
decisions and the placing of the orders for portfolio
transactions for the Fund. The Fund intends to allocate
portfolio transactions for execution by banks and brokers that
offer best execution, taking into account such factors as size of
order, difficulty of execution and skill required to execute, in
the case of agency transactions, the commission, and in the case
of principal transactions, the net price. Brokerage commission
rates in certain countries in which the Fund may invest may be
discounted for certain large domestic and foreign investors such
as the Fund. Any number of banks and brokers may be used for
execution of the Fund's portfolio transactions.
Subject to best execution, orders may be placed with banks
and brokers that supply research, market and statistical
information to the Fund and the Adviser. The research may be
used by the Adviser in advising other clients, and the Fund's
negotiated commissions to brokers and banks supplying research
may not represent the lowest obtainable commission rates.
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Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, Inc. and subject to seeking
the most favorable price and execution available and other such
policies as the Directors may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of
broker-dealers to execute portfolio transactions for the Fund.
Most transactions for the Fund's portfolio in equity
securities will occur on foreign stock exchanges. Transactions
on stock exchanges involve the payment of brokerage commissions.
On many foreign stock exchanges these commissions are fixed.
Securities traded in foreign over-the-counter markets (including
most fixed-income securities) are purchased from and sold to
dealers acting as principal. Over-the-counter transactions
generally do not involve the payment of a stated commission, but
the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally, include
a stated underwriter's discount.
The Adviser expects to effect the bulk of its transactions in
securities of companies based in Europe through brokers, dealers
or underwriters located in such countries. U.S. Government or
corporate debt or other U.S. securities constituting permissible
investments will be purchased and sold through U.S. brokers,
dealers or underwriters. The Fund is permitted to place
brokerage orders with Donaldson, Lufkin & Jenrette Securities
Corporation, a U.S. registered broker-dealer and an affiliate of
the Adviser. With respect to orders placed with Donaldson,
Lufkin & Jenrette Securities Corporation for execution on a
securities exchange, commissions received must conform to Section
17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which
permit an affiliated person of a registered investment company
(such as the Fund), or any affiliated person of such person to
receive a brokerage commission from such registered company
provided that such commission is reasonable and fair compared to
the commission received by other brokers in connection with
comparable transactions involving similar securities during a
comparable period of time.
For the fiscal year ended July 31, 1995, brokerage
commissions paid by the Fund on the purchase and sale of
portfolio securities were $314,188 for transactions totaling
$203,701,394. Of this amount, none was paid to Donaldson, Lufkin
& Jenrette Securities Corporation (an affiliate of the Adviser)
and none was paid to brokers utilizing the services of the
Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corporation. Additionally, approximately 30% of this amount went
to brokers who rendered research services to the Fund. For the
fiscal period ended July 31, 1994, brokerage commissions paid by
the Fund on the purchase and sale of portfolio securities were
$152,741 for transactions totaling $94,711,317. Of this amount,
65
<PAGE>
none was paid to Donaldson, Lufkin & Jenrette Securities
Corporation (an affiliate of the Adviser) and none was paid to
brokers utilizing the services of the Pershing Division of
Donaldson, Lufkin & Jenrette Securities Corporation.
Additionally, approximately 30% of this amount went to brokers
who rendered research services to the Fund. For the fiscal year
ended February 28, 1994, brokerage commissions paid by the Fund
on the purchase and sale of portfolio securities were $252,331
for transactions totaling $180,825,641. Of this amount, none was
paid to Donaldson, Lufkin & Jenrette Securities Corporation (an
affiliate of the Adviser) and none was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corporation. For the fiscal year ended
February 28, 1993, brokerage commissions paid by the Fund on the
purchase and sale of portfolio securities were $344,439 for
transactions totaling $253,186,226. Of this amount, none was
paid to Donaldson, Lufkin & Jenrette Securities Corporation (an
affiliate of the Adviser) and none was paid to brokers utilizing
the services of the Pershing Division of Donaldson, Lufkin &
Jenrette Securities Corporation.
The Fund's Board of Directors will review periodically the
commissions paid by the Fund to determine if the commissions paid
over representative periods of time were reasonable in relation
to the benefits realized by the Fund.
________________________________________________________________
GENERAL INFORMATION
________________________________________________________________
Capitalization
The Fund was organized as a Maryland corporation in January
1990. The authorized Capital Stock of the Fund consists of
50,000,000 shares of Class A Common Stock, 50,000,000 shares of
Class B Common Stock and 50,000,000 shares of Class C Common
Stock, each having a par value of $.01 per share. All shares of
the Fund, when issued, are fully paid and non-assessable.
The Directors are authorized to reclassify and issue any
unissued shares to any number of additional classes or series
without shareholder approval. Accordingly, the Directors 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 would be
governed by the Investment Company Act of 1940 and the law of the
State of Maryland. If shares of another class were issued in
connection with the creation of a second portfolio, each share of
66
<PAGE>
either portfolio would normally be entitled to one vote for all
purposes. Generally, shares of both portfolios would vote as a
single series for the election of Directors and on any other
matter 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 separate classes.
The Fund's shares have non-cumulative voting rights, which
means that the holders of more than 50% of the shares voting for
election of Directors can elect 100% of the Directors if they
choose to do so, and in such event the holders of the remaining
less than 50% of the shares voting for such election of Directors
will not be able to elect any persons or persons as Directors.
Procedures for calling a shareholder's meeting for the
removal of Directors of the Fund, similar to those set forth in
Section 16(c) of the 1940 Act, are available to shareholders of
the Fund. Meetings of shareholders may be called by 10% of the
Fund's outstanding shareholders. The rights of the holders of
shares of a series may not be modified except by the vote of a
majority of the outstanding shares of such series.
An order has been received from the Commission permitting the
issuance and sale of three classes of shares representing
interests in the Fund. The issuance and sale of any additional
classes will require an additional order from the Commission.
There is no assurance that such exemptive relief would be
granted.
As of the close of business on October 13, 1995, there were
5,269,463 Class A, 2,358,339 Class B and 532,874 Class C shares
of the Fund outstanding. To the knowledge of the Fund, the
following persons owned of record, and no person owned
beneficially, 5% or more of the outstanding shares of the Fund as
of October 13, 1995:
Name and Address Shares % of Class
Lehman Brother, Inc. 400,000 7.58
FBO 935-40435-16 Class A
PO Box 29198
Brooklyn, NY 11202 426,000 8.08
Class A
Merrill Lynch 840,011 35.74
4800 Deer Lake Dr Class B
Jacksonville, FL 32246
366,107 68.85
Class C
67
<PAGE>
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. Alliance Fund
Distributors, Inc. is not obligated to sell any specific amount
of shares and will purchase shares for resale only against orders
for shares. Under the Agreement between the Fund and the
Principal Underwriter, the Fund has agreed to indemnify the
Principal Underwriter, 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 of 1933, as
amended.
Counsel
Legal matters in connection with the issuance of the shares
of Common Stock offered hereby are passed upon by Seward &
Kissel, One Battery Park Plaza, New York, New York 10004. Seward
& Kissel has relied upon the opinion of Venable, Baetjer and
Howard, LLP, 1800 Mercantile Bank & Trust Building, 2 Hopkins
Plaza, Baltimore, Maryland 21201, for matters relating to
Maryland law.
Independent Auditors
Ernst & Young LLP, 787 Seventh Avenue, New York, New York
10019, have been appointed independent auditors for the Fund.
Total Return Quotations
From time to time, the Fund advertises its "total return."
Total return is computed separately for Class A, Class B and
Class C shares. Such advertisements disclose the Fund's average
annual compounded total return for a recent one year period and
the period since the Fund's inception. The Fund's total return
for each such period is computed, through the use of a formula
prescribed by the Commission, by finding 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
received and the maximum sales charge applicable to purchases of
Fund shares is assumed to have been paid. The Fund will include
performance data for Class A, Class B and Class C shares in any
advertisement or information including performance data of the
Fund.
68
<PAGE>
From April 2, 1990 through February 11, 1991, the Fund
operated as a closed-end investment company. On February 11,
1991, the Fund commenced operations as an open-end investment
company and all outstanding shares of the Fund were reclassified
as Class A shares. The Fund computes total return figures
separately for Class A, Class B and Class C. The Fund's average
annual compounded total return for Class A shares and Class B
shares for the year ended July 31, 1995 was 20.22% and 19.42%,
respectively. The Fund's average annual compounded total return
for Class A shares for the period from five year period ended
July 31, 1995 was 5.97% and from the commencement of the offering
of the Class A shares (April 2, 1990) through July 31, 1995 was
7.87%. The Fund's average annual compounded total return for
Class B shares for the period from the commencement of the
offering of the Class B shares (March 5, 1991) through July 31,
1995 was 10.11%. The average annual compounded total return for
Class C Shares for the year ended July 31, 1995 was 19.40% and
for the period from the commencement of the offering of Class C
shares (May 3, 1993) through July 31, 1995 was 18.05%.
The Fund's total return is not fixed and will fluctuate in
response to prevailing market conditions or as a function of the
type and quality of the securities in the Fund's portfolio and
the Fund's expenses. An investor's principal invested in the
Fund is not fixed and will fluctuate in response to prevailing
market conditions.
A $10,000 investment in the Class A shares of the Fund would
have grown to $14,006 over the last three years, giving the
investor a 40.06% cumulative total return. Total return for
Class B and Class C shares would have been lower because of their
higher expenses. As of July 31, 1995, the SEC average annual
total returns (at maximum offering price) were, with respect
Class A shares, 15.13% for the past year, 14.45% for the past
three years and 6.99% since inception; with respect to Class B
shares, 15.42% for the past year, 14.81% for the past three years
and 10.11% since inception; and with respect to Class C shares,
19.40% for the past year and 18.05% since inception. As of
July 31, 1995, cumulative total returns (at net asset value)
were, with respect to Class A shares, 17.50% for the year to
date, 20.22% for the past year, 56.58% for the past three years
and 42.62% since inception; with respect to Class B shares,
16.93% for the year to date, 19.42% for the past year, 53.34% for
the past three years, and 45.74% since inception; and with
respect to Class C shares, 17.01% for the year to date, 19.40%
for the past year and 38.44% since inception. The dates of
inception are April 1990 for Class A shares, March 1991 for
Class B shares and May 1993 for Class C shares. The preceding
information is not an indication of future Fund composition or
performance. SEC average annual total returns for the periods
shown reflect deduction of the maximum front-end sales charge for
69
<PAGE>
Class A Shares or applicable contingent deferred sales charge for
Class B Shares. Class C Shares pay an asset-based sales charge
of 1%. the performance figures with respect to cumulative total
returns do not reflect sales charge which would reduce total
return figures. The investment return and principal value of the
Fund will fluctuate so that shares, when redeemed may be worth
more or less than their original cost.
Advertisements quoting performance rankings of the Fund as
measured by financial publications or by independent
organizations such as Lipper Analytical Services, Inc. and
advertisements presenting the historical performance of the Fund
placed in newspapers and magazines such as The New York Times,
The Wall Street Journal, Barrons, Investor's Daily, Money
Magazine, Changing Times, Business Week and Forbes or other media
on behalf of the Fund may also from time to time be sent to
investors. In addition, written material prepared by the
organization mentioned above may also be used in advertisements
and sales literature.
Custodian
The Bank of New York, 48 Wall Street, New York, New York
10286, is the custodian of the Fund's assets. The custodian's
responsibilities include safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery, of
securities and collecting interest and dividends on the Fund's
investments. The custodian does not determine the investment
policies of the Fund or decide which securities the Fund will buy
or sell.
Rules adopted under the Act permit the Fund to maintain its
foreign securities and cash in the custody of certain eligible
non-U.S. banks and securities depositories. Pursuant to those
rules, the Fund's portfolio of securities and cash, when invested
in securities of foreign countries, will be held by its
subcustodians who will be approved by the Directors of the Fund
as and when appropriate in accordance with the rules of the
Commission. Selection of the subcustodians will be made by the
Board of Directors of the Fund following a consideration of a
number of factors, including, but not limited to, reliability and
financial stability of the institution, the ability of the
institution to capably perform custodial services for the Fund,
the reputation of the institution in its national market, the
political and economic stability of the countries in which the
subcustodians will be located, and risks of potential
nationalization or expropriation of Fund assets.
70
<PAGE>
Additional Information
Any shareholder inquiries may be directed to the shareholders
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
00250059.AR5
<PAGE>
PORTFOLIO OF INVESTMENTS
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS & OTHER INVESTMENTS-92.6%
BELGIUM-2.1%
Arbed, S.A.*(a) 6,170 $ 949,948
Kredietbank N.V.(a) 7,090 1,726,067
2,676,015
DENMARK-2.1%
Den Danske Bank International, S.A. 37,000 2,639,883
FINLAND-2.2%
Metsa-Serla Oy Ser.B 33,500 1,559,073
Unitas Bank, Ltd.* 385,090 1,185,577
2,744,650
FRANCE-18.8%
Assurances Generales de France(a) 69,300 2,162,777
Banque Nationale de Paris 40,692 1,894,705
Bouygues, S.A.(a) 13,800 1,716,955
Casino Guichard Perrachon 24,651 668,646
CIE Financiere de Paribas, S.A. 27,883 1,791,210
Credit Foncier de France 8,300 817,436
Generale des Eaux 18,350 2,175,435
Group Danone 8,896 1,570,782
Klepierre 2,480 311,671
Pechiney, S.A. 19,700 1,237,887
Salomon, S.A. 2,820 1,264,027
SEITA(a) 54,100 1,789,255
SIMCO 7,020 591,829
Societe Francaise d'Investissements
Immobiliers et de Gestion 9,700 605,251
Societe de Immeubles de France 9,028 652,385
Total, S.A. Cl.B 28,095 1,706,555
Unibail 12,200 1,162,692
Union Immobiliere de France 7,730 628,209
Usinor Sacilor* 78,700 1,424,234
24,171,941
GERMANY-10.0%
Bayer A.G. 10,000 $2,694,234
Deutsche Bank A.G. 50,000 2,475,870
Glunz A.G.*(a) 3,300 387,187
Lufthansa(a) 8,500 1,366,672
Klein, Schanz & Beck 2,570 586,322
Sueddeutsche Zucker 2,833 1,688,647
Veba A.G. 60,000 2,499,552
Volkswagen A.G.(a) 3,560 1,162,321
12,860,805
ITALY-3.1%
La Rinascente S.p.A. 297,000 1,703,741
Telecom Italia S.p.A. 639,000 1,105,726
Telecom Italia Mobile S.p.A.* 639,000 803,606
Di Risp* 463,000 423,460
4,036,533
NETHERLANDS-7.1%
Beheersmaatschappij J. Amerika N.V. *(b) 160,000 620,169
Elsevier N.V. 110,000 1,406,999
Fortis Amev N.V 62,100 3,570,427
Heineken N.V. 11,050 1,752,477
Internationale Nederlanden Groep N.V. 29,900 1,734,547
9,084,619
NORWAY-2.1%
Bergesen d.y. AS 58,400 1,412,620
Christiania Bank OG Kreditkasse 567,000 1,315,894
2,728,514
PORTUGAL-0.4%
Portucel Industrial, S.A.* 59,500 459,768
SPAIN-5.9%
Banco Intercontinental Espanol 18,100 1,640,879
Iberdrola, S.A. 135,000 1,111,253
Natra, S.A. 44,000 407,783
Repsol, S.A 55,400 1,876,381
Tabacalera, S.A. Ser. A 35,200 1,473,954
Unidad Editorial, S.A. (b) 549,920 661,211
Uralita, S.A.* 30,000 401,886
7,573,347
7
PORTFOLIO OF INVESTMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
COMPANY SHARES VALUE
- ----------------------------------------------------------------------
SWEDEN-4.5%
AB Astra
Ser. A 52,400 $1,777,151
Ser. B 51,500 1,713,740
Marieberg Tidings Ser. A 51,500 1,037,746
Stora Kopparbergs Ser. B 84,000 1,293,314
5,821,951
SWITZERLAND-5.2%
Brown Boveri & Compagnie, A.G. Cl. A 1,090 1,151,331
Ciba-Geigy A.G.(a) 2,610 1,939,588
Electrowatt A.G. 2,300 656,002
Forbo Holding A.G. 2,560 1,172,273
Nestle, S.A.(a) 1,720 1,761,270
6,680,464
UNITED KINGDOM-28.6%
Allied Radio Plc.* 2,434,600 155,814
Argos Plc. 64,400 474,010
B.A.T. Industries Plc. 324,843 2,723,646
Berkeley Group Plc. 93,000 623,509
BOC Group Plc. 40,000 542,752
British Airways Plc. 210,400 1,545,262
British Land Co. Plc 152,000 1,031,229
British Telecommunications Plc. 228,000 1,451,972
BTR Plc. 156,000 824,975
Dixons Group Plc. 248,050 1,143,064
Forte Plc. 402,230 1,686,229
General Electric Plc. 350,000 1,699,705
Grand Metropolitan Plc.(a) 321,000 1,931,232
Hepworth Plc 229,000 1,077,262
Johnson, Matthey Plc. 140,172 1,312,080
Marley Plc. 366,300 773,662
McBride Plc.* 125,000 418,025
Meyer International Plc. 93,000 534,220
Mowlem (John) & Co. Plc. 860,000 1,045,760
Royal Bank of Scotland Group Plc. 383,595 $2,608,599
Rugby Group Plc 338,400 644,347
SmithKline Beecham Cl.A 161,058 1,475,372
Tate & Lyle Plc.(a) 235,000 1,658,254
Thorn-Emi Plc. 81,454 1,799,913
Unilever Ord.(a) 76,000 1,556,571
Vodafone Group Plc.(a) 586,168 2,246,313
W.H. Smith Group Plc.(a) 237,000 1,406,903
Wimpey (George) Plc. 1,278,000 2,372,093
36,762,773
OTHER-0.5%
Asesores Bursatiles Capital Fund N.V. *(b) 800 221,819
CLM Insurance Fund Plc. 335,000 477,040
Touche Remnant Ecotec Environmental Fund*(b) 1,000 -0-
698,859
Total Common Stocks &Other Investments
(cost $106,483,025) 118,940,122
PREFERRED STOCKS-4.4%
FINLAND-1.6%
Nokia Corp. 30,700 2,058,883
GERMANY-2.8%
Glunz A.G. 6,550 782,740
Henkel KGaA 4,810 1,978,727
Klein, Schanz & Beck 4,220 776,316
3,537,783
Total Preferred Stocks
(cost $4,568,824) 5,596,666
TOTAL INVESTMENTS-97.0%
(cost $111,051,849) 124,536,788
Other assets less liabilities-3.0% 3,904,603
NET ASSETS-100.0% $128,441,391
* Non-income producing.
(a) Securities with an aggregate market value of approximately $23,761,313,
segregated to collateralize forward exchange currency contracts.
(b) Illiquid security, valued at fair value (see Notes A & F).
See notes to financial statements.
8
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
ASSETS
Investments in securities, at value (cost $111,051,849) $124,536,788
Cash, at value (cost $7,871,531) 7,886,468
Receivable for investment securities sold 2,866,063
Dividends and interest receivable 744,011
Receivable for capital stock sold 286,011
Other assets 1,395
Total assets 136,320,736
LIABILITIES
Payable for investment securities purchased 6,211,848
Unrealized depreciation of forward exchange currency contracts 1,189,561
Payable for capital stock redeemed 146,645
Advisory fee payable 113,015
Distribution fee payable 55,667
Accrued expenses and other payables 162,609
Total liabilities 7,879,345
NET ASSETS $128,441,391
COMPOSITION OF NET ASSETS
Capital stock, at par $85,772
Additional paid-in capital 113,532,438
Distributions in excess of net investment income (726,550)
Accumulated net realized gain on investments and
foreign currency transactions 3,234,721
Net unrealized appreciation of investments and foreign
currency denominated assets and liabilities 12,315,010
$128,441,391
CALCULATION OF MAXIMUM OFFERING PRICE
CLASS A SHARES
Net asset value and redemption price per share($86,112,359/5,699,528
shares of capital stock issued and outstanding) $15.11
Sales charge-4.25% of public offering price .67
Maximum offering price $15.78
CLASS B SHARES
Net asset value and offering price per share($34,526,770/2,347,634
shares of capital stock issued and outstanding) $14.71
CLASS C SHARES
Net asset value, redemption and offering price per share($7,802,262/
530,011 shares of capital stock issued and outstanding) $14.72
See notes to financial statements.
9
STATEMENT OF OPERATIONS
YEAR ENDED JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends (net of foreign taxes withheld
of ($728,062) $2,955,352
Interest 58,455 $3,013,807
EXPENSES
Advisory fee 1,315,618
Distribution fee - Class A 245,353
Distribution fee - Class B 315,895
Distribution fee - Class C 93,234
Custodian 257,916
Transfer agency 225,662
Administrative 118,039
Audit and legal 110,124
Registration 50,023
Directors' fees 38,463
Printing 10,808
Amortization of organization expenses 6,627
Miscellaneous 58,752
Total expenses 2,846,514
Net investment income 167,293
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY
Net realized gain on investment transactions 24,084,036
Net realized loss on foreign currency transactions (579,413)
Net change in unrealized appreciation (depreciation) of:
Investments (777,241)
Foreign currency denominated assets and liabilities (774,280)
Net gain on investments and foreign currency transactions 21,953,102
NET INCREASE IN NET ASSETS FROM OPERATIONS $22,120,395
See notes to financial statements.
10
STATEMENT OF CHANGES IN NET ASSETS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
YEAR ENDED MARCH 1,1994 YEAR ENDED
JULY 31, TO FEBRUARY 28,
1995 JULY 31,1994* 1994
----------- ------------- -----------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $167,293 $867,043 $110,205
Net realized gain on investments and
foreign currency transactions 23,504,623 3,323,626 10,699,641
Net change in unrealized appreciation
(depreciation) of investments and
foreign currency denominated assets
and liabilities (1,551,521) (2,957,074) 14,885,295
Net increase in net assets
from operations 22,120,395 1,233,595 25,695,141
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
Class A (563,832) -0- -0-
Class B (232,044) -0- -0-
Class C (73,698) -0- -0-
CAPITAL STOCK TRANSACTIONS
Net increase (decrease) (22,827,762) 6,798,452 15,273,783
Total increase (decrease) (1,576,941) 8,032,047 40,968,924
NET ASSETS
Beginning of period 130,018,332 121,986,285 81,017,361
End of period $128,441,391 $130,018,332 $121,986,285
* The Fund changed its fiscal year end from February 28 to July 31.
See notes to financial statements.
11
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1995 ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
NOTE A: SIGNIFICANT ACCOUNTING POLICIES
Alliance New Europe Fund, Inc. (the "Fund"), which is a Maryland corporation,
is registered under the Investment Company Act of 1940, as a non-diversified,
open-end management investment company. The Fund offers Class A, Class B and
Class C shares. Class A shares are sold with a front-end sales charge of up to
4.25%. Class B shares are sold with a contingent deferred sales charge which
declines from 4% to zero depending on the period of time the shares are held.
Class B shares will automatically convert to Class A shares eight years after
the end of the calendar month of purchase. Class C shares are sold without an
initial or contingent deferred sales charge. All three classes of shares have
identical voting, dividend, liquidation and other rights, except that each
class bears different distribution expenses and has exclusive voting rights
with respect to its distribution plan. The following is a summary of
significant accounting policies followed by the Fund.
1. SECURITY VALUATION
Portfolio securities traded on a United States or European stock exchange for
which market quotations are readily available are valued at the last quoted
sales price on that exchange on the day of valuation or, if no such closing
price is available, at the last bid price quoted on such day. Other securities,
including securities of issuers within Eastern European countries, for which
market quotations are readily available are valued in a like manner. Readily
marketable fixed income securities are 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. Securities, including securities of
issuers within Eastern European countries, and assets for which market
quotations are not readily available, including investments that are subject to
limitations as to their sale (restricted securities), are valued at fair value
as determined in good faith by the Fund's Board of Directors. In determining
fair value, consideration is given to cost, operating and other financial data.
2. CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies and commitments under
forward exchange currency contracts are translated into U.S. dollars at the
mean of the quoted bid and asked price of such currencies against the U.S.
dollar. Purchases and sales of portfolio securities are translated at the rates
of exchange prevailing when such securities were acquired or sold. Income and
expenses are translated at rates of exchange prevailing when accrued.
Net foreign exchange losses of 579,413 represent foreign exchange gains and
losses from sales and maturities of debt securities, holding of foreign
currencies, exchange gains or losses realized between the trade and settlement
dates on security transactions, and the difference between the amounts of
dividends, interest and foreign taxes receivable recorded on the Fund's books
and the U.S. dollar equivalent of the amounts actually received or paid. Net
currency gains and losses from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation of investments and foreign currency denominated assets
and liabilities.
3. TAXES
It is the Fund's policy to meet the requirements of the Internal Revenue Code
applicable to regulated investment companies and to distribute all of its
investment company taxable income and net realized gains, if applicable, to
shareholders. Therefore, no provisions for federal income or excise taxes are
required.
4. INVESTMENT INCOME AND SECURITY TRANSACTIONS
Dividend income is recorded on the ex-dividend date. Interest income is accrued
daily. Security transactions are accounted for on the date securities are
purchased or sold. Security gains and losses are determined on the identified
cost basis. The Fund accretes discounts on short-term securities as adjustments
to interest income.
5. DIVIDENDS AND DISTRIBUTIONS
Dividends and distributions to shareholders are recorded on the ex-dividend
date. Income dividends and capital gain distributions are determined in
accordance with income tax regulations, which may differ from generally
accepted accounting principles.
6. RECLASSIFICATION OF COMPONENTS OF NET ASSETS
During the year, the Fund reclassified certain components of net assets. The
reclassifications were the result of permanent book to tax differences in the
classification of foreign currency transactions as well as the reclassification
of net operating losses to additional paid-in capital. The reclassification
resulted in a net decrease to distributions in excess of net investment income
of $20,466, a net increase to accumulated net realized gain of $3,416,092, and
a corresponding decrease to additional paid-in capital of $3,436,558. Net
assets were not affected by the change.
12
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
NOTE B: ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Under an investment advisory agreement, the Fund pays its Adviser, Alliance
Capital Management L.P., (the "Adviser"), a monthly fee equal to the annualized
rate of 1.10% of the Fund's average daily net assets up to $100 million, .95%
of the next $100 million of the Fund's average daily net assets and .80% of the
Fund's average daily net assets over $200 million. The Adviser has agreed,
under the terms of the advisory agreement, to reimburse the Fund to the extent
that its aggregate expenses (exclusive of interest, taxes, brokerage,
distribution fee, extraordinary expenses and certain other expenses) exceed the
limits prescribed by any state in which the Fund's shares are qualified for
sale. The Fund believes that the most restrictive expense ratio limitation
currently imposed by any state is 2.5% of the first $30 million of the Fund's
average daily net assets, 2% of the next $70 million of its average daily net
assets and 1.5% of its average daily net assets in excess of $100 million. For
the year ended July 31, 1995, no such reimbursement was required. Pursuant to
the advisory agreement, the Fund paid $118,039 to the Adviser representing the
cost of certain legal and accounting services provided to the Fund by the
Adviser for the year ended July 31, 1995.
The Fund compensates Alliance Fund Services, Inc. (a wholly-owned subsidiary of
the Adviser) under a Transfer Agency Agreement for providing personnel and
facilities to perform transfer agency services for the Fund. Such compensation
amounted to $148,950 for the year ended July 31, 1995.
Alliance Fund Distributors, Inc. (a wholly-owned subsidiary of the Adviser)
serves as the Distributor of the Fund's shares. The Distributor received
front-end sales charges of $4,412 from the sale of Class A shares and $159,380
in contingent deferred sales charges imposed upon redemptions by shareholders
of Class B shares for the year ended July 31, 1995.
Brokerage commissions paid on securities transactions for the year ended July
31, 1995, amounted to $314,188, none of which was paid to brokers utilizing the
services of the Pershing Division of Donaldson, Lufkin & Jenrette Securities
Corp. ("DLJ"), an affiliate of the Adviser, nor to DLJ directly.
NOTE C: DISTRIBUTION SERVICES AGREEMENT
The Fund has adopted a Distribution Services Agreement (the "Agreement")
pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the
Agreement, the Fund pays a distribution fee to the Distributor at an annual
rate of up to .30 of 1% of the average daily net assets attributable to the
Class A shares and 1% of the average daily net assets attributable to the Class
B and Class C shares. The fees are accrued daily and paid monthly. The
Agreement provides that the Distributor will use such payments in their
entirety for distribution assistance and promotional activities. The
Distributor has incurred expenses in excess of the distribution costs
reimbursed by the Fund in the amount of $1,630,288 and $298,375 for Class B and
C shares, respectively; such costs may be recovered from the Fund in future
periods so long as the Agreement is in effect. In accordance with the
Agreement, there is no provision for recovery of unreimbursed distribution
costs, incurred by the Distributor, beyond the current fiscal year for Class A
shares. The Agreement also provides that the Adviser may use its own resources
to finance the distribution of the Fund's shares.
13
NOTES TO FINANCIAL STATEMENTS (CONTINUED) ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
NOTE D: INVESTMENT TRANSACTIONS
Purchases and sales of investment securities (excluding short-term investments)
aggregated $89,017,231 and $114,684,163, respectively, for the year ended July
31, 1995. There were no purchases or sales of U.S. Government and government
agency obligations for the year ended July 31, 1995.
FORWARD EXCHANGE CURRENCY CONTRACTS
The Fund enters into forward exchange currency contracts in order to hedge its
exposure to changes in foreign currency exchange rates on its foreign portfolio
holdings and to hedge certain firm purchase and sale commitments denominated in
foreign currencies. A forward exchange currency contract is a commitment to
purchase or sell a foreign currency at a future date at a negotiated forward
rate. The gain or loss arising from the difference between the original
contracts and the closing of such contract is included in net realized gain or
loss from foreign currency transactions.
Fluctuations in the value of forward exchange currency contracts are recorded
for financial reporting purposes as unrealized gains or losses by the Fund.
Risks may arise from the potential inability of the counterparty to meet the
terms of a contract and from unanticipated movements in the value of a foreign
currency relative to the U.S. dollar. The face or contract amount, in U.S.
dollars, as reflected in the following table, reflects the total exposure the
Fund has in that particular currency contract.
At July 31, 1995, the Fund had outstanding forward exchange currency contracts
to sell or purchase foreign currencies against the U.S. dollar as follows:
CONTRACT VALUE ON U.S. $ UNREALIZED
AMOUNT ORIGINATION CURRENT APPRECIATION
(000) DATE VALUE (DEPRECIATION)
------- ------------ ---------- --------------
FOREIGN CURRENCY SELL CONTRACTS
Belgian Francs,
expiring, 9/29/95 88,350 $3,113,382 $3,106,474 $6,908
British Pounds,
expiring, 8/31/95-9/29/95 5,400 8,488,595 8,608,235 (119,640)
Deutsch Marks,
expiring, 8/31/95 12,000 8,307,373 8,665,776 (358,403)
French Francs,
expiring, 8/31/95 43,600 8,515,625 9,105,206 (589,581)
Swiss Francs,
expiring, 8/31/95 4,300 3,577,669 3,744,320 (166,651)
FOREIGN CURRENCY BUY CONTRACTS
Belgian Francs,
expiring, 9/29/95 18,460 644,216 649,072 4,856
Deutsch Marks,
expiring, 5/31/95 9,400 6,790,388 6,788,191 (2,197)
French Francs,
expiring, 8/31/95 14,500 2,992,961 3,028,108 35,147
------------
$(1,189,561)
At July 31, 1995, the cost of investments for federal income tax purposes was
$111,068,729. Accordingly, gross unrealized appreciation of investments was
$18,889,494 and gross unrealized depreciation of investments was $5,421,435,
resulting in net unrealized appreciation of $13,468,059.
14
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
NOTE E: CAPITAL STOCK
There are 150,000,000 shares of $0.01 par value capital stock authorized,
divided into three classes, designated Class A, Class B and Class C shares.
Each class consists of 50,000,000 authorized shares. Transactions in shares of
beneficial interest were as follows:
<TABLE>
<CAPTION>
SHARES AMOUNT
--------------------------------------- ------------------------------------------
MARCH 1,1994 MARCH 1,1994
YEAR ENDED TO YEAR ENDED YEAR ENDED TO YEAR ENDED
JULY 31, JULY 31, FEBRUARY 28, JULY 31, JULY 31, FEBRUARY 28,
1995 1994** 1994 1995 1994** 1994
----------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 669,629 517,252 879,648 $ 9,073,455 $ 6,429,110 $ 10,443,134
Shares issued in reinvestment
of dividends 22,756 -0- -0- 286,723 -0- -0-
Shares redeemed (1,846,522) (878,169) (2,124,678) (24,604,898) (10,892,506) (24,035,622)
Net decrease (1,154,137) (360,917) (1,245,030) $(15,244,720) $(4,463,396) $(13,592,488)
CLASS B
Shares sold 1,138,036 1,101,690 1,548,578 $ 14,986,892 $13,448,314 $ 18,780,304
Shares issued in reinvestment
of dividends 9,139 -0- -0- 112,591 -0- -0-
Shares redeemed (1,330,104) (253,987) (52,387) (17,132,367) (3,084,233) (619,983)
Net increase (decrease) (182,929) 847,703 1,496,191 $ (2,032,884) $10,364,081 $ 18,160,321
</TABLE>
<TABLE>
<CAPTION>
SHARES AMOUNT
--------------------------------------- ------------------------------------------
MARCH 1,1994 MAY 3,1993* MARCH 1,1994 MAY 3,1993*
YEAR ENDED TO TO YEAR ENDED TO TO
JULY 31, JULY 31, FEBRUARY 28, JULY 31, JULY 31, FEBRUARY 28,
1995 1994** 1994 1995 1994** 1994
----------- ------------ ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS C
Shares sold 1,012,937 415,283 995,271 $13,356,791 $ 5,073,751 $12,060,048
Shares issued in reinvestment
of dividends 1,254 -0- -0- 15,462 -0- -0-
Shares redeemed (1,440,571) (342,118) (112,045) (18,922,411) (4,175,984) (1,354,098)
Net increase (decrease) (426,380) 73,165 883,226 $(5,550,158) $ 897,767 $10,705,950
</TABLE>
NOTE F: ILLIQUID SECURITIES
DATE
SECURITY ACQUIRED U.S. $ COST
- -------- -------- -----------
Asesores Bursatiles Capital Fund N.V. 10/29/90 $356,924
Beheersmaatschappij J. Amerika N.V. 3/19/91 512,088
Touche Remnant Ecotec Environmental Fund 6/28/90 246,914
Unidad Editorial, S.A. 10/01/92 699,170
The securities shown above are illiquid and have been valued at fair value in
accordance with procedures described in Note A. The value of these securities
at July 31, 1995 was $1,503,199 representing 1.2% of net assets.
* Commencement of distribution.
** The Fund changed its fiscal year end from February 28 to July 31.
15
FINANCIAL HIGHLIGHTS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS A
---------------------------------------------------------------------
MARCH 1,1994 APRIL 2,1990(A)
YEAR ENDED TO YEAR ENDED FEBRUARY 28, TO
JULY 31, JULY 31, ------------------------------ FEBRUARY 28,
1995 1994* 1994 1993 1992 1991
--------- ----------- -------- -------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.66 $12.53 $ 9.37 $9.81 $9.76 $11.11(d)
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) .04 .09 .02(c) .04 .02(c) .26
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.50 .04 3.14 (.33) .05 (.91)
Net increase (decrease) in net asset
value from operations 2.54 .13 3.16 (.29) .07 (.65)
LESS: DISTRIBUTIONS
Dividends from net investment income (.09) -0- -0- (.15) (.02) (.26)
Distributions from net realized gains
on investments and foreign currency
transactions -0- -0- -0- -0- -0- (.44)
Total dividends and distributions (.09) -0- -0- (.15) (.02) (.70)
Net asset value, end of period $15.11 $12.66 $12.53 $9.37 $9.81 $ 9.76
TOTAL RETURN
Total investment return based on
net asset value (e) 20.22% 1.04% 33.73% (2.82)% .74% (5.63)%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $86,112 $86,739 $90,372 $79,285 $108,510 $188,016
Ratio of expenses to average net assets 2.09% 2.06%(f) 2.30% 2.25% 2.24% 1.52%(f)
Ratio of net investment income (loss)
to average net assets .37% 1.85%(f) .17% .47% .16% 2.71%(f)
Portfolio turnover rate 74% 35% 94% 125% 34% 48%
</TABLE>
See footnote summary on page 18.
16
ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
CLASS B
--------------------------------------------------------
MARCH 5,
MARCH 1,1994 1991 (B)
YEAR ENDED TO YEAR ENDED FEBRUARY 28, TO
JULY 31, JULY 31, --------------------- FEBRUARY 29,
1995 1994* 1994 1993 1992
-------- ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $12.41 $12.32 $9.28 $9.74 $9.84
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.05) .07 (.05)(c) (.02) (.04)(c)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 2.44 .02 3.09 (.33) (.04)
Net increase (decrease) in net asset
value from operations 2.39 .09 3.04 (.35) (.08)
LESS: DISTRIBUTIONS
Dividends from net investment income (.09) -0- -0- (.11) (.02)
Net asset value, end of period $14.71 $12.41 $12.32 $9.28 $9.74
TOTAL RETURN
Total investment return based on
net asset value (e) 19.42% .73% 32.76% (3.49)% .03%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $34,527 $31,404 $20,729 $1,732 $1,423
Ratio of expenses to average net assets 2.79% 2.76%(f) 3.02% 3.00% 3.02%(f)
Ratio of net investment income (loss)
to average net assets (.33)% 1.15%(f) (.52)% (.50)% (.71)%(f)
Portfolio turnover rate 74% 35% 94% 125% 34%
</TABLE>
See footnote summary on page 18.
17
FINANCIAL HIGHLIGHTS (CONTINUED) ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD
CLASS C
------------------------------------
MAY 3,
MARCH 1,1994 1993(B)
YEAR ENDED TO TO
JULY 31, JULY 31, FEBRUARY 28,
1995 1994* 1994
--------- ----------- ------------
Net asset value, beginning of period $12.42 $12.33 $10.21
INCOME FROM INVESTMENT OPERATIONS
Net investment income (loss) (.07) .06 (.04)(c)
Net realized and unrealized gain
on investments and foreign currency
transactions 2.46 .03 2.16
Net increase in net asset
value from operations 2.39 .09 2.12
LESS: DISTRIBUTIONS
Dividends from net investment income (.09) -0- -0-
Net asset value, end of period $14.72 $12.42 $12.33
TOTAL RETURN
Total investment return based on
net asset value (e) 19.40% .73% 20.77%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,802 $11,875 $10,886
Ratio of expenses to average net assets 2.78% 2.76%(f) 3.00%(f)
Ratio of net investment income (loss)
to average net assets (.33)% 1.15%(f) (.52)%(f)
Portfolio turnover rate 74% 35% 94%
* The Fund changed its year end from February 28 to July 31.
(a) Commencement of operations.
(b) Commencement of distribuiton.
(c) Based on average shares outstanding.
(d) Net of offering costs of $.05.
(e) Total investment return is calculated assuming an initial investment made
at the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total investment
return. Total investment return for a period of less than one year is not
annualized.
(f) Annualized.
18
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS ALLIANCE NEW EUROPE FUND, INC.
- -------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS ALLIANCE NEW EUROPE FUND, INC.
We have audited the accompanying statement of assets and liabilities of
Alliance New Europe Fund, Inc. (The "Fund"), including the portfolio of
investments, as of July 31, 1995, and the related statement of operations for
the year then ended, the statements of changes in net assets for the year then
ended, for the period from March 1, 1994 to July 31, 1994, and for the year
ended February 28, 1994, and the financial highlights for each of the periods
indicated therein. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted audited
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995 by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Alliance New Europe Fund, Inc. at July 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for the year then ended,
for the period from March 1, 1994 to July 31, 1994, and for the year ended
February 28, 1994, and the financial highlights for each of the indicated
periods, in conformity with generally accepted accounting principles.
Ernst & Young LLP
New York, New York
September 22, 1995
FOREIGN TAX CREDIT (UNAUDITED)
The Fund has elected to give the benefit to its shareholders of foreign taxes
that have been paid and/or withheld. For the year ended July 31, 1995, this
benefit amounted to 728,062. Although the Fund has made the election required
to make this credit available, the amount of allowable tax credit is subject to
limitations under the Internal Revenue Code.
A notification reflecting the per share amount to be used by taxpayers on their
federal income tax return was mailed to shareholders in January 1995.
<PAGE>
_______________________________________________________________
APPENDIX A
Special Risk Considerations
________________________________________________________________
Investing in securities of European companies involves
certain considerations set forth below not usually associated
with investing in U.S. securities.
Currency Risks. Because the Fund's assets will be invested
in equity securities of European companies and fixed income
securities denominated in foreign currencies and because the
great majority of the Fund's revenues will be received in
currencies other than the U.S. dollar, the U.S. dollar equivalent
of the Fund's net assets and distributions will be adversely
affected by reductions in the value of certain foreign currencies
relative to the U.S. dollar. Such changes will also affect the
Fund's income. If the value of the foreign currencies in which
the Fund receives its income falls relative to the U.S. dollar
between receipt of the income and the making of Fund
distributions, the Fund may be required to liquidate securities
in order to make distributions if the Fund has insufficient cash
in U.S. dollars to meet distribution requirements. Similarly, if
the 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.
Many of the currencies of Eastern European countries have
experienced a steady devaluation relative to western currencies.
Any future devaluation may have a detrimental impact on any
investments made by the Fund in Eastern Europe. The currencies
of most Eastern European countries are not freely convertible
into other currencies and are not internationally traded. The
Fund will not invest its assets in non-convertible fixed income
securities denominated in currencies that are not freely
convertible into other currencies.
Investment In Securities Of Smaller Companies. Under normal
circumstances, the Fund will invest a significant portion of its
assets in the equity securities of companies whose total market
capitalization is less than the average for Europe as a whole.
Investment in smaller companies involves greater risk than is
customarily associated with the securities of more established
companies. The securities of small companies may have relatively
limited marketability and may be subject to more abrupt or
A-1
<PAGE>
erratic market movements than securities of larger companies or
broad market indices.
Market Characteristics. The securities markets of many
European 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, the Fund's investment portfolio may
experience greater price volatility and significantly lower
liquidity than a portfolio invested in equity securities of U.S.
companies. These markets may be subject to greater influence by
adverse events generally affecting the market, and by large
investors trading significant blocks of securities, than is usual
in the United States. Securities settlements may in some
instances be subject to delays and related administrative
uncertainties.
Investment And Repatriation Restrictions. Foreign investment
in the securities markets of certain European 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.
As illustrations, certain countries require governmental approval
prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of
securities of a company which may have less advantageous terms
than securities of the company available for purchase by
nationals. In addition, the repatriation of both investment
income and capital from certain of the countries is controlled
under regulations, including in some cases the need for certain
advance government notification or authority. The Fund could be
adversely affected by delays in, or a refusal to grant, any
required governmental approval for repatriation.
In accordance with the 1940 Act, the Fund may invest up to
10% of its total assets in securities of closed-end investment
companies. This restriction on investments in securities of
closed-end investment companies may limit opportunities for the
Fund to invest indirectly in certain small capital markets. If
the Fund acquires shares in closed-end investment companies,
shareholders would bear both their proportionate share of
expenses in the Fund (including management and advisory fees)
and, indirectly, the expenses of such closed-end investment
companies (including management and advisory fees). The Fund
also may seek, at its own cost, to create its own investment
entities under the laws of certain countries.
Role Of Banks In Capital Markets. In a number of European
countries, commercial banks act as securities brokers and
dealers, and as underwriters, investment fund managers and
A-2
<PAGE>
investment advisers. They also may hold equity participations,
as well as controlling interests, in industrial, commercial or
financial enterprises, including companies whose securities are
publicly traded and listed on European stock exchanges. Investors
should consider the potential conflicts of interest that result
from the combination in a single firm of commercial banking and
diversified securities activities.
The Fund is prohibited under the 1940 Act, in the absence of
an exemptive rule or other exemptive relief, from purchasing the
securities of any company that, in its most recent fiscal year,
derived more than 15% of its gross revenues from securities-
related activities.
Corporate Disclosure Standards. Issuers of securities in
European jurisdictions are 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
European countries differ from U.S. standards in important
respects and less information is available to investors in
securities of European countries than to investors in U.S.
securities.
Transaction Costs. Brokerage commissions and transaction
costs for transaction both on and off the securities exchanges in
many European countries are generally higher than in the United
States.
U.S. and Foreign Taxes. Foreign taxes paid by the Fund may
be creditable or deductible for U.S. income tax purposes. No
assurance can be given that applicable tax laws and
interpretations will not change in the future. Moreover, non-U.S.
investors may not be able to credit or deduct such foreign taxes.
Investors should review carefully the information discussed under
the heading "Taxation" and should discuss with their tax advisers
the specific tax consequences of investing in the Fund.
Economic and Political Risks. The economies of individual
European countries may differ favorably or unfavorably from the
U.S. economy in such respects as growth of gross domestic product
("GDP") or gross national product, as the case may be, rate of
inflation, capital reinvestment, resource self-sufficiency and
balance of payments position. In addition, securities traded in
certain emerging European securities markets may be subject to
risks due to the inexperience of financial intermediaries, the
lack of modern technology, the lack of sufficient capital base to
expand business operations and the possibility of permanent or
temporary termination of trading and greater spreads between bid
and asked prices for securities in such markets. Business
A-3
<PAGE>
entities in many Eastern European countries do not have any
recent history of operating in a market-oriented economy, and the
ultimate impact of Eastern European countries' attempts to move
toward more market-oriented economies is currently unclear. In
addition, any change in the leadership or policies of Eastern
European countries may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and
adversely affect existing investment opportunities.
Other Risks of Foreign Investments. The Fund's investments
could in the future be adversely affected by any increase in
taxes or by political, economic or diplomatic developments. The
Fund intends to seek investment opportunities within the former
"east bloc" countries in Eastern Europe. See "Investment
Objective and Policies" in the Prospectus. All or a substantial
portion of such investments may be considered "not readily
marketable" for purposes of the limitations set forth below.
Most Eastern European countries have had a centrally planned,
socialist economy since shortly after World War II. The
governments of a number of Eastern European countries currently
are implementing reforms directed at political and economic
liberalization, including efforts to decentralize the economic
decision making process and move towards a market economy. There
can be no assurance that these reforms will continue or, if
continued will achieve their goals.
Investing in the securities of the former "east bloc" Eastern
European issuers involves certain considerations not usually
associated with investing in securities of issuers in more
developed capital markets such as the United States, Japan or
Western Europe, including (i) political and economic
considerations, such as greater risks of expropriation,
confiscatory taxation, nationalization and less social, political
and economic stability; (ii) the small current size of markets
for such securities and the currently low or non-existent volume
of trading, resulting in lack of liquidity and in price
volatility; (iii) certain national policies which may restrict
the Fund's investment opportunities, including, without
limitation, restrictions on investing in issuers or industries
deemed sensitive to relevant national interest; and (iv) the
absence of developed legal structures governing foreign private
investments and private property. Applicable accounting and
financial reporting standards in Eastern Europe may be
substantially different from U.S accounting standards and, in
certain Eastern European countries, no reporting standards
currently exist. Consequently, substantially less information is
available to investors in Eastern Europe, and the information
that is available may not be conceptually comparable to, or
prepared on the same basis as that available in more developed
capital markets, which may make it difficult to assess the
A-4
<PAGE>
financial status of particular companies. However, in order to
become attractive to Western international investors such as the
Fund, some Eastern European companies may submit to reviews of
their financial conditions conducted in accordance with
accounting standards employed in Western European countries. The
Adviser believes that such information, together with the
application of other analytical techniques, can provide an
adequate basis on which to assess the financial viability of such
companies.
The governments of certain Eastern European countries may
require that a governmental or quasi-governmental authority act
as custodian of the Fund's assets invested in such countries.
These authorities may not be qualified to act as foreign
custodians under the 1940 Act and, as a result, the Fund would
not be able to invest in these countries in the absence of
exemptive relief from the Commission. In addition, the risk of
loss through government confiscation may be increased in such
countries.
Securities Not Readily Marketable. Although the Fund expects
to invest primarily in listed securities of established
companies, it may invest up to 10% of its total assets in
securities which are not readily marketable and which may involve
a high degree of business and financial risk that can result in
substantial losses. Because of the absence of a trading market
for these investments, the Fund may not be able to realize their
value upon sale.
Non-Diversified Status. As a non-diversified investment
company, the Fund's investments will involve greater risk than
would be the case for a similar diversified investment company
because the Fund is not limited by the 1940 Act, in the
proportion of its assets that may be invested in the securities
of a single issuer. The Fund's investment restrictions provide
that the Fund may not invest more than 15% of its total assets in
the securities of a single issuer and the Fund intends to comply
with the diversification and other requirements of the Code
applicable to regulated investment companies. The effect of
these investment restrictions will be to require the Fund, when
fully invested, to maintain investments in the securities of at
least 14 different issuers. See "Dividends, Distributions and
Taxes" in the Prospectus.
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________________________________________________________________
APPENDIX B
Futures Contracts and Options on Futures
Contracts and Foreign Currencies
________________________________________________________________
Futures Contracts
The Fund may enter into financial futures contracts,
including contracts for the purchase or sale for future delivery
of foreign currencies and futures contracts based on stock
indices. U.S. futures contracts have been designed by exchanges
which have been designated "contracts markets" by the Commodity
Futures Trading Commission ("CFTC"), and must be executed through
a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures contracts trade
on a number of exchange markets, and, through their clearing
corporations, the exchanges guarantee performance of the
contracts as between the clearing members of the exchange.
At the same time a futures contract is purchased or sold, the
Fund must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial deposit
would be approximately 1 1/2%-5% of a contract's face value.
Daily thereafter, the futures contract is valued and the payment
of "variation margin" may be required, since each day the Fund
would provide or receive cash that reflects any decline or
increase in the contract's value.
At the time of delivery of securities pursuant to such a
contract, adjustments are made to recognize differences in value
arising from the delivery of securities with a different interest
rate from that specified in the contract. In some (but not many)
cases, securities called for by a futures contract may not have
been issued when the contract was written.
Although futures contracts by their terms call for the actual
delivery or acquisition of securities, in most cases the
contractual obligation is fulfilled before the date of the
contract without having to make or take delivery of the
securities. The offsetting of a contractual obligation is
accomplished by buying (or selling, as the case may be) on a
commodities exchange an identical futures contract calling for
delivery in the same month. Such a transaction, which is
effected through a member of an exchange, cancels the obligation
to make or take delivery of the securities. Since all
transactions in the futures market are made, offset or fulfilled
through a clearinghouse associated with the exchange on which the
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contracts are traded, the Fund will incur brokerage fees when it
purchases or sells futures contracts.
The ordinary spreads between prices in the cash and futures
markets, due to differences in the nature of those markets, are
subject to distortions. First, all participants in the futures
market are subject to initial deposit and variation margin
requirements. Rather than meeting additional variation margin
requirements, investors may close futures contracts through
offsetting transactions which could distort the normal
relationship between the cash and futures markets. Second, the
liquidity of the futures market depends on participants entering
into offsetting transactions rather than making or taking
delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus
producing distortion. Third, from the point of view of
speculators, the margin deposit requirements in the futures
market are less onerous than margin requirements in the
securities market. Therefore, increased participation by
speculators in the futures market may cause temporary price
distortions. Due to the possibility of distortion, a correct
forecast of general interest rate trends by the Adviser may still
not result in a successful transaction.
In addition, futures contracts entail risks. Although the
Fund believes that use of such contracts will benefit the Fund,
if the Adviser's investment judgment is incorrect about the
general direction of a stock market index for example, the Fund's
overall performance would be poorer than if it had not entered
into any such contract. For example, if the Fund has hedged
against the possibility of a bear market in equities in a
particular country in which would adversely affect the price of
equities held in its portfolio and there is a bull market
instead, the Fund will lose part or all of the benefit of the
increased value of the equities that it has hedged because it
will have offsetting losses in its futures positions. In
addition, in such situations, if the Fund has insufficient cash,
it may have to sell equities from its portfolio to meet daily
variation margin requirements. Such sales may be, but will not
necessarily be, at increased prices which reflect the rising
market. The Fund may have to sell securities at a time when it
may be disadvantageous to do so.
Options On Futures Contracts
The Fund intends to purchase and write options on futures
contracts. The purchase of a call option on a futures contract
is similar in some respects to the purchase of a call option on
an individual security. Depending on the pricing of the option
compared to either the price of the futures contract upon which
it is based or the price of the underlying securities, it may or
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may not be less risky than ownership of the futures contract or
underlying securities.
The writing of a call option on a futures contract
constitutes a partial hedge against declining prices of the
security or foreign currency which is deliverable upon exercise
of the futures contract. If the futures price at expiration of
the option is below the exercise price, the Fund will retain the
full amount of the option premium which provides a partial hedge
against any decline that may have occurred in the Fund's
portfolio holdings. The writing of a put option on a futures
contract constitutes a partial hedge against increasing prices of
the security or foreign currency which is deliverable upon
exercise of the futures contract. If the futures price at
expiration of the option is higher than the exercise price, the
Fund will retain the full amount of the option premium which
provides a partial hedge against any increase in the price of
securities which the Fund intends to purchase. If a put or call
option the Fund has written is exercised, the Fund will incur a
loss which will be reduced by the amount of the premium it
receives. Depending on the degree of correlation between changes
in the value of its portfolio securities and changes in the value
of its futures positions, the Fund's losses from existing options
on futures may to some extent be reduced or increased by changes
in the value of portfolio securities.
The purchase of a put option on a futures contract is similar
in some respects to the purchase of protective put options on
portfolio securities. For example, the Fund may purchase a put
option on a futures contract to hedge the Fund's portfolio
against the risk of a general market decline.
The amount of risk the Fund assumes when it purchases an
option on a futures contract is the premium paid for the option
plus related transaction costs. In addition to the correlation
risks discussed above, the purchase of an option also entails the
risk that changes in the value of the underlying futures contract
will not be fully reflected in the value of the option purchased.
Options On Foreign Currencies
The Fund may purchase and write options on foreign currencies
in a manner similar to that in which futures contracts on foreign
currencies, or forward contracts, will be utilized. For example,
a decline in the dollar value of a foreign currency in which
portfolio securities are denominated will reduce the dollar value
of such securities, even if their value in the foreign currency
remains constant. In order to protect against such diminutions
in the value of portfolio securities, the Fund may purchase put
options on the foreign currency. If the value of the currency
does decline, the Fund will have the right to sell such currency
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for a fixed amount in dollars and will thereby offset, in whole
or in part, the adverse effect on its portfolio which otherwise
would have resulted.
Conversely, where a rise in the dollar value of a currency in
which securities to be acquired are denominated is projected,
thereby increasing the cost of such securities, the Fund may
purchase call options thereon. The purchase of such options
could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of
options, however, the benefit to the Fund deriving from purchases
of foreign currency options will be reduced by the amount of the
premium and related transaction costs. In addition, where
currency exchange rates do not move in the direction or to the
extent anticipated, the Fund could sustain losses on transactions
in foreign currency options which would require it to forego a
portion or all of the benefits of advantageous changes in such
rates.
The Fund may also write options on foreign currencies for the
same purposes. For example, where the Fund anticipates a decline
in the dollar value of foreign currency denominated securities
due to adverse fluctuations in exchange rates it could, instead
of purchasing a put option, write a call option on the relevant
currency. If the expected decline occurs, the option will most
likely not be exercised, and the diminution in value of portfolio
securities will be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge
against an anticipated increase in the dollar cost of securities
to be acquired, the Fund could write a put option on the relevant
currency which, if rates move in the manner projected, will
expire unexercised and allow the Fund to hedge such increased
cost up to the amount of the premium. As in the case of other
types of options, however, the writing of a foreign currency
option will constitute only a partial hedge up to the amount of
the premium, and only if rates move in the expected direction. If
this does not occur, the option may be exercised and the Fund
would be required to purchase or sell the underlying currency at
a loss which may not be offset by the amount of the premium.
Through the writing of options on foreign currencies, the Fund
also may be required to forego all or a portion of the benefits
which might otherwise have been obtained from favorable movements
in exchange rates.
The Fund intends to write covered call options on foreign
currencies. A call option written on a foreign currency by the
Fund is "covered" if the Fund owns the underlying foreign
currency covered by the call or has an absolute and immediate
right to acquire that foreign currency without additional cash
consideration (or for additional cash consideration held in a
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segregated account by its Custodian) upon conversion or exchange
of other foreign currency held in its portfolio. A call option
is also covered if the Fund has a call on the same foreign
currency and in the same principal amount as the call written
where the exercise price of the call held (a) is equal to or less
than the exercise price of the call written or (b) is greater
than the exercise price of the call written if the difference is
maintained by the Fund in cash, U.S. Government Securities or
other appropriate liquid securities in a segregated account with
its Custodian.
The Fund also intends to write call options on foreign
currencies that are not covered for cross-hedging purposes. A
call option on a foreign currency is for cross-hedging purposes
if it is not covered, but is designed to provide a hedge against
a decline in the U.S. dollar value of a security which the Fund
owns or has the right to acquire and which is denominated in the
currency underlying the option due to an adverse change in the
exchange rate. In such circumstances, the Fund collateralizes
the option by maintaining in a segregated account with the Fund's
Custodian, cash or U.S. government securities or other
appropriate liquid securities in an amount not less than the
value of the underlying foreign currency in U.S. dollars marked
to market daily.
Additional 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 SEC. 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 SEC regulation. Similarly, options
on currencies 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. For example, there
are no daily price fluctuation limits, and adverse market
movements could therefore continue to an unlimited extent over a
period of time. Although the purchaser of an option cannot lose
more than the amount of the premium plus related transaction
costs, this entire amount could be lost. Moreover, the option
writer 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.
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Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other
securities traded on such exchanges. As a result, many of the
protections provided to traders on organized exchanges will be
available with respect to such transactions. In particular, all
foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options
Clearing Corporation ("OCC"), thereby reducing the risk of
counterparty default. Further, a liquid secondary market in
options traded on a national securities exchange may be more
readily available than in the over-the-counter market,
potentially permitting 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 exercises, 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.
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_______________________________________________________________
APPENDIX C: ADDITIONAL INFORMATION ABOUT THE UNITED KINGDOM
_______________________________________________________________
The information in this section is based on material obtained
by the Fund from various United Kingdom government and other
economic sources believed to be accurate but has not been
independently verified by the Fund or the Adviser. It is not
intended to be a complete description of The United Kingdom, its
economy or the consequences of investing in United Kingdom
Securities.
The United Kingdom of Great Britain and Northern Ireland is
located off the continent of Europe in the Atlantic Ocean. Its
population is approximately 58 million.
GOVERNMENT
The United Kingdom is a constitutional monarchy. Queen
Elizabeth II has been the head of state since she acceded to the
throne in 1952. The monarchy was established in 1066. The
monarch's power has eroded over the centuries, but the monarch
retains the power to call and dissolve Parliament, to give assent
to bills passed by Parliament, to appoint the Prime Minister and
to sign treaties or declare war. In practice, most of these acts
are performed by government ministers, and supreme legislative
authority now resides in the Parliament. Parliament, the
bicameral legislature, consists of the House of Commons and the
House of Lords. Acts of Parliament passed in 1911 and 1949 limit
the powers of the House of Lords to prevent bills passed by the
House of Commons from becoming law. The main purpose of the
House of Lords is now to revise and amend laws passed by the
House of Commons. The national government is headed by the Prime
Minister who is appointed by the monarch on the basis of ability
to form a government with the support of the House of Commons.
POLITICS
Since World War II the national government has been formed by
either the Conservative Party or the Labour Party. The
Conservative Party under the leadership of Margaret Thatcher
achieved a parliamentary majority and formed a new government in
May 1979. In June 1983 and again in June 1987, the Conservative
Party under her leadership was reelected. The Party pursued
policies of reducing state intervention in the economy, reducing
taxes, de-regulating business and industry and privatizing state-
owned enterprises. It also displayed an antipathy toward the
European Union. In November 1990, Mrs. Thatcher faced a
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challenge for the leadership of the party from Michael Heseltine,
one of her former cabinet ministers. The opposition proposed
changes in policy, including increased government intervention in
the economy and a less confrontational approach toward the
European Union. The two wings of the Conservative Party looked
for someone who could unite the Party and elected John Major as
its leader and, by virtue of the Conservative Party majority, to
the post of Prime Minister.
Mr. Major led the Conservative Party to its fourth successive
general election victory in April 1992. Since that time, the
popularity of both Mr. Major and the Conservative Party has
fallen. In April 1995, the Conservative Party won only 11% of
the vote in Scotland local elections, which resulted in
Conservative Party control of only 81 council seats out of 1,161.
It won only 25% of the vote in local council elections in England
and Wales in May 1995. In July 1995, Mr. Major won a vote of
confidence with his reelection as leader of the Conservative
Party. Despite Mr. Major's strengthened position within the
Conservative Party, the Party continued to suffer setbacks.
Within two weeks of Mr. Major's victory, the Conservative Party
lost its fifth by-election since the general election of 1992. In
October 1995, one of its members switched to the Labour Party,
reducing the Conservative Party's majority in the House of
Commons from seven to five members. Unless the Conservative
Party calls for an earlier election, the next general election
will take place in April 1997.
ECONOMY
The United Kingdom's economy is the sixth largest in the
Organization for Economic Cooperation and Development, behind the
United States, Japan, Germany, France and Italy. Its economy
maintained an average annual growth rate of 3.0% in real growth
domestic product ("GDP") terms from 1950 through 1973; from 1973
through 1981 growth slowed to an annual average of 0.7%; from
1982 through 1988 annual growth recovered to 3.6%; and from 1989
through 1994, the United Kingdom's real GDP annual growth rate
was 1.0%. The average annual rate of inflation from 1988 through
1993 was 5.6%. In 1994, inflation fell to 1.5%. Through May 31,
1995, the annualized inflation rate was 2.2%.
The economy has continued to experience the moderate growth
that began in 1993, after the 1990-1992 recession. For the
twelve months ended March 31, 1995, GDP at market prices
increased by 3.6%. Much of the growth was from the oil and gas
sector of the economy however, and, it is the continued sluggish
growth in the non-oil and gas sector, including the manufacturing
sector, that has limited the overall growth of the economy.
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The sluggish growth in the United Kingdom's manufacturing
sector since the 1990-1992 recession continued the trend toward
the decreased importance of manufacturing in the economy.
Manufacturing accounted for just 22.7% of GDP in 1994 compared
with 36.5% in 1960. The long-term decline in manufacturing's
share of GDP accelerated during the 1980-1981 recession. In
those two years, manufacturing output and employment each fell by
approximately 14%. The United Kingdom's traditional
manufacturing industries of steel, shipbuilding and textiles have
not remained competitive in the international marketplace. Since
1983, the United Kingdom has been a net importer of manufactured
goods for the first time since the industrial revolution.
As the United Kingdom's manufacturing industry has declined
in importance, the service industry, including financial
services, has increased in importance. The service industries'
share of GDP increased to 65% in 1994 from 45% in 1960.
Employment has been shifting from manufacturing to the
service industry, a trend expected to continue for the
foreseeable future. Despite this development and the fact that
between the fourth quarter of 1988 and the fourth quarter of 1993
more than 900,000 manufacturing jobs were lost, the manufacturing
sector remains the biggest source of jobs, employing
approximately 20% of all workers. Overall, unemployment
continued to fall from a post-recession high point of 10.6% in
January 1993 to 8.3% in June 1995.
Foreign trade remains an important part of the United
Kingdom's economy. In 1994, exports of goods represented 26% of
GDP. The United Kingdom has historically been an exporter of
manufactured products and an importer of food and raw materials,
but there is a growing trend toward manufactured goods forming a
larger proportion of imports and a smaller proportion of exports.
Machinery and transport equipment accounted for 20.4% of imports
in 1975 compared to 40.7% in 1994 and for 42.3% of exports in
1975 compared to 41.3% in 1994. For every year since 1982, the
United Kingdom has been a net importer of goods. The relative
importance of the United Kingdom's trading partners has also
shifted. In 1980, the other members of the European Union
accounted for 43.3% of the United Kingdom's exports and 41.3% of
its imports. In 1994, the other members of the European Union
accounted for 56.9% of all exports and 56.6% of its imports. In
1994, Germany remained the United Kingdom's single largest
trading partner.
Historically, the United Kingdom's current account consisted
of relatively small trade deficits, sometimes outweighed by
surpluses on invisibles (services, interest, dividends, profits
and transfers). Since 1980, several important changes have taken
place with regard to the United Kingdom's trading position. Those
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include the increased importance to the economy of oil exports
from the North Sea, the change from being a net exporter to a net
importer of goods and the diminishing surpluses from invisibles.
These developments have led to a balance of payments deficit,
which is expected to continue for the foreseeable future.
With regard to the public sector of the economy, the national
government publishes forecasts for the economy and the public
sector borrowing requirement ("PSBR"). The PSBR is a mandated
measure of the amount required to balance the budget. The interim
economic forecast published in June 1995 indicated that the PSBR
was in excess of the November 1994 budget estimate. If the
current forecast for 1995-1996 is met, the PSBR would drop to 4%
of GDP in 1995-1996 from 5.25% of GDP in 1994-1995. The current
PSBR estimate for 1996-1997 of 2% is within the European Union
budget deficit requirement of 3% of GDP.
MONETARY AND BANKING SYSTEM
The central bank of the United Kingdom is the Bank of
England. Its main functions are to advise on the formulation and
execution of monetary policy, to supervise banking operations in
the United Kingdom, to manage the domestic currency, and, as
agent for the Government, the country's foreign exchange
reserves.
The City of London is one of the world's major financial
centers. It has the greatest concentration of banks and the
largest insurance market in the world. It is estimated that
United Kingdom insurers handle approximately 20% of the general
insurance business placed in the international market. Banking,
finance, insurance, business services and leasing formed
approximately 19% of GDP in 1994.
The currency unit of the United Kingdom is the Pound
Sterling. In June 1972, the Pound was allowed to float against
other currencies. The general trend since then has been a
depreciation against most major currencies, including the U.S.
Dollar, Japanese Yen, German Deutsche Mark ("DM"), French Franc
and the European Currency Unit. On October 8, 1990, Pound
Sterling became part of the Exchange Rate Mechanism ("ERM") of
the European Monetary System at a central rate of L1:DM2.95.
Membership in the ERM requires that each currency remain within a
certain fluctuation range against other currencies. If this
range is not maintained, the currency must be revalued.
Initially, the Pound remained competitive within the DM range of
2.80 to 2.98, but the pressures exerted by ERM membership made it
increasingly difficult for the United Kingdom to allow the Pound
to remain in the ERM. While the government continued to defend
the relative value of the Pound by raising interest rates, it
became clear that the Pound was not competitive against the
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Deutsche Mark. On September 16, 1992, the Pound's membership in
the ERM was suspended. The value of the Pound continued to fall
rapidly after the exit from the ERM, reaching a low of DM2.335 at
the end of February 1993. It has since recovered against the
Deutsche Mark and other currencies. In addition to the United
Kingdom's membership in the ERM, the growing importance of trade
with the European Union has made the Deutsche Mark exchange rate
more important to the United Kingdom than the U.S. Dollar
exchange rate. From 1988 through 1993, the Pound declined at an
average annual rate of approximately 15% against the U.S. Dollar
and approximately 20% against the Deutsche Mark. In 1993, the
average annual exchange rates against the U.S. Dollar and the
Deutsche Mark were L1:$1.502 and L1:DM2.483, respectively. On
September 29, 1995, the exchange rates against the U.S. Dollar
and the Deutsche Mark were L1:$1.583 and L1:DM2.252,
respectively.
THE INTERNATIONAL STOCK EXCHANGE OF THE UNITED KINGDOM AND THE
REPUBLIC OF IRELAND (THE LONDON STOCK EXCHANGE)
The International Stock Exchange of the United Kingdom and
the Republic of Ireland (The London Stock Exchange) ("LSE") is
both the national stock exchange for the United Kingdom and the
world's leading marketplace for the trading of international
equities. Approximately 60% of all share trading outside home
countries and 90% of cross-border trading in Europe is conducted
on the LSE. The LSE provides a secondary market for trading in
more than 9,500 securities. It offers markets for domestic
securities (securities issued by companies in the United Kingdom
or Ireland), foreign equities, United Kingdom gilts (securities
issued by the national government), bonds or fixed interest
stocks (usually issued by companies or local authorities) and
options. At the end of 1994, foreign equities comprised
approximately 70%, United Kingdom and Irish equities comprised
approximately 17%, and Eurobonds comprised approximately 7% of
the market value of all LSE listed and quoted securities.
Currently, the LSE is the third largest in the world in terms of
market value, behind the New York Stock Exchange and the Tokyo
Stock Exchange.
The LSE developed as demand for capital increased with the
advent of the industrial revolution. By 1965, regional exchanges
had banded together to form the Federation of Stock Exchanges. In
1973, the Irish Stock Exchange based in Dublin and the London
Stock Exchange merged, thereby creating a unified exchange. In
order to meet a European Union directive requiring its members to
regulate stock exchanges in their own countries, however, the LSE
will separate in 1996 into two exchanges, one in London and the
other in Dublin.
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The LSE comprises different markets. In addition to the
market for officially-listed securities, the LSE includes a
market created in 1980 for smaller and newer companies known as
the Unlisted Securities Market ("USM"). Originally, the
requirements for admission to the USM were less onerous than
those applicable to the listed market. Subsequent European Union
directives, however, have effectively removed most of the
differences in admission requirements between the two markets. As
a result, there has been a decline in the use of the USM with no
new entrants accepted after December 31, 1994. As of
December 31, 1994, 207 companies with an aggregate market value
of L4.9 billion were traded on the USM compared to 448 companies
with an aggregate market value of L9.0 billion at the end of
1989. As of December 31, 1994, the market value of the
securities traded on the USM was less than 1% of the market value
of the securities officially listed on the LSE. In order to more
fully meet the needs of smaller and newer companies, the LSE
plans to replace the USM with the Alternative Investment Market
in 1995 and 1996.
In 1979, the abolition of foreign exchange controls made it
easier for United Kingdom savings institutions to invest money
overseas in non-United Kingdom securities. As a result, the
LSE's members were exposed for the first time to competition from
overseas brokers. The international competition and government
pressure led the LSE to institute major reforms. Deregulation of
the LSE, culminating on October 27, 1986 in what is commonly
referred to as "Big Bang", involved the introduction of
negotiated commissions on securities transactions, the
elimination of the system that had maintained a distinction
between brokers and marketmakers, ownership of member firms by
outside entities and the transfer of voting rights from
individual members to member firms.
The LSE runs markets for trading securities by providing a
market structure, regulating the operation of the markets,
supervising the conduct of member firms dealing in the markets,
publishing company news and providing trade confirmation and
settlement services. The domestic market is based on the
competing marketmaker system. The bid and offer prices are
distributed digitally via the Exchange's automated price
information system, SEAQ (Stock Exchange Automated Quotations),
which provides widespread dissemination of the securities prices
for the United Kingdom equity market. Throughout the trading
day, marketmakers display their bid (buying) and offer (selling)
prices and the maximum transaction size to which these prices
relate. These prices are firm to other LSE member firms, except
that the prices for larger transactions are negotiable.
Marketmakers in the international equity market display their
quotes on SEAQ International. The system operates in a manner
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similar to the domestic SEAQ, but is divided into 20 separate
country sectors plus one developing markets sector.
Sector Analysis of the LSE. The LSE's domestic and foreign
securities include a broad cross-section of companies involved in
many different industries. As of June 30, 1995, the five largest
industry sectors among domestic securities were banking with 8.9%
of the aggregate market value of domestic market securities, oil
with 7.0%, pharmaceuticals with 6.8%, telecommunications with
5.4% and retailers with 4.7%. As of June 30, 1995, the five
largest country sectors among listed and SEAQ International
quoted securities were the United States with 47.6% of the
aggregate market value of listed and SEAQ International quoted
securities, Japan with 24.0%, Germany with 4.9%, France with 4.1%
and The Netherlands with 3.5%.
Market Growth of the LSE. The market value and the trading
volume have increased steadily since the end of 1989. At the end
of 1994, the market values for foreign equities were at their
highest year-end levels. In 1994, trading in domestic securities
reached an all-time record, increasing 7.5% from 1993. In
addition, the busiest year for trading in foreign equities,
including emerging market equities was 1994, increasing 24% from
1993. The LSE's recent growth has been dramatic. In 1990, 34.3
billion foreign shares and 134.0 billion domestic shares were
traded as compared with 108.4 billion foreign shares and 221.8
billion domestic shares in 1994. At the end of 1994, the market
value of listed foreign companies and domestic companies
increased to L1,982.8 billion and L774.6 billion from L1,124.1
billion and L450.5 billion, respectively from the end of 1990.
Market Performance of the LSE. The FT-SE 100 is an index
that consists of the 100 largest United Kingdom companies. The
FT-SE 100 was introduced by the LSE in cooperation with The
Financial Times and the Institute and Faculty of Actuaries in
1984. As measured by the FT-SE 100, the performance of the 100
largest companies reached a record high of 3593.0 on October 18,
1995, up approximately 17% from the end of 1994.
REGULATION OF THE UNITED KINGDOM EQUITIES MARKETS
The principal securities law in the United Kingdom is the
Financial Services Act (the "FSA"). The FSA, which became law in
November 1986, established a new regulatory system for the
conduct of investment businesses in the United Kingdom. Most of
the statutory powers under the Act were transferred to the
Securities and Investments Board ("SIB"), a designated agency
created for this purpose. The SIB has wide-ranging enforcement
powers and is accountable to Parliament through the Treasury. A
system of self regulating organizations ("SROs"), which regulate
their members, is accountable to the SIB. There are three SROs
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covering the financial market, including the Securities and
Futures Authority which is responsible for overseeing activities
on the Exchange. The other SROs are the Investment Management
Regulatory Organization and the Personal Investment Authority. In
1988, it became illegal for any firm to conduct business without
authorization from the SRO responsible for overseeing its
activities. In addition, Recognized Investment Exchanges
("RIEs"), which include the London Stock Exchange, the London
International Financial Futures and Options Exchange, the London
Commodities Exchange, the International Petroleum Exchange, the
London Metal Exchange and the London Securities and Derivatives
Exchange are accountable to the SIB. Recognition as an RIE
exempts the exchange (but not its members) from obtaining
authorization for actions taken in its capacity as an RIE. To
become an RIE, an exchange must satisfy the SIB that it meets
various prerequisites set out in the Act, including having
effective arrangements for monitoring and enforcing compliance
with its rules. Recognized Professional Bodies ("RPBs")
supervise the conduct of lawyers, actuaries, accountants and some
insurance brokers. Together the SROs, RIEs and RPBs provide the
framework for protection for investors and integrity of the
markets.
The European Union's Investment Services Directive ("ISD")
will, with the various banking directives, provide the framework
for a single market in financial services in Europe. Authorized
firms will be able to operate on the basis of one authorization
throughout Europe. Member states have until the end of 1995 to
implement the ISD. The LSE is currently consulting with its
member firms on the best way to implement the ISD.
Basic restrictions on insider dealing in securities are
contained in the Company Securities Act of 1985. The FSA
provides guidelines for investigations into insider dealing under
the Criminal Justice Act of 1993 and penalties for any person who
fails to cooperate with such an investigation. In addition, the
FSA introduced new listing and disclosure requirements for
companies.
UNITED KINGDOM FOREIGN EXCHANGE AND INVESTMENT CONTROLS
The United Kingdom has no exchange or investment controls,
and funds and capital may be moved freely in and out of the
country. Exchange controls were abolished in 1979. As a member
of the European Union, the United Kingdom applies the European
Union's common external tariff.
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